Science&Technology

Leading the Renewable Energy Revolution

Joanna I. Lewis

China is a particularly important place in which to examine the Joanna I. Lewis is a senior international opportunities for renewable energy development due to the fellow at the Pew Center size of its current energy demand and its projected renewable on Global Climate Change and an adjunct energy market potential. In addition to promoting renewable assistant professor at energy development, China is committed to developing Georgetown Universi- ty’s Walsh School of indigenous renewable energy technology industries, motivated Foreign Service in the by the economic—as well as the environmental—benefits these Science, Technology, and International technology industries provide. Already a global leader in solar Affairs program. thermal technology manufacturing and in manufacturing small hydro and wind turbines, China also has burgeoning solar photovoltaic (PV) and utility-scale indus- tries. With newly enacted national legislation to promote the development and dissemination of these technologies, many of China’s renewable energy markets are just now beginning to mature. The entry of Chinese manufacturers into rapidly expanding global markets may drive down costs and increase the viability of renewable energy technology utilization world- wide, in both developing and developed country applications. China consumes and produces more coal than any other nation in the world: two-thirds of its total primary energy consumption and three-quarters of electricity generation come from coal. Consequently, China is the second largest national emitter of carbon dioxide after the United States. Because its energy consumption and carbon emissions are

Summer/Fall 2006 [147] LEADING THE RENEWABLE ENERGY REVOLUTION growing rapidly, China is expected to can generate electricity in places where surpass the United States in these two fossil fuels are scarce, promoting domes- categories sometime in the next few tic energy security while reducing envi- decades. Energy use has grown faster than ronmentally damaging emissions. Wind GDP in China over the past three years, energy has proven to be a particularly with coal comprising more than two- valuable contribution to China’s energy thirds of the increase in primary energy mix by providing a cost-competitive supply over this time period.1 Although option in regions where coal is scarce and the Chinese government has historically electricity prices are highest—primarily promoted an energy development plan along China’s eastern coast. Wind elec- that relied on indigenous energy tricity prices, although higher than coal resources as much as possible, oil imports electricity prices, are competitive with are now rising rapidly to meet new electricity prices from new natural gas demand, stimulating increased energy plants, new nuclear plants, and even security concerns.2 hydropower plants when the power is However, a substantial mismatch transported over long distances. exists between the geographic distribu- tion of China’s abundant coal resources China’s Emergence in the and China’s major centers of popula- Global Industry. tion, industry, and economic growth. Wind is increasingly becoming a viable Both the highest quality and highest option internationally; although elec- concentration of coal reserves are gen- tricity generated from wind power cur- erally found in the north, while the rently represents only a half a percent of energy-hungry and economically global electricity production, it is the dynamic areas of southern and eastern fastest growing energy source in the China only have about 5 percent of world, with annual installations increas- national coal reserves.3 These regional ing at an average rate of over 30 percent resource imbalances have played a role per year for the past decade.5 Demand in triggering power supply crises. For for wind power is projected to double example, seasonal fluctuations in over the next four years.6 China is part of hydropower have led southern China to this global trend of scaling up wind increase its demand for coal-fired power; by the end of 2005 China had power in drought periods, precipitating installed an estimated 1,260 megawatts, a nationwide “power famine” or “coal a more than 20-fold increase compared rush.”4 In addition, the transmission of to a decade earlier. power over thousands of kilometers However, even with these growth rates, from the economically underdeveloped wind power’s overall share in China’s west and north to the major load centers electricity portfolio remains small, and of the east and south significantly adds this situation is unlikely to change. The to the cost of the electricity supply and 30 gigawatts of wind power capacity des- also constrains the development of the ignated for development by 2020 in cur- power sector. rent government energy plans is small It is in this context that China has relative to the estimated 230 to 270 begun to pursue renewable energy gigawatts of new coal power capacity and options. Renewable energy technologies 200 to 240 gigawatts of hydropower

[148] Georgetown Journal of International Affairs LEWIS Science&Technology capacity planned to be built over that environmental and health problems same time frame.7 Wind power’s share in stemming from China’s dependence on China’s entire electricity portfolio will coal and in some cases to promote rural likely increase from around 0.2 to 3 per- energy development. Simultaneously, cent between now and 2020 (projected China has been developing its own penetrations for other renewables are renewable energy technologies through illustrated in Figure 1).8 domestic research and development If wind power’s total contribution to programs. Wind power technology has China’s sizable energy demand is likely to been particularly successful in China remain small, why pay attention to due to excellent wind resources and China’s wind development initiatives? rapid technological improvements in the China, along with many other countries, domestic wind industry. The govern- is looking not only to expand its domestic ment has taken several steps to directly use of renewable energy, but also to devel- encourage local wind turbine manufac- op the indigenous industries to serve this turing, including policies that encour- demand. Alth- ough wind may remain a small share of total 2020 coal electricity gener- large hydro small hydro ation in China, it 2010 still represents a natural gas nuclear demand for wind 2003 around 20,000 biomass wind turbines by solar 2020, and cur- 0% 20% 40% 60% 80% 100% rent policies dic- Percent Contribution to Electric Power Capacity tate that these turbines be made Figure 1. China’s Electricity Generation Capacity: Current and in China.9 The Projected Shares of Renewables total installed capacity of wind globally (currently age joint ventures and technology trans- around fifty-nine GW), is expected to fers in large wind turbine technology, as double before 2010.10 This projected well as policies that mandate locally made global demand is stimulating many wind turbines. Policymakers have also nations to look toward developing used differential customs duties to favor domestic wind technology industries, domestic rather than overseas turbine and China is aggressively using policies to assembly and have allocated public support its own domestic manufacturers research and development (R&D) sup- as they look toward competing in the port to wind power technology develop- global market. ment. A series of government-run ten- Over the past two decades, renewable ders known as “wind concessions” are energy technologies have been trans- expected to facilitate the development of ferred from several industrialized coun- about 3,500 megawatts of new wind tries to China in an effort to alleviate power capacity in the next four years,

Summer/Fall 2006 [149] LEADING THE RENEWABLE ENERGY REVOLUTION and locally produced turbines must be bines in China could reduce costs by 20 used. A National Renewable Energy Law to 40 percent, with early company that went into effect in January 2006 reports supporting this estimate.11 builds upon this concession program by Countries with lower wage rates such as mandating that a competitive bidding India and China expect to be able to real- process be held for most large wind pro- ize cost savings compared to their jects, and again, that turbines be manu- European and American counterparts factured locally. through domestic manufacturing. This The number of turbines being pro- cost reduction is potentially significant duced locally in China is growing at an for those turbine components that are even faster rate than that of total wind particularly labor intensive, such as rotor turbine installations. However, China is blades.12 Many overseas turbine manufac-

A substantial mismatch exists between the geographic distribution of China’s abundant coal resources and its major centers of population, industry, and economic growth. currently producing only a half a percent turers are shifting their turbine produc- of the world’s wind turbines, indicating tion facilities to China, currently spurred that Chinese companies are still a long by policies mandating the use of locally way from being global industry leaders. made turbines in domestic projects, Danish and German turbine manufac- along with expectations of forthcoming turers still dominate the world market as cost savings. they have for many years; however, there Cost reductions are also likely to result are signs that they are losing ground. from China’s contribution to cumulative Spanish manufacturers have been gradu- global wind turbine production. Each ally increasing their global market share, doubling of wind turbine technology with the leading Spanish manufacturer production is estimated to result in a 20- recently surpassing the leading U.S. percent decrease in the marginal cost of manufacturer’s sales for 2004. Indian the technology.13 Chinese firms pro- manufacturers have also been rapidly duced the world’s largest volume of expanding into the global market, small-scale (up to ten kilowatts) wind including European markets long domi- turbine generators in 2000, but only nated by local companies. five companies in China manufactured Although wind turbines manufactured grid-connected wind turbines in the in China are smaller than the advanced range of 250 to 750 kilowatts. One to turbines being sold in Europe and the one and a half megawatt turbines are only United States, low cost remains the main under development.14 Growth in these attraction of Chinese turbines. Studies areas, as well as in small-scale turbines, have estimated that producing wind tur- should drive down marginal costs.

[150] Georgetown Journal of International Affairs LEWIS Science&Technology

Goldwind (Jinfeng) is the leading current policy framework promoting Chinese-owned utility-scale wind tur- wind power in China suggests that this bine manufacturer and has been the pri- will most certainly be the case, due to the mary beneficiary of government policies widespread use of mechanisms that that preferentially support the utilization directly promote the use of domestic of domestically manufactured wind tur- wind turbines. As China’s domestic bines. has captured between a manufacturers mature, there is certainly fifth and a quarter of Chinese market the potential that these companies will share over the past few years, despite move towards exporting their turbines strong competition from the leading internationally. China’s large-scale entry global wind turbine manufacturers. At into wind turbine manufacturing could the end of 2005, Goldwind turbines make wind power a more cost-effective already represented about 17.5 percent of option for countries around the world total wind turbine installations in China, looking to leapfrog towards cleaner ener- and the company is rapidly expanding gy technologies. production. Moreover, in 2005 Goldwind installed 204 new wind tur- China’s Experience with Solar bine generators with a total capacity of Energy Technologies. China’s other 132.45 megawatts—their largest annual emerging renewable technology indus- installation to date (up from 66 turbines tries are building momentum as well— totaling 39.6 megawatts in 2004). most notably the solar photovoltaic However, production of turbines is cur- industry. Meanwhile, China’s more rently limited by the company’s small size highly developed renewable energy tech- and limited manufacturing facilities. nology industries are maintaining global Goldwind has produced more than market dominance. China is a global 270 of its 600-kilowatt wind turbines. In leader in manufacturing small wind tur- 2004 it installed its first 750-kilowatt bines, small hydro turbines, and solar turbine, followed by another 63 thermal technologies.15 machines in 2005. Goldwind is also China has extensive experience with developing a 1.2-megawatt turbine; its basic solar thermal technologies and has first model was just installed in Xinjiang the largest solar water heater market in in 2005 for field tests. Goldwind’s tur- the world. With an estimated 64 million bines are not yet fully made of locally square meters of installations as of 2004 produced components, although domes- and a projected installation of 270 mil- tic content increases every year. Initially lion square meters by 2020, China’s blades were a limiting factor for making utilization of solar water heater technol- locally produced turbines, but Goldwind ogy far exceeds that of all other countries now uses blades made by Baoding, a blade combined (there are about 14 million factory in eastern China. square meters of installations in Europe As local content utilized in Goldwind and about 2 million square meters in the turbines has increased, costs reportedly United States). The widespread use of have declined. As a result, Goldwind solar water heaters in China has been expects that domestically produced wind tied to the unique opportunity for turbines will represent an increasing building-integrated technology. Altho- share of wind turbine sales in China. The ugh the solar hot water business was ini-

Summer/Fall 2006 [151] LEADING THE RENEWABLE ENERGY REVOLUTION tially developed in smaller towns and vil- product quality, which could be attrib- lages in the 1980s, China’s real estate uted to the relative infancy of the boom, in combination with high-energy Chinese industry.22 costs in urban areas, has resulted in the Currently, solar cell production in wide use of solar water heaters in newly China—and around the world—is limit- constructed buildings. Importantly, ed by the availability of silicon and wafers consumer acceptance of this technology on the world market.23 Annual solar in China is also said to be quite high.16 module production capacity in 2005 China has the largest solar water heater reportedly reached a high of 635 manufacturing capacity of any country in megawatts, up from around 100 the world. There are over 1,000 enter- megawatts in 2004. This number prises in China manufacturing solar exceeds China’s cell production capaci- water heaters, with 12 million square ty, indicating China would need to meters produced in 2003—double the import cells to maximize full use of its number produced in China in 2000.17 module production capacity.24 Cell pro- Chinese solar water heaters are reported- duction capacity in 2004 was about 70 ly the most competitively priced in the megawatts. There are at least 14 compa- world, and the industry employs some nies in China manufacturing solar- 250,000 people.18 grade silicon and solar wafers, while As of 2005, China had installed Chinese production and export of about 75 megawatts of solar photo- solar-grade silicon grew by 50 to 100 voltaics (PV), with over half being used percent in 2005 alone.25 Hundreds of for rural applications. Government other Chinese firms are producing plans aim for 450 megawatts to be ancillary equipment such as PV pumping installed by 2010 and 5,000 megawatts systems, inverters, charge controllers, by 2020—including an 8-megawatt sys- DC lights, and test equipment.26 It is tem in the Gobi desert that will be the estimated that $5 to 7 billion in capital largest grid-connected PV system of this investment was made in the solar PV type in the world.19 China’s domestic PV industry globally in 2005, with a grow- production has scaled up extremely ing percentage occurring in China.27 rapidly over the past few years and is projected to grow by another 400 per- Conclusions. The trend in China’s cent in the next 5 years.20 In 2001 China renewable energy technology industries reportedly had 7 manufacturers produc- has been one of rapid growth. Some ing 4.5 megawatts of PV cells, which rep- technologies, including small wind tur- resents a doubling of production from bines, solar water heaters, small hydro 2.1 megawatts in 1998, as well as about 1 turbines, and solar panels, are already percent of global market share. By 2005 being exported overseas. Chinese poli- China had the world’s third-largest solar cies to promote renewable energy utiliza- cell production capacity, with 30 major tion over the past decade have had the Chinese solar cell manufacturers com- ancillary goal of promoting renewable prising about 30 percent of global mar- energy industry development, which has ket share.21 Tests of some Chinese-pro- been realized successfully across most duced solar modules exported to other technologies. As China continues to markets have raised concerns about grow and its demand for energy increas-

[152] Georgetown Journal of International Affairs LEWIS Science&Technology es, the domestic market for these tech- wind’s share increase even further. As nologies is substantial. energy security becomes an increasingly China’s domestic market opportunity important issue, displacing fossil fuels has gives indigenous producers the testing benefits beyond purely environmental ground they need to develop the technol- ones. Many U.S. states are adopting ogy and production scale that permits renewable portfolio standards to force them to become global technological utilities to invest in renewable energy, not leaders. Consequently, the emergence of just for the environmental benefits, but more and more Chinese companies in also recognizing that a diverse portfolio global renewable energy technology mar- can be the best hedge against volatile fuel kets appears to be inevitable. The effect price fluctuations.30 that this emergence will have on lowering It is clear that there is an increasing technology costs worldwide is still some- role for renewables, and that much of what uncertain, but early evidence from this new demand will be met by technol- the wind and solar industries suggests ogy manufacturers in emerging markets. that it could be significant. In addition to Until now, the most advanced renewable cost savings that may be specific to the electric technologies have come from Chinese labor market or to domestic Europe, the United States, and Japan, innovations, the entry of new manufac- but these countries risk losing market turers that play a significant role in share if emerging economy-based manu- increasing global technology production facturers are successful in producing will drive down technology costs as they comparatively lower cost technology. move further down the learning curve.28 India is already technologically ahead of China’s role in manufacturing many China in manufacturing utility-scale small-scale renewable energy technolo- wind turbines, and Brazil is looking to gies has already made the technologies expand its use of renewables with new more accessible to less developed coun- national legislation. tries where small-scale renewables have China’s national renewable energy played an important role in rural devel- law may provide its existing renewable opment initiatives. In addition, China is energy technology manufacturers with a rapidly expanding its nanotechnology signal of regulatory stability that is cru- research programs, which current studies cial to facilitating investments in new indicate is likely to be a key area for new technologies. China’s prior experience solar power technologies.29 with small-scale renewables, combined Renewable energy technologies are not with a domestic policy framework that likely to displace conventional electricity supports indigenous manufacturers in technologies in the near term, but in cer- the newer technology industries, makes tain regions, the penetration could be it especially well positioned to expand significant. Denmark gets about 20 per- into these emerging markets. In sum- cent of its electricity from wind power, mary, there are many signs that China’s and some German states as much as 15 renewable energy markets may be just percent. Offshore develop- starting to mature, and this is a phe- ment, if it can overcome some technolog- nomenon that other countries should ical and social obstacles, could make be watching closely.

Summer/Fall 2006 [153] LEADING THE RENEWABLE ENERGY REVOLUTION

NOTES

1 Jonathan E. Sinton, ed, David G. Fridley, Joanna clear, but in China the term generally refers to tur- I. Lewis, Yanxia Chen, Jieming Lin, and Nan Zhou, bines smaller than fifty megawatts. China Energy Databook, sixth revised edition (Berkeley: 16 Jean Ku and Debra Lu, “Transforming the Solar Lawrence Berkeley National Laboratory, June 2004). Market in China,” Proceedings of the 2005 Solar World 2 Gal Luft, “Fueling the dragon: China’s race into Conference, Orlando, Florida, 6-12 August 2005. the oil market,” Institute for the Analysis of Global 17 Hua Li, “From Quality to Quantity. How Security, Internet, http://www.iags.org/china.htm China’s maturing solar thermal industry will need to (Date accessed: 30 April 2006); Downs, Erica face up to market challenges,” Renewable Energy World, Strecker, China’s Quest for Energy Security, RAND January/February 2005, Internet, http://www. earth- Corporation, Internet, http://www.rand.org/pubs/ scan.co.uk/news/article.asp?UAN=323&SP=3325586 monograph_reports/MR1244/index.html (Date 98736342450334&v=3; Hua Li, “China’s Solar accessed: 30 April 2006). Thermal Industry: Threat or Opportunity for 3 Sinton et al., 2004. European Companies?” Renewable Energy World, 4 Qiu Xin, 2005, “China overhauls energy bureau- July/August 2002. Available at: http://jxj.base10.ws/ cracy,” Asia Times, 3 June 2005. Available at: magsandj/rew/2002_04/china_solar.html. http://www.atimes.com/atimes/China/GF03Ad01.html 18 Li, 2005; Eric Martinot, “Renewables 2005 5 Global Wind Energy Council data, various years. Global Status Report. REN21-Renewable and Energy Available at: http://www.gwec.net/. Policy Network for the 21st Century,” 2005. Internet, 6 BTM Consult, International Wind Energy Development, http://www.martinot.info/RE2005_Global_Status World Market Update 2004, March 2005. _Report.pdf. 7 Energy Information Administration (EIA), 19 Ku and Lu, 2005. International Energy Outlook, U.S. Department of Energy, 20 Johan Trip, “Enormous growth for Chinese PV 2005; Yu Zhufeng, “Policy Study on Development Industry,” 13 January 2006, Internet, http://old.tech- and Utilization of Clean Coal Technologies,” in China nocrat.net/article.pl?sid=06/01/13/1558218&mode=t National Energy Strategy and Policy Study 21, The Energy hread. Foundation, November 2004. Available at: 21 Trip, 2006. http://www.efchina.org/documents/11_Clean_Coal_Te 22 Arne Jacobson and Daniel M. Kammen, “The chnology.pdf; Jonathan E. Sinton, Rachel E. Stern, Value of Vigilance: Evaluating Product Quality in the Nathaniel T. Aden, and Mark D. Levine with Tyler J. Kenyan Solar Photovoltaics Industry,” Report deliv- Dillavou et al, Evaluation of China’s Energy Strategy Options, ered to solar industry stakeholders in East Africa, 2 July LBNL-56609, May 2005. 2005, Internet http://www.humboldt.edu/~aej1/ 8 Projections are the author’s calculations based on aSiKenya_FinalReport_July2_05.pdf. published Chinese government energy plans. 23 Trip, 2006; John Carey, “What’s Raining on 9 Twenty thousand wind turbines assumes an aver- Solar’s Parade?” Science & Technology, 6 February 2006. age size of 1.5 MW per turbine; currently wind turbines 24 Solarplaza, The Chinese PV Market and Industry, 2006, installed in most large wind projects in China must Internet, http://www.solarplaza. com/content/pagi- meet a 70 percent local-content requirement. na/China%20Report%20Benefits/43439; Martinot, 10 GWEC, press release, 17 February 2006; BTM Eric, 2005 Consult, 2005. 25 Trip, 2006. 11 W. M. Yu and G. Wu, “The Development of 26 Martinot and Wallace, 2003. China’s Wind Turbine Manufacturing Industry and 27 Martinot, 2005. the Strategy of Goldwind Co,” Proceedings of the World Wind 28 M. Junginger and A. Faaij, 2003; Robert M. Energy Congress, Beijing, China, 31 October to 4 Margolis, “Photovoltaic Technology Experience November 2004. Curves and Markets,” Presentation at NCPV and Solar 12 Soren Krohn, “Creating a Local Wind Industry: Program Review Meeting, Denver Colorado, 24 Experience from Four European Countries,” Helios March 2003. Center for Sustainable Energy Strategies, 4 May 1998. 29 Worldwatch Institute, State of the World 2006 (New 13 M. Junginger and A. Faaij, “A Global York: Norton & Company, 2006), 88; MIT Experience Curve for Wind Energy,” Presented at the Technology Review, “From the Lab: Nanotechnology. 2003 European Wind Energy Conference & New publications, experiments, and breakthroughs in Exhibition, Madrid, Spain, 16-19 June 2003. nanotechnology—and what they mean,” September 14 Eric Martinot and William Wallace, “Case 2005, Internet, http://www.technologyreview.com/ Study: UNDP/GEF Project for Commercialization NanoTech/wtr_14754,303,p1.html of Renewable Energy in China,” Global 30 Ryan Wiser, Mark Bolinger, and Matthew St. Environment Facility, Washington, DC, 2003; Clair, “Easing the Natural Gas Crisis: Reducing UNDP/GEF Renewable Energy Project, Beijing, Natural Gas Prices through Increased Deployment of June 2003. Renewable Energy and Energy Efficiency,” Report 15 For wind “small” typically means turbines less prepared for the U.S. Department of Energy, LBNL- than ten kilowatts. For hydro this distinction is less 56756, January 2005.

[154] Georgetown Journal of International Affairs