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China's advent to world's largest clean tech market

How clean tech in China is taking off

· miscellaneous

{{{Ken Harb-Wu}}}

China is gradually going green. But what does this mean? This blog post focuses on the why and how clean tech is taking off in China. The Why is driven by China’s energy demand and governmental prioritization. The How can be understood by diving into the clean tech value chain and technological advancements made in China.

Energy demand

Between 2010 and 2015, China accounted for nearly half of global energy demand growth. Luckily, this demand is stagnating. Chinese energy consumption is expected to grow slower than the Rest of Asia, but at a 1.56% CAGR over 2015-40 still nearly 50% faster than the rest of the world excluding Asia. China will be challenged by meeting a nearly double as large energy demand by 2040 from 2010 levels. This will be a key challenge considering the increase in urbanization and environmental deterioration. Consequently, Chinese policy makers are now emphasising a shift to slower growth, less energy-intensive forms of production, pollution reduction and a consumer-oriented economy. Nonetheless, estimations suggest that annual investments of £229-458bn are required to address climate change with public investment only meeting 10-15% of this target. The shortfall must be compensated from private sector investment.

13th Five-year plan (2016-2020)

A key document in this shift is the guiding five-year plan (FYP) that among others prioritizes emission reduction and ecological conservation to tackle the pollution of air, water and soil. The 13th FYP (2016-20) lays out renewable consumption targets, renewable power generation targets, renewable economic targets and renewable operational targets. For example, strong targets for energy efficiency are set and expected to drive investment of $270bn by 2020. Consequently, China has emerged as world’s largest producer and consumer of such technologies. China is still behind Europe in technological innovation, but it is adopting new technology much faster. The question remains whether this is enough.

Clean tech value chain

The clean tech value chain can be viewed along the energy supply chain. First, energy is generated. In the case of renewables this usually is cyclical (solar) or infrequent (wind). As energy supply does not continuously meet demand, prices fluctuate, and storage of excess energy becomes economically profitable. Currently such storage is still inefficient, and much energy is lost. In addition, more energy is lost once it is transported along the grid for consumption. Finally, the entity consuming the energy can also be refined for more efficient energy consumption.

In China, over 25% of power generation in 2016 was from renewable sources. Yet, due to the size of China, this value chain is widely dispersed. Hydro power is primarily in the Southwest, wind power in the North, East and Southeast and solar in Tibetan Plateau, Gansu, northern Ningxia, southern Xinjiang, and western Inner Mongolia. In general, areas with most resource potential are remote from demand centres and long-distance transmission lines bring electricity to demand centres in eastern and central China. High levels of renewable energy will bring significant challenges in the operation safety and reliability of power systems given their variability. This has created the need for energy storage. The largest Chinese state-owned utility firm has already been deploying energy storage to provide various services throughout its grid. Still, beyond pumped-hydro systems China has relatively little storage capacity. To change this, subsidies for energy storage companies have been granted and additional services such as peak shaving [i.e., process of reducing the amount of energy purchased from the utility company during peak demand hours], frequency regulation and monetization thereof have been allowed.

Technological advancements

Renewables: China is responsible for 40% of global renewable capacity growth. It already surpassed its 2020 solar photovoltaics target and is expected to exceed its wind target in 2019. China is also world leader in hydropower and bioenergy for electricity and heat. It plans to invest $360bn into renewable resources before 2020 and has the target for carbon emissions to peak before 2030.

Energy Storage: China’s energy storage market grew by 54% compounded between 2012 and 2016. It is now the 3rd largest globally and is forecast to soon become the largest. Currently, energy storage in China is largely made up by state-owned pumped-hydro systems. This will shift. China has a strong focus on batteries, is expected to increasing energy density and further develop flow batteries, a technology expected to become the dominant form of storage in Asia. China has the supply chain to source a massive battery increase e.g., has massive access to the raw materials. Estimations suggest that the Chinese battery storage market will grow from ~$0.2bn in 2015 to >$1bn in 2020 and that China will control over 65% of the battery market by 2021.

The largest opportunity for energy storage is Electric Vehicles (EV). In 2017, global sales of new EVs passed 1m units and could quadruple by 2020. In 2017, the Chinese EV market grew by 72% and is now larger than Europe and US combined. Almost half of global electric vehicle sales came from China. Domestic original equipment manufacturers dominate this market with a 94% market share. Growth is largely due to an immense backing from the government and its 13th FYP, i.e. generous subsidies and tight regulation. Yet an immense potential still exists as adoption rate represents only 2% on a national level.

Energy Efficient Tech: China is also leading the way for global efforts to increase energy efficiency. In 2016 China’s energy intensity reduced by 5.2% compared to 1.3% in the EU. As China is still 50% more energy intensive than IEA (International Energy Association) countries, this segment will continue to hold vast potential.

Conclusion

Due to future demand and governmental awareness, China is paving the way to become the leader in the entire clean tech industry, from renewable energy generation, over energy storage and EV, to energy efficiency in technology.

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