China Renewable Energy Outlook 2017

Thu, 16/11/2017 - 10:32


Stated Policies Scenario
Implementation of the Stated Policies and extrapolation of the current policy trends toward 2050 including the official target to reach "the carbon emission peak by 2030 and to strive to achieve it earlier”

China has started the transformation from a coal-based energy system with high environmental costs to a low-carbon and environmentally friendly energy system. Our analyses show that the right strategy for policy measures are on the table, but the success of the energy transition depends on strong practical use of these strategies – the power market must be enforced in a way that stimulate flexibility and integration of RE, the carbon pricing mechanisms must ensure sufficiently high carbon prices to make an impact on CO2 emission and the support schemes for RE must stimulate costefficient deployment of RE projects. Also, more ambitious targets for RE and for coal reduction are needed in the short run if China shall be able to comply with the Paris agreements requirements for a “well Below 2 °C” future.

The Overall Policy Strategies Are In Place

Below 2 °C Scenario
Implementation of the Paris agreement target to reduce the impact of the GHG emission to a below 2 °C temperature increase

The Chinese government already today has a basket of policy strategies and policy measures, which leads in the direction of sustainability and a low-carbon energy system. Green development, together with ‘innovation, coordination, openness and inclusiveness’, profiles China’s ‘five key development concepts’; ecological civilisation is not a buzz-word, but was listed along with economic, political, cultural and social progress as one of the five goals in the country's overall development plan and deeply anchored in the government’s four-pronged comprehensive strategy; the Chinese commitment to the Paris agreement and to taking a leading role in climate change mitigation demonstrates readiness to take action against one of the main threats to mankind’s future living conditions; and the ongoing implementation of the national environmental action plan, the power sector reforms and the national emission trading system shows that the journey to a deep energy transition has started.

Authoring Information:

China National Renewable Energy Center“ (CNREC)

A detailed Summery of the China Renewable Energy Outlook 2017 is availble online

Coal Reduction And A High RE Share In 2050 At Reasonable Costs

Our analyses show that a strong implementation of these policy measures, as in the Stated Policies Scenario, will reduce the use of coal from today’s level to one third in 2050, ensure a peak in CO2 emission well before 2030, and give a significant reduction thereafter to a level of around 5000 million ton in 2050 – half of today’s emissions. Nonfossil fuels will contribute 60% of the energy supply in 2050, significantly higher than the official target of reducing the coal dependency to half of the supply. In 2050, after investments in the energy system transformation, the electricity cost (in fixed prices) will be at the same level as today’s, and the system will be much more sustainable and robust compared with the current system’s dependency on fossil fuels and unsustainable pollution of both local, regional, and global level.

The main drivers for the energy transformation on the supply side are RE cost reduction, efficient power markets and carbon pricing which ensure incentives for CO2 reduction. On the demand side strong energy efficiency measures are needed

Massive Investments Give Massive Benefits

The energy transition itself requires massive investments in grid-infrastructure and RE technologies, which in short term will lead to higher power costs, but the additional cost will also bring benefits in form of lower fossil fuel prices for the sector not able to rapidly shift to electricity or non-fossil fuels, in form of significantly improved air-quality and lower pollution in general, and they will also promote job creation in future oriented technologies as compensation for jobs lost in the coal mines and in manufacturing of the old technologies – in line with the Chinese strategy for aggressive innovation strategy.

Cost Reduction, Power Markets And Carbon Pricing Main Drivers

The energy transition and the coal reduction is driven by three key enabling conditions. In our analyses, we assume that the technology development for renewable energy will result a continuation of the recent years reduction of costs and increase in efficiency, leading to lower cost of energy from these technologies, driven by the Chinese innovation strategy and international trends.

Secondly, we assume that carbon pricing will be efficiently implemented, resulting in a price of carbon emission which significantly influences the investment decisions in the energy sector – in our analyses we assume a long-term carbon price of 100 RMB per ton CO2 in the Stated Policies Scenario, which is sufficient to quickly make renewable energy competitive with coal.

Thirdly, we assume a strong implementation of a power market as a non-reversible direction and as a main tool to ensure integration of fluctuating renewable energy.

A Strong Policy Implementation Is The Guaranty Of The Energy Transition

A rapid and successful implementation of these policy measures and innovation strategies will ensure that the energy transition can be realised without major obstacles. Should these policy measures lag in their implementation or is implementation carried out in the wrong way, it could lead to a lock-in to fossil-fuel technologies and severe barriers for deployment and integration of renewable energy technologies.

Hence, policy enforcement, especially for the short-term implementation is key to the success of the long-term deep energy transition.

The Stated Policies Strategy Is Too Weak For A “Well Below 2 °C” Future

Our analyses show, that even a successful implementation of the Stated Policies Scenario is not sufficient to comply with the Paris agreements requirements for a “Well Below 2 °C” future. It will fulfil China’s current Nationally Determined Contribution (NDC), but like most countries behind the agreement already realise, it will not lead to the sufficient reduction of CO2. We find that the Stated Policies Scenario gives a CO2 emission reduction development which is too slow and too weak.

We have analysed which further steps are necessary for China to ensure a CO2 reduction in compliance with the Paris agreement, based on what we consider to be a fast CO2 budget scheme for China in a “Below 2 °C” future. The budget is prepared based on a combination of international and Chinese studies and provides a rapid CO2 reduction from today’s level of 10,000 Mton to 9,000 Mton in 2020, 8,000 Mton in 2030 and 3,000 Mton in 2050 for the Chinese energy sector.

Emission Reduction Requires Accelerated Action

To comply with this emission budget, China must accelerate the coal-reduction, rapidly introduce more renewable energy in the energy system. Compared to the Stated Policies Scenario, our analyses show that the Below 2 °C Scenario have 305 GW additional renewable power capacity in 2020, growing to 1,518 GW additional capacity in 2050. The additional capacity is mainly wind in the beginning of period and mainly solar in end of the period. The coal fleet is also phased out quicker in the Below 2 °C Scenario, with 16 GW less coal capacity in 2020 to 220 GW less coal capacity in 2050. To stimulate the emission reduction in the end-use sectors we have a higher electrification rate in the Below 2 °C Scenario, in the transport sector and in the industry sector.

More Ambitious RE And Non-fossil Energy Targets

The targets in the 13th five-year plan regarding capacity development toward 2020, which were defined in 2015, have already proven conservative considering the recent development. We estimate that the power generation capacity for wind, solar and bioenergy all will significantly exceed the plan’s target by 2020. This implies that also the non-fossil fuel share of the total energy consumption will exceed the target of 15% in 2020. This also allows for rapid electrification of the end-use sectors without increasing CO2 emission from the whole energy system.

2020 Targets And Scenario Achievements

 

13th FYP

Stated Policies

Below 2 °C

Total 676 GW 814 GW 1,119 GW
Hydropower 340 GW 341 GW 341 GW
Wind 210 GW 259 GW 549 GW
Solar 110 GW 188 GW 200 GW
       
Biomass 15 GW 26 GW 29 GW
Other RE 0.55 GW 0.58 GW 0.58 GW
Share of Total Energy Consumption
Non-fossil Fuel 15% 19% 26%
Coal 58% 55% 51%

Requirements For Flexible Dispatch Of Coal Power Plants And Interconnectors

To ensure the integration of a larger amount of new variable renewable capacity it is necessary to maintain the pressure to ensure flexibility in the power system by setting requirement for the thermal power generators and requirement to the dispatch centres to ensure a more flexible use of transmission lines and interconnectors between provinces. The local governments must be urged to cooperate on joint dispatch and joint utilisation of the renewable energy resources.

Coal Power Plants Must Adapt To The New Role As Flexibility Providers In The Medium Term

The Below 2 °C Scenario clearly demonstrates that there will be no need for new coal power capacity in the future power system. The current permitting practice for new coal power plants should be strengthened even further and a temporary ban on new coal power plants should be implemented as soon as possible to avoid significant stranded assets. As the electric market reform develops, planned full-load hours will be gradually phased out and the existing annual power generation plans disappear. Hence power producers need to consider the market demand and scrupulously determine their own power generation accordingly. Already today coal power producers are becoming aware of such market risks. The new power plants are facing even bigger risks, i.e. no guarantied feed-in tariff, rising costs, falling prices of its renewable competitors and no long-term power agreements with fixed prices.

Recommendations For Actions 2017-2020

Based on the extensive analysis and considering the industry, technology, and policy developments of the past few years and outlook for the near and medium future, CNREC have the following recommendations:

RE And Non-fossil Fuel Targets

  • The 13th five-year plans RE capacity targets for 2020 are minimum targets. We recommend that the RE development should go beyond these targets: Solar from 110 GW to 200 GW, wind from 210 GW to 350 GW, bioenergy from 15 GW to 30 GW – a total of 500 GW.
  • The non-fossil energy share could go beyond 13th five-year plan targets: From 15% to 19% in 2020. Considering the Below 2 °C temperature control target, the development targets need to be further enhanced.#

Increase Efforts To Reduce Coal Consumption

  • Stop for approval of new coal power plants
  • Reduce the coal share of the primary energy consumption from 64% to 33% in 2030
  • Requirements for coal power plant flexibility and gradually removal of the planned full-load hours
  • The provinces which economy heavily depend on coal, must immediately develop a coal transition plan away from coal

Power Sector Reform

  • Expand and accelerate the whole-sale market pilots and regional coordination of market pilots
  • Include dispatch of interconnectors in the market pilots by removal of interprovincial trade barriers
  • Prevent lock-in of coal power production via bilateral trading contracts
  • Clear road map for next step development of the power market in China

ETS System

  • Strong focus on the viability of the National market – avoid pitfalls from grandfathering and new policy traps
  • Set a floor price for CO2 which create impact on investment decisions

RE Subsidy Reform And RE Incentive

  • Increase the RE surcharge to ensure sufficient funding in the transition period
  • Implementation of the renewable energy quota system, supporting the implementation of mandatory and voluntary combination of green certificate trading system
  • Increase the use of competitive auctions to lower the subsidy price for largescale wind and solar projects