CEFC China Energy Journal July 2015 Issue 3 by China Energy Fund Committee

CONTENTS

JULY, 2015, The Third Issue

Wind Power Three Gorges

Sino-Russian Maritime Engineering Energy Cooperation Equipment

8 4

Editorial 编者的话 In Search of the Holy Grail of Energy 寻

解决能源问题的终极方案

Hydropower Industry

18 24

Opinion 观点 Prospects of Sino-Russian Energy Cooperation 中能源合作前广阔

A Renaissance 件or 双hina's Nuclear Power Industry 中国核能业再崛起

“Internet Plus” Boosts CNPC and Tencent Partnership 迎接“互联网 +景中石油牵手腾

Dialogue 对话

Major Events 主要事 Inner Mongolia—the First “Wind Power Three Gorges” in China 内蒙古建成中国首个“风电三峡景 Ultra High Voltage (UHV) Transmission Will Drive the One Belt and One Road Initiative 特高压输电力 “一带一路景落地

Business 商业 Chinese Companies Better Positioned to Handle DoubleantiInvestigations 中国企业严正以待妥善处理 “ 景

Cover Story 封面文章

China’s Hydropower Industry Makes Signiicant Progress 中国水电阔步前进

Policy 政策

“Energy Internet” Favored by Policymakers and Enterprises “能源互联网景获决策者和企业热捧

Figures 数字

China’s Maritime Engineering Equipment Embarkson the Fast Track 中国海洋工程装备驶入快车道

Legal Framework Needed to Rationalize Energy Use 合理使用能源需法律保障

China’s Emissions Cut Pledge Finds New Ambition 中国减排诺雄心勃勃

Maritime Engineering Equipment

Assimilating into the Global Market:

A Story about a Chinese Oilield Equipment Company Going Global 融入全球市场：一个中国油田设备企业 “走出去景的故事

Energy Security 能源安全 Building a Strategic Oil Reserve System —— a Long-Term, Arduous Task for China 建设中国战略石油储备体系任务长期且艰巨

术

Technology

China’s Nuclear Robots, Ready to Go 中国核电机器人，蓄势待发

Planet 地球 Suggestions for China’s Carbon Emission Reduction 给中国碳减排的建

Foresight 前瞻 Price of Coal Expected to Remain Low in the Second Half of 2015 2015 年下半年中国煤炭格或将持续

Chinese Oilield Equipment

Editorial CFFC China Energy journal

In Search of the Holy Grail of Energy Ho Chi Ping Patrick

Editorial

CFFC China Energy journal

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CFFC China Energy journal

factoring in market and environmental realities. It can also work on the shortcomings of its energy sources, so as to improve the options it already has. Among the existing energy options, nuclear power offers some strong and unique advantages. It produces a base power load that is reliable and predictable, it is powerful and efficient, and it is clean and zero carbon in operation. 1 Replacing power currently generated by fossil fuels with nuclear would yield enormous benefits – most obviously for the environment and human health.2 Arriving at these benefits means addressing and working through the problems of nuclear power. These problems are well known. First and foremost is the problem of safety, followed by waste disposal, large initial investment costs, and concerns about a limited supply of usable uranium.3

Imagine a tomorrow where energy is abundant, accessible, affordable, non-polluting, and safe. The benefits would permeate society, with enormous ramifications for human health, the environment, and the global economy. This is the holy grail of energy, a destination that has been sought across the globe by generations of researchers. Perhaps in a not too distant future, some technological breakthrough will make that vision a reality. For now, the world must make do with what it has: employing a mix of energy sources, balancing the “pros and cons” of each while

China believes it can overcome these problems, and that it can eventually turn nuclear power into a holy grail of energy. It is carefully taking on an ambitious nuclear development program to build its supply of base load energy. While much of the world has abandoned nuclear power, resorting to fear-driven and shortsighted decision making, China is approaching nuclear power deliberately and reasonably, enlisting the world’s best engineers and scientists to reine its technology. China’s initiative is justified and supported by circumstances. First, China has committed to addressing environmental and human health

. International Energy Agency, Technology Roadmap: Nuclear Energy, at 5, 8, 18, 23, available at: http://www.iea.org/media/freepublications/technologyroadmaps/TechnologyRoadmapNuclearEnergy.pdf.

.PushkerKharecha and James Hansen, Coal and Gas Are Far More Harmful than Nuclear Power, available at: http://climate.nasa.gov/news/903/. 3 .International Atomic Energy Agency, Climate Change and Nuclear Power 2014, at 60, available at: http://www-pub.iaea.org/MTCD/Publications/PDF/ccanp2014web-14869824.pdf. 6

issues, particularly those caused by coal power generation. Nuclear power can help China meet its growing need for power while simultaneously improving the well-being of its people. Second, technological developments have addressed some of the problems with nuclear power, and research promises further gains. Finally, China is in a unique position to be able to take on the challenge of improving nuclear power. It can bear the high capital costs of nuclear, has the resources to improve training and education of specialists, and also has the economic power – such as manufacturing scale – to bring down the cost of nuclear power, for both itself and the world. China’s initiative itself thus promises to address one of the problems of nuclear: the high capital cost. Advancements in technology and reactor design promise to address the remaining problems: the fuel supply, waste disposal, and safety. Breeder reactors, for example, create more nuclear fuel than they use, and have already existed for decades. They could be used to extend the supply of nuclear fuel for thousands of years, and possibly indefinitely. New breeder reactor designs can also be used to recycle and reduce nuclear waste.4 Similarly, fourth and ifth generation reactor designs promise major advancements in tackling issues of waste disposal and safety. Some of the advantages of these designs include passive safety, the reduction or elimination of waste (as well as the ability to use existing waste as fuel), and massive improvements in energy yield.5 Finally, the use of

thorium for fuel, instead of uranium, also promises to address concerns about the risk of nuclear fuel being transformed to un-peaceful use.6 China acknowledges that the major obstacle to the development of nuclear power has been the concern about its safety. The names are known worldwide: Chernobyl, 3-Mile Island, Fukushima. China knows that improved safety requires sound management, oversight, and policy, even where technologies – such as the new reactor designs and the use of thorium – promise to minimize these concerns. Accordingly, China is prioritizing human safety in all aspects of its pursuit of nuclear power, dedicating effort to everything from the training of operators and managers to selecting the most appropriate sites for the power plants. It is taking steps to ensure that the public is aware and informed of the developments in its nuclear policies. Nuclear power is also a long-term investment for China. Much as it did with its space program, China hopes to use the development of nuclear power to spearhead innovation in science, industry, schools, and society as a whole. While the rest of the world has abandoned nuclear power, China remains a bastion for its research and development. In time, by bringing together the best brains in the world and fostering a globally cooperative spirit, China will capitalize on its investment. In doing so, it will make nuclear power an affordable, safe, clean, and healthy option, for the beneit of all.

. International Atomic Energy Agency, Status of Innovative Fast Reactor Designs and Concepts, at 1-2, available at https://www.iaea.org/NuclearPower/Downloadable/FR/booklet-fr-2013.pdf; see also footnote 3, at 91.

. U.S. Department of Energy, A Technology Roadmap for Generation IV Nuclear Energy Systems, at 1-3, 5-8, available at: https://www.gen-4.org/gif/upload/docs/application/pdf/2013-09/genivroadmap2002.pdf.

. International Atomic Energy Agency, Thorium Fuel Cycle — Potential Beneits and Challenges; available at: http://www-pub.iaea.org/MTCD/publications/PDF/TE_1450_web.pdf; see footnote 3, at 91. 7

Opinion

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In recent years, Sino-Russian energy cooperation has continued to develop smoothly and rapidly, made many achievements. Because of the scope of its involvement, the scale of its investment, and its duration, the cooperation can be described as the world’s greatest project.

▲ Shi Ze

The deepening energy cooperation is more than a strategic initiative formutual prosperity. It represents an important, fundamental change in the two countries’relations. The long-term development of energy cooperation and the realization of mutual benefits are of special significance to the national interests of both countries. Sino-Russian energy cooperation will have immeasurable and profound consequences on global energy trends and patterns. New Factors Contributing to Sino-Russian Energy Cooperation At present, we are positive about the prospects of Sino-Russian energy cooperation. There are a range of new factors which help promote the cooperation. First, fundamental changes in global energy patterns bring new opportunities for cooperation. The global economic center-of-gravity is increasingly shifting towards the Asia-Pacific region, which makes the market role of the Asia-Pacific region more prominent. From the energy prospective, a more coherent demand-supply relationship is taking shape across Eurasia. This is an opportunity that China and Russia – the largest energy consumers and producers of the region – can take advantage of.

Prospects of Sino-Russian Energy Cooperation Shi Ze ( 石泽 ) 8

China is geographically adjacent to Russia, and both countries are rich in energy resources. Enhancing energy cooperation will thus not only bring benefits for themselves, but also expand the scale, and accelerate the speed of energy cooperation in the Asia-Pacific region. This will provide a new driving force for the sustainable development of local economies.

Second, internal factors are propelling the development of Sino-Russian relations forward. Although China and Russia established a strategic partnership in 1996, cooperation between the two countries was still largely limited to the international arena. In terms of economic cooperation, both countries focused mostly on trade with Western countries. Over the past ten years, China and Russia have started to realize the importance of enhancing collaborative development. Both countries, after all, share similar development strategies that emphasize economic development and restructuring. Their collaboration can contribute to their economic and social well-being and provide a solid base for future developments in the Sino-Russian strategic partnership. The countries now see the other as irreplaceable partners in the development of their economies. Third, the countries are finding new, common interests. The rapid development of the Chinese economy has transformed China from a trading superpower into an investment-oriented nation. Russia, on the other hand, is short on funds for energy infrastructure construction, mining and processing capacities expansion. Russia can, therefore, attract investment from China, so that it can continue its projects. In return, China will be the beneiciary of the modernization of Russia’s energy sector. In the foreseeable future, financial cooperation between China and Russia will become a new highlight in the two countries’ strategic relationship. This cooperation is important for both countries. Russia will be able to substantially develop its Far East region and to integrate itself into the Asia-Paciic economic cycle. China, on the other hand, will be able to revitalize Northeast China and meet its ever increasing energy demand. Financial cooperation will also address the other overlapping economic and 9

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security interests of the two countries.

that mutual beneits can be obtained.

President Xi jinping ( 习近平 ) and President Vladimir Putin recently signed a joint Statement on the Integration and Cooperation of the Silk Road Economic Belt Initiatives and Eurasian Economic Union. They pledged to maintain continuous and stable economic growth in the region, strengthen regional economic integration, and safeguard peace and stability across the Eurasia.

There also remains room for developing energy trade between the two countries. China and Russia should encourage energy enterprises to expand the scale of their trade and deepen mutual dependence. This can be accomplished in part through the energy negotiations lead by the two countries’ prime ministers.

Finally, a healthy cooperation mechanism will guarantee further interaction and cooperation between the two countries in the future. Since 1949, when the two countries established diplomatic ties, Sino-Russian relations have been constantly tested. However, people-to-people interaction between the two sides is still strong enough to overcome differences and disputes. The two countries have built up increasingly closer contacts at all levels. It is expected that the two countries will continue to intensify existing strategic communications, in order to ensure continued cooperation in the future. Deepening and Enriching Sino-Russian Cooperation The joint Statement signed by the leaders of China and Russia is of strategic significance. The statement aims to promote sustainable and effective energy cooperation between the two, and will further explore the potential for cooperation in other areas. There are several things both countries can do to help ensure success. First, China and Russia should fully implement the agreements already made, and continue to expand the scale of trade. For example, there are some energy contracts that have long been mothballed due to disagreements over prices. China and Russia should dust off these contracts, speed up their negotiation procedures, and make concessions, so 10

Second, China and Russia should strengthen the integration and interconnection of their energy sectors. At present, the transportation capacity of the China-Russia oil and gas pipeline is inadequate to meet the two countries’ energy needs. Maritime transportation capacity has also not yet been fully developed. Since construction of energy infrastructure plays a major part of the Silk Road Economic Belt initiatives, China and Russia should accelerate the construction of both the western and eastern pipeline route, and reach new pipeline construction agreements. At the same time, China and Russia should build a power transportation network to realize the idea of a “Northeast Asia Energy Circle”. China and Russia should also carry out studies on maritime oil and gas pipeline channels, in order to diversify energy transportation channels and reduce the security concerns. Third, there is ample room for China and Russia to cooperate in unconventional oil and gas exploration and development, as well as in the development and application of new energy technologies. China, after all, is increasingly mature in shale oil and gas exploration and development, while Russia is already rich in shale oil and gas reservations and has established processing infrastructure. For nuclear power cooperation, China and Russia could promote pressurized-water reactor technology, floating nuclear thermal power stations and fast reactor projects.

China and Russia can also work together on other new energy technologies. For example, Russia has already planned to upgrade its national public transportation system by replacing petrol vehicles with compressed natural gas vehicles. Russia has also already cut its gas-related taxes and implemented a zero tariff policy on electric vehicles. On the other hand, China is mature in new energy vehicle technology, and has suficient available capital to cover a variety of financing needs. At present, enterprises from the two countries are working on a cooperation agreement o n a l t e r n a t i v e e n e rg y v e h i c l e t e c h n o l o g y development.This can be considered another promising ield of cooperation between China and Russia. Resolving Conlicts of Interest With the aspiration of integrating the Silk Road Economic Belt Initiatives and the Eurasian Economic Union being upheld, China and Russia – as the two superpowers of the Central Asian region – should actively coordinate efforts to safeguard the stability of the region. They should continue to work under both the existing bilateral framework and multilateral frameworks, such as the Shanghai Cooperation Organization. The two countries can, for example, jointly support construction projects, such as transportation infrastructure, water conservation infrastructure and power plants in Central Asia. This will have the effect of both improving the local people’s livelihood as well as the image of China in the region. China and Russia should also work together on both “upstream”, “midstream” and “downstream” energy and resources industries. The “upstream” sector involves exploration and development, transportation may be considered “midstream”, and reining, marketing and other high value-added products as “downstream”.

The Tianjin Refinery Factory and the liquefied natural gas projects at the Yamal gas field are typical example of Sino-Russian cooperation in the “upstream” and “downstream” energy industry projects. Russia can profit by joining China’s “downstream” projects. It can help China develop more value-added “downstream” products. China, on the other hand, can participate in Russia’s “upstream” projects, so as to ensure the security of its energy supply and the stability of energy prices. China and Russia should also settle disagreements on energy prices. These disagreements are the major obstacle for the two countries in furthering the implementation of agreements and expanding the scale of trade. Given that energy price negotiations are mainly carried out by state-owned and state-holding enterprises from the two countries, governments still maintain an influential role in the price negotiation process. Since the economic interest of China and the Russia are intricately intertwined, the two countries should accord flexibility to the negotiation process, so that long-term interest can be secured. Take for example, the recent plunge in oil prices. It has caused significant economic consequences for Russia, since oil revenue makes up a large part of the Russian government’s budget. In the long run, it is predicted that oil and gas prices will be determined via market prices more than by negotiation. Currently, western countries control the world’s oil and gas prices, and the United States is enjoying a boom in natural gas exports. China and Russia, as major global consumers and producers of natural gas, can take the initiative of developing a pricing mechanism for the natural gas market. This will increase the importance of emerging economies in global energy governance. (The author is a Senior Research Fellow at the China Institute of International Studies). 11

Opinion

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Legal Framework Needed to Rationalize Energy Use the energy mix. In 2013, 3.8 billion tons of coal were consumed: 55% for power generation, 30% in steel and cement production, and the remaining 15% in industry, buildings and other terminal uses. This is a major cause of low energy eficiency, heavy pollution and smog, and undoubtedly a challenge for the energy revolution. Geographically, priority should be given to newly developed suburbs of big cities and agriculture-dominated towns, where energy eficiency must be raised to over 70%.

▲ Hua Ben

Hua Ben ( 华贲 ) Undoing ecological damage, reducing smog and cutting carbon emissions while ensuring an energy supply for economic development – this is China’s energy and environment goal for the coming 20 years. To attain this goal, the country has made it an imperative to steadily increase power generation from non-fossil fuels such as water, wind, nuclear and solar, while simultaneously replacing coal and oil with natural gas. Combined Cooling, Heating and Power (CCHP) is a major battlefield in China’s ongoing energy revolution. Currently, China consumes far more energy in industries and buildings than developed countries, where 90% of the coal is burned to generate power and terminal fuel users switched to natural gas 30 years ago. In China, coal dominates 12

There are favorable conditions for installing CCHP energy systems on a large scale in an industrializing and urbanizing China, where population is dense in contiguous industrial zones, Central Business Districts (CBDs) and residential areas. Feasibility studies show that natural gas-based CCHP systems that are adjustable in peak hours can provide power, heating, cooling, steam and hot water for entire communities. Such systems, with a 10year payback period, can raise energy efficiency to 70-90%, cut energy cost by half and reduce carbon emission by 70%. But the system must be part of the overall building and infrastructure plan in the first place. If the system is installed after all the buildings and infrastructure have been put up, it would have enormous costs and produce only limited results in enhancing energy eficiency, By 2035, it will be fully possible to build several thousand large and medium-sized natural gas CCHP systems, and tens of thousands of smaller distributed energy systems, for a total installed capacity of several million kilowatts. With the low-carbon transition already underway in China’s primary energy

consumption, the energy eficiency gains from CCHP will be accompanied by large-scale distributed nuclear and solar power projects of megawatt grade, as well as small distributed energy systems in buildings switched to the highly eficient and cost-effective “solar+storage” models. It is estimated that if all newly developed areas adopt natural gas-based CCHP: (1) national energy efficiency will rise from 37% to 50%, (2) absolute emission reductions will be achieved before 2025, and (3) by 2035, emissions will drop down to less than 8 billion tons per year – a saving of 2 billion tons of standard coal equivalent (tce) annually. The key is to reform the energy management system through the use of rule of law Newly developed areas across the country are following plans mandated by the Ministry of Housing and Urban-Rural Development on land use, construction, roads and utilities. However, currently there is no plan for rationed energy use and there are no mandatory targets in existing laws on energy eficiency and carbon emissions. CCHP operates on a commercial basis in a market economy. At the core of China’s energy management system, however, are state-determined energy prices. Energy projects are policy-driven and approved by government at different levels. Unfortunately, CCHP has yet to be accepted by many local oficials. Many still evaluate projects predominantly on the basis of GDP and, in the absence of quantiied legal targets, only pay lip service to “green, low-carbon development”. This is the institutional reason for the continued use of traditional, inefficient energy utilization and the slow progress in moving towards a distributed energy system, which began in 2004. To abolish administrative approval and facilitate low-carbon development, I suggest the National People’s Congress, China’s top legislature, make a Law on Regional Energy Plans. This law would

dictate binding efficiency and low-carbon targets for new development areas, which in turn would encourage the application of distributed energy systems and renewables. Energy systems and institutions must be reformed through legislation First, a market-based pricing mechanism needs to be established for natural gas and on-grid power. Non-market driven policies and incentives must be scrapped. Since the central government is already working on a low-carbon transformation strategy and the oil and gas market is transforming, the oil and gas management system must be reformed. The objective should be to steadily grow China’s natural gas industry, ensure ample supply, bring down transaction costs, control prices and expand the market. Second, the reform must be carried out by taking advantage of the “third energy revolution”. The world is in the middle of a third energy revolution, defined largely by smart energy networks. China now places too much emphasis on super smart grids, such as the mega “West-East Power Transmission” project. It lacks both a clear vision and plans to mainstream smaller, distributed power systems of renewable energy and storage. It is not doing enough to develop interactive smart grids and use price changes to inluence suppliers and users. Given the accelerated progress in renewable energy and smart energy networks, it is high time to transform China’s power system. Smart girds utilizing two-way communications and real-time rate setting have been installed in Europe on a pilot basis. China can learn from the European experience, as it tackles energy challenges and pursues innovation in industrial zone/ community-based distributed energy system. (The author is a member of the Research Center on Natural Gas Utilization at South China University of Technology). 13

Policy Policy

Policy

CFFC China Energy journal

“ nergy Internet” Favored by Policymakers and Enterprises

hina’s Emissions Cut Pledge Finds New Ambition

Wang Haixia China has taken an important step in its fight against climate change. On june 30, Premier Li Keqiang ( 李克强 ) promised that China will cut carbon emissions per unit of GDP by 60 percent to 65 percent by 2030, compared to 2005 levels. The plan, entitled “Intended Nationally Determined Contributions” (INDC), was presented during a visit to France, where the 2015 International Climate Change Conference will be held in November. Immediately after China made its pledge, He jiankun ( 何建坤 ), Deputy Director of the National Experts Committee on Climate Change, told the media that it is a significant improvement from China’s previous pledge, which proposed to cut carbon emission by 40-45% below 2005 levels by 2020. “As the world’s largest greenhouse gas emitter, China’s pledge is a boost for hopes of UN deal on climate change. China will inevitably follow a path of low-carbon development.” China’s efforts were applauded by many on the international scene. jennifer Morgen, the Global Director of the Climate Program at the 14

World Resources Institute, said that the new pledge demonstrated China’s irm commitment to tackle the climate change crisis. “Over the past decade, China has implemented ambitious clean energy policies and made significant investments in renewables. China has the ability to fulill its new pledge.” According to statistics released by the National Energy Administration (NEA) last December, 11 percent of Chinese primary energy came from nonfossil fuels, including renewables and nuclear power, 9.8 percent jump up from the prior year. According to the INDC, China plans to increase its share of renewables and nuclear in its primary energy mix to 20% by 2030. Moreover, by 2020 China expects to increase its installed capacity of wind power and solar power to around 200 gigawatts (GW) and 100 GW respectively. Over the past few years, China has ranked as first in the world for investment in renewables. In 2014, with $89.5 billion in investment, China continued to lead in renewables investment. According to figures released by Bloomberg New Energy Finance in january, China accounts for almost one-third of the worldwide total for investment in renewables.

Kong Jueting China is encouraging the gradual merger of Internet technology with traditional sectors, in order to bolster efficiency, innovation, and competitiveness. For Chinese energy enterprises, this means an effort to trying to jump on the “Energy Internet” wave. In order to help the energy industry embrace the idea of “Energy Internet”, the Ministry of Industry and Information Technology, along with the National Energy Administration (NEA), are preparing an “Action Plan on the Internet of Energy”. Zeng Ming( 曾鸣 ), Head of the Preparatory Team for the action plan, and Professor at North China Electric Power University, told reporters that the plan is expected to be released in the coming months. Seeking to promote the idea of an “Energy Internet”, the NEA had previously organized four forums, in which several enterprises participated, including the State Grid, energy giants, major coal companies, Internet companies and companies in other sectors. Enterprises Take Advantage of “Internet Plus” Although the top-level strategic plan for the initiative has not yet formally deployed, the idea of

an “Energy Internet” is already making waves in the market. The stock prices of some listed companies– such as Smart Energy, jicheng Electronics, and other companies related to the idea of an “Energy Internet”– have shown strong performances. For example, in March this year, jicheng Electronics set up an energy company specializing in “Energy Internet” business, including smart city construction, energy-saving consultation, new energy station development and cloud management. On June 17, Jicheng Electronics also signed Strategic Memorandum with Intel Asia-Pacific Research and Development Co., Ltd which also boosted its stock price. “Reforms to China’s energy sector are changing the landscape of the energy market and creating room for the industry to develop in other areas, particularly the Internet,” said Lin Boqiang 林伯强 , Director of the China Center for Energy Economics Research at Xiamen University. Some conventional electric components, such as electric cables, meters and information acquisition systems are also undergoing transformation through information technology. Local authorities are also trying to get involved in the transition. The provincial government of Sichuan is the first local government in China to begin to implement plans for the “Energy Internet”. On june 15, the Sichuan provincial government 15

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CFFC China Energy journal

ofice issued the “Sichuan 2015 ‘Internet Plus’ Work Plan”, which called for the promotion of “Internet Plus” in the fields of manufacturing, agriculture, energy and inance. With regard to the energy industry, the Sichuan government and Tsinghua University will jointly promote “Energy Internet” by establishing the Tsinghua University Energy Internet Research Institute and an “Energy Internet” Innovation Industrial Park in the Tianfu District of Chengdu, the capital city of Sichuan. Investment funds will also be established for work on “Energy Internet”. The upcoming tasks for this cooperation include building an intelligent urban distribution network, inventing new energy vehicles, promoting energy market reform, creating an interactive energy trading platform, and developing data analysis applications for “Energy Internet”. An “Energy Internet” information management system will also be established to realize intensive management of energy information and infrastructure. The system is expected to help disseminate information among energy management departments and energy enterprises in Sichuan. Also of note is the recent signing of a cooperation agreement, entitled “Internet Plus Power”, between the State Grid Sichuan Electric Power Company and Tencent, a Chinese Internet magnate. This is one example, out of many, of energy enterprises pursuing advanced implementation of IT. Coal, petroleum, renewable, and power distribution companies are all seeking to gain advantages from better integration with the Internet. Zhang Yuzhuo ( 张玉卓 ), President of the China Shenhua Group – the largest and most modernized coal company in China – said in May that the company had launched its coal-related online services program. It hopes to serve as a pioneer for “Internet Plus Coal” 16

in its industry. By using the Internet as a trading platform, the company has another channel to sell carbon quotas and offer its electricity-related products and services.

for leasing photovoltaic products. It provides a platform for investors to purchase photovoltaic (PV) products, and subsequently lease them to PV power plants in order to generate proit.

In addition to the traditional energy industry, more and more new energy enterprises are also showing great interest in joining the “Energy Internet” movement.

Outlook of the Energy Internet: Energy Eficiency is the Core Point

Peng Xiaofeng ( 彭小峰 )，Former Chairman of LDK Solar Co., Ltd and Chairman of SPI Solarbao, announced the company’s new product “Solarbao”(“bao”, in Chinese “ 宝 ”, refers to something precious and rare) on june 16 in Beijing. The announcement caused widespread discussion across the industry. “Solarbao” is a inancial service

The idea of the “Energy Internet” will undoubtedly drive a new round of transformation and technology upgrade across the traditional energy industries. According to Zeng Ming, the idea of the “Energy Internet” not only covers power generation companies but also energy networks such as power grids, oil and gas distribution networks and the heating supply network. Under “Energy Internet”, all of these

systems will have to promote energy saving, emission reduction and increased energy eficiency. Some observers worry that this wave may create a bubble in the market, due to the premature application of Internet technology to energy, the lack of predetermined profitable business model, and the oligopolistic market structure in energy industry. These observers believe that more thorough discussion is needed. Lin Boqiang, for example, said that , ineficient energy use, and lack of up-to-date information remain the main challenges for the industry to resolve. Perhaps it is still too early to say if “Energy Internet” will make yield significant progress for the industry. 17

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Beijing Carbon Trading Turnover Exceeds 200 Million Yuan As of june 8, 4.3 million tonnes of emissions are now traded in Beijing’s carbon emission trading scheme, with an accumulated turnover of more than 200 million Yuan. It now ranks irst among the seven pilot provinces and cities in China.

China’s Shale Gas Output Expected Billion Cubic Meters to Reach 30 by 2020 According to the China Geological Survey, China’s shale gas output for 2014 was 1.3 billion cubic meters. The proven shale gas reserve is estimated at 106.75 billion cubic meters, while the possible reserve is expected to hold about 500 billion cubic meters. China’s shale gas output is expected to reach as high as 30 billion cubic meters by 2020. Huge amounts of money have been spent on the shale gas industry by the central government, local authorities and enterprises. By the end of 2014, investment in shale gas exploration exceeded 30 billion Yuan. Of this figure, 21.88 billion Yuan was invested by China’s energy giants, including China National Petroleum Company (CNPC), 18

CNPC has accelerated its construction of its Weiyuan, Changning and Zhaotong shale gas projects, with 96 wells drilled, 41 wells completed and 700 million cubic meters of capacity already achieved.

SINOPEC, China National Offshore Oil Company Limited (CNOOC), Shaanxi Yanchang Petroleum Group, China United Coalbed Methane Corporation and other 16 companies. These enterprises compiled 20,000 kilometers of 2-dimensional seismic data and 2,134 square kilometers of 3-dimensional seismic data, drilling 669 exploration wells and laying 235 kilometers of pipeline in the process.

Yanchang Petroleum Group also expedited construction of its Luxiang shale gas pilot project. The initial exploration of its 250 square kilometer gas bearing area, consisting of Triassic reservoirs, revealed a reserve of 38.75 billion cubic meters. Production capacity is estimated at 20 million cubic meters per year.

China’s total shale gas production capacity in 2014 reached 3.2 billion cubic meters. Sinopec’s Chongqin Fuling division drilled 131 horizontal shale gas wells; of these, 112 wells were completed. The production capacity target of 2.5 billion cubic meters of shale gas has been achieved ahead of schedule.

A spokesperson for the China Geological Survey said that with a total investment of 680 million Yuan, the shale gas survey is their top priority for 2015. The expected shale gas output target is 6.5 billion cubic meters in 2015, and 30 billion cubic meters in 2020.

543 key companies in Beijing are covered by the emission trading scheme. Under the scheme, companies are required to implement energy management through a variety of activities, including submitting energy use audits, developing energy-saving technologies, promoting clean products, and establishing e n e rg y m e a s u r e m e n t a n d m a n a g e m e n t systems. The objective is to reduce both energy consumption and CO 2 emissions as well as gaining windfall profits through emissions trading. As calculated by the Beijing Municipal Commission of Development and Reform, the total CO 2 emissions from those 543 key companies in 2014 decreased by 5.96% compared to the previous year. In December 2014, the Beijing municipality and Chengde City (Hebei province) announced the launch of China’s irst cross-regional carbon emissions trading pilot program. The initiative demonstrates that efforts to reduce emissions through market mechanisms have been deemed a success. 19

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China Starts Building Gas Pipeline to Russia Construction of the Chinese section of the China-Russia East Route Natural Gas Pipeline has started, further boosting energy cooperation between the two countries. On june 29, Chinese Vice-Premier Zhang Gaoli( 张高丽 )said China was ready to work with Russia to ensure that the pipeline would be completed and put into operation on schedule, in 2018. The Chinese section of the 3,968-kilometer natural gas pipeline originates in northeast China’s Heilongjiang Province, and terminates in Shanghai. This pipeline is designed to transport 38 billion cubic meters of natural gas from Russia to China every year. The construction of the Russian section of the East Route pipeline, also known in Russia as the Power of Siberia pipeline, was started in September of last year. China National Petroleum Corp (CNPC) and Russian gas giant Gazprom signed an agreement for

the East-Route Gas Project on May 21, 2014. The contract covers a 30-year deal; starting in 2018, the pipeline will provide China with 38 billion cubic meters of natural gas annually. Upon completion of the western pipeline, Russia will export a total of 70 billion cubic meters of natural gas to China every year. The gas project is a win-win deal for both countries, said Feng Yujun( 冯玉军 ), head of the Russia Research Institute of China Institutes of Contemporary International Relations.” The pipeline will provide secure and reliable clean energy for China’s economic development and a long-term stable market for the rich natural gas resources of Russia.” Feng added, “The pipeline is also of great significance for the rejuvenation of the traditional industrial base in northeast China and Russia’s development of the Far East. Aside from natural gas, the two countries should fully utilize their complementary advantages to expand all-round cooperation in oil, nuclear energy, coal and electricity.”

China Plans to Double Global Capacity of Wind and Solar by 2030 China has submitted its climate plan to the UN ahead of the Paris climate change summit. In the plan, China pledges that it will cut its greenhouse gas emission by 60% to 65% from 2005 levels. Zou ji ( 邹骥 ), deputy director of the National Centre for Climate Change Strategy, has stated that by 2030 an additional 900 GW of wind, nuclear and solar energy are expected to come online. In other words, China is aiming to install more wind (345GW) and solar (325GW) energy than exists in the world today, effectively doubling the current total capacity. Tang Wenqian ( 唐文倩 ), the executive deputy

secretary-general of the Chinese Renewable Energy Industries Association, shared the same belief in the future of wind and solar power. “Faster adoption will be key to meeting commitments, because other zero-emissions sources such as nuclear and hydro are constrained by safety questions and availability. Installing 40 or 50 gigawatts of solar power a year is possible in China.” For 2015, China plans to add about 18 GW of solar power capacity, almost equal to the entire generating capacity of the United States at the end of 2014. 21

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For Better Air Quality, 8,500 Arrested for Environmental Crimes in 2014 construction sites were also found to have violated environment laws and more than 3,100 workshops were closed following air quality inspections by Ministry of Environmental Protection (MEP) oficials and drones, Chen added.

▲ Chen Jining Environment Minister

Since China declared war against air pollution in 2014, after decades of pursuing economic growth at the expense of the environment, air pollution has become one of the top concerns for Chinese citizens. On 29 june, the Environment Minister, Chen jining ( 陈吉宁 ), said that stricter enforcement of tough environmental laws was a key factor in curbing air pollution. According to Chen, Chinese police arrested around 8,500 suspects in more than 4,500 environment-related criminal cases in 2014. Environmental authorities transferred more than 2,000 cases of suspected environmental law violations to the police, more than double the igure for the past 10 years combined. Close to 3,400 companies and 3,700 22

Chen also said that the next step for China to move forward on clean air is to further optimize the country’s industrial and energy structure, and to cut back on discharges of air pollutants. Authorities will go on slashing outdated capacity this year by shutting down 1,000 small coal mines, improving the quality of coal on the market, ensuring a stable supply of natural gas, and promoting the use of clean energy and energy-saving buildings. Chen said efforts will also be made to improve the evaluation of the government’s implementation of air pollution control measures, as well as deepen regional coordination, step up technological research and sharpen laws and regulations. China promulgated a new Environmental Protection Law this year. A daily fine system was enacted to punish offenders and motivate companies to expedite the costly modiications needed to reduce pollutants. In cases where ined violators fail to rectify the problem, the ine can increase without limit. Chen said environmental authorities would “bring the new tools introduced by the law into full play, conduct more covert inspections and seek heavier penalties for companies guilty of illicit or excess emissions and or of forging pollution data.”

China’s Energy Consumption Rises % in June

1.8

Energy consumption, an important indicator of economic activity, continued to recover in june, but remained low. This suggests persistent tepidity in China’s economy. Energy consumption rose to 472.3 billion kilowatt hours in june, a1.8% year-on-year increase. This is up slightly from a 1.6% rise in May, and a 1.3% rise in April. Total power use went up 1.3% to 2.66 trillion kilowatt hours in the irst half of 2015, according to National Energy Administration, which released the data on july 15. China’s economic growth, by contrast, was stable, with a 7% year-on-year gain for the second quarter of 2015. According to Shen Laiyun 盛来 , the spokesman for the National Bureau of 运 Statistics, this contrast between China’s economic growth and its growth in energy consumption is the new normal. He attributed the new dynamic to longterm changes in China’s economic structure, energy

consumption and energy eficiency. Overall, total energy consumption has been on a gradual downward trend. However, the picture varies for different industries. Electricity use by primary industries increased 0.9% from the prior year. Secondary industries decreased by 0.5%, while tertiary industries saw a 8.1% rise. The latter beneitted the most from initiatives to transform and restructure China’s economy. Ouyang Changyu ( 欧阳昌裕 ), Deputy Secretary General of the China Electricity Council, told the media that, “The lukewarm data in the first half year included some positive signals. First, tertiary industries continue to maintain high growth. Second, other industries have recovered slightly since this April. Third, the manufacturing industry has moved into positive growth since May, as has the secondary sector since june. In my opinion, China’s economy is entering a period of smooth development.” 23

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A Renaissance

for China's Nuclear Power Industry Wang Haixia Kong Jueting Chinese Premier Li Keqiang( 李克强 ) frequently plays the role of a “super salesman” during his visits to foreign countries. From nuclear power, to highspeed railways, to telecommunications, Li spares no effort in endorsing “made in China” technologies and products globally. Recently, his focus has been on 24

nuclear power. His belief in nuclear power mirrors the renaissance occurring in Chinese nuclear power construction. China’s Nuclear Development Back in Full Swing On july 1, during his visit to France, Premier

Li praised the cooperation of the two nations’ civil nuclear industry. According to the joint statement, the two nations will strengthen cooperation on exploiting and developing uranium resources, converting uranium and manufacturing nuclear fuel and related components. Despite his efforts overseas, Premier Li also does his utmost to encourage the civil nuclear industry at home. “China is promoting nuclear power on a larger scale both at home and abroad as it steps up the upgrading of its manufacturing and seeks more global deals,” Premier Li said on june 15, when he meet workers at China Nuclear Power Engineering Co., Ltd in Beijing.

After the Fukushima Daiichi nuclear disaster in japan in 2011, China joined the international trend of pausing nuclear power plant construction. At the time, nuclear power amounted to only 2% of China’s total power generation. But during the past four years, nuclear technologies have undergone signiicant advancement, and safety standards have been enhanced. More importantly, there is now an urgent need to restructure the energy sector towards a cleaner energy path. For these reasons, China resumed its nuclear energy activities in 2015. In February, the State Council approved construction of two units of the Hongyanhe Nuclear Power Plant, located in Northeast China’s Liaoning 25

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Province. It was the first nuclear power project approved after 2012. Since then, Fuqing nuclear unit 5 and unit 6 have also received permission for construction from State Council. The Fuqing nuclear power plant was designated as the pilot nuclear power project to use Hualong One Reactor technology. The latter was endorsed by Premier Li for its domestically developed third-generation reactor design. Although construction is still in progress, the Hualong One Reactor has become an icon of the Chinese national brand. It has also become the model power plant for Chinese nuclear practitioners. At an international event on june 16, Yu Peigen ( 俞培根 ), Deputy General Manager of China National Nuclear Corporation (CNNC), said that, “Hualong One is one of the finest examples of China’s innovation. It is based on decades of experience in the nuclear industry.” A c c o r d i n g t o Yu P e i g e n , H u a l o n g O n e Reactor’s construction in Fuqing symbolized China’s entry into the irst tier of the world’s most advanced countries in nuclear power technology. Hualong One Reactor’s technology is expected to become a trump card in China’s plans for nuclear power export. “It can fully meet international safety standards and market demand for third-generation nuclear power technology,” Yu said.

More projects are being realized. In May, Liu Baohua ( 刘宝华 ), Director General of the Nuclear Energy Division at China’s National Energy Administration, said that eight nuclear power reactors will enter operation this year, and that China has the capacity to build six to eight more nuclear reactors each year. By 2020, China expects that installed nuclear power capacity will reach 58 gigawatts, and that projects under construction will reach 30 gigawatts. This is nearly three times the current capacity, which is 20.29 gigawatts, or 1.5 percent of China’s total electric capacity. According to the International Atomic Energy Agency, nuclear power generated by China’s 23 nuclear reactors contributed to just 2.4% of China’s total electricity production in 2014. This ratio was much lower than that in France, Slovakia, Hungary and Ukraine. In France, nuclear power accounted for 76.9% of total electricity generationin 2014. For the other countries, the share of nuclear power in their energy mix exceeded 50% of their total electricity generation in 2014. China is not expanding nuclear power in a “Great Leap Forward” approach. Zhang Huazhu ( 张华祝 ), Chairman of the China Nuclear Energy Association, said, “I don’t think it’s appropriateto use ‘Great

China’s nuclear power industry is expanding international market Country Est.cost Pakistan* $2.4b $9.6b Ro a ia $7.3b Arge i a* n/a UK Turke S.Africa

n/a n/a n/a

Company CNNC CNNC CGN CNNC CNNC CNNC/CGN SNPTC or CGN CNEC

Status,inancing U der o stru io Pla ed, $ . illio e dor i a i g. a e 82% Chi ese i a i g Pla ed, Chi ese i a i g Pla ed, ith lo al i ol e e t a d $2 illio i Chi ese i a i g Ve dor i a i g e isaged n/a E lusi e egoiaio s Fi a i g sill to e resol ed *Two plants planned

Leap Forward’ to describe the current nuclear development. China is building its nuclear power plants in a sturdy way, so that safety and stability will be ensured in future operation.” Zhang also pointed out that although the nuclear industry is still facing difficulties and challenges, the 2030’s is seen as an important period of strategic opportunities for China’s nuclear power development. “In the next ten years, China must maintain a rapid pace of nuclear power development in order to optimize the country’s energy structure and reduce greenhouse gas emissions.” Exploring the International Market According to Francois Morin, the Director for China at the World Nuclear Association, China is currently building more nuclear power plants than any other places on Earth. “Of the 66 nuclear power reactors under construction globally, 24 are in China,” explained Morin. From the perspective of international market, China is the engine of growth, said Morin. He added that the success of Hualong One Reactors will provide enormous business opportunities for China. In addition to the incredible scale and pace of development, China’s nuclear industry is experiencing a dramatic transition from a secondary player to leader of the world’s nuclear power industry. Nevertheless, Chinese nuclear manufacturers continue to look for more opportunities to sell their reactors to global customers. They have made remarkable progress in exploring international market. According to Xu Yuming ( 徐玉明 ), Deputy Director of the China Nuclear Energy Association, China has the world’s largest nuclear power 27

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equipment production capacity: China can produce more than 10 sets of nuclear power primary equipment annually. “Hualong One Reactor technology and AP1000 are highly interchangeable. Most of the main equipment and raw materials can be produced domestically,” Xu Said. China has built three nuclear power equipment manufacturing bases in Shanghai, Sichuan and Heilongjiang respectively. Dongfang Electric Corporation, Shanghai Electric Corporation and Harbin Electric Corporation, as well as other nuclear equipment manufacturing enterprises, are driving the Chinese nuclear power equipment manufacturing industry forward. Nuclear power export is now a part of China’s national strategy. China sees many opportunities for further expansion. The implementation of China’s Belt and Road Initiative, for example, is now seen as also offering great opportunities for the Chinese nuclear industry. Besides China, there are 19 countries which already have nuclear power plants, and another 25 countries with plans to develop nuclear power along the route of Belt and Road Initiative. According to Li Xiaoming ( 李晓明 ), Assistant General Manager of China National Nuclear Corporation (CNNC), each Hualong One Reactor exported overseas will amount to around seven billion yuan’s worth of export. China’s brand of nuclear power technology has been recognized in Pakistan, the United Kingdom, Argentina, South Africa, Turkey and many other countries. It is now arriving in Europe, South America, Africa and Asia. The Long Journey Towards Nuclear Export In accordance with international practices, there are typically three steps a nation must complete before 28

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it can export nuclear power. First, Chinese companies can directly invest in foreign nuclear power projects (such as UK Hinckley Point C project). Second, companies can participate in foreign nuclear power projects, by collaborating with foreign companies. Third, companies can export their nuclear technology overseas, usually also utilizing domestic equipment manufacturing, construction and technical services. Currently, China is on the initial stage. As a new player, however, China faces severe competition with other nuclear exporting countries. For example, Hualong One Reactor technology will have to compete with other third-generation designs from the United States, France and Russia. There is no doubt that China has made good progress in nuclear technology development, but it is still needs to be proven on the international market. Generally speaking, China’s nuclear power export plans are still in their infancy. China now only has one nuclear power plant EPC project in Pakistan. Its image as a highly qualified nuclear EPC exporter has not yet been widely recognized. In an interview, Wen Hongjun( 温鸿钧 ), a nuclear exporter, said that “China needs to improve its ability to help other countries cope with nuclear fuel supply and fuel storage.” Tian Li( 田力 ), Vice Chairman of the Nuclear Association, an afiliate of the China Electric Power Promotion Council, said that “China’s strategy for high-speed rail provides a good reference for its nuclear power export plans. In the early stages of high-speed rail, there were many companies in China trying to master and improve the technology. Eventually, these companies brought on and sold a new generation of high-speed rail abroad.” China’s nuclear power, whether at home or abroad, is destined to develop a broader market. The road ahead for arriving at nuclear power exports, however, will not be smooth. Even the efforts of “super salesmen” cannot guarantee success.

China needs to develop nuclear power to improve the country’s power-generation structure, which will make the nation’s power supply more secure. It is obvious that developing nuclear power is an important energy strategy for China. However, the road ahead is not smooth. In this issue, we present the views of three leading nuclear experts, who offer guidance for C h i n a ’s j o u r n e y i n t o nuclear power.

▲ Du Xiangwan 杜祥琬

Academician Du Xiangwan , former Vice President of the Chinese Academy of Engineering Nuclear safety is our overriding priority. Risk management remains at the heart of the debate about nuclear safety. Different voices can be heard in China about the development of nuclear power. I think this can help us consider the whole matter more calmly, rigorously and comprehensively. A rational and science-backed consensus can only be reached through thorough and practical arguments. After the Fukushima accident in japan, the development of nuclear power all over the world, including China, entered a new state. To be more speciic: China is now more cautious about nuclear power, so we have had to introduce new security criteria and regulations. The strategy is now to seek improvements in stability through better planning. Basically, Fukushima was the impetus to reform the existing nuclear power system. 29

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I should emphasize that our goal is now the transformation of both the development and operation models of nuclear power. The development model that we used to have in planned economy is outdated—our government used to have all the say. We are now in the age of the Internet and information. For major projects where the interest of the public is involved, the public should be allowed to participate in project approval to construction. There is much international experience we can borrow. Some researchers wonder why nuclear power was first welcomed in France. There were several reasons. First, the organizations gathering information about nuclear power were independent of the government, which ensured the authenticity and transparency of the information that the public received. Second, the public found their engineers trustworthy and believed that they could guarantee the safety of nuclear power stations. Third, the government set up regional information committees, whose responsibilities were to track the origins of information regarding nuclear safety, and also to do consultations. Fourth, the National Debate Council organized public debates, in order to arrive at consensuses in a rational way. China is doing comparatively well. Take, for example, the construction of the Daya Bay Nuclear Power Plant. The Daya Bay Nuclear Power Plant

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also been frequently discussed. These innovations are key to the safety of nuclear power plants, and in line with the new nuclear power safety requirements.

Safety Consultation Council was established after some Hong Kong citizens opposed the project. The goal was to include all parties – including the government, companies, experts and the public –in the debate. Doing so removed the public’s concerns. After all, promotion of nuclear power is actually for the benefit of the people and the public. It is our responsibility to make the public aware that we are all beneficiaries of nuclear power, rather than recipients of risks. If we manage to do this, nuclear power can grow in a healthy way. We cannot oversimplify dissents from nuclear power development as “scientifically illiterate”. The nuclear accidents that have happened in the past have raised people’s concerns over its safety. However, we should consider the accidents as motivators, as encouraging us to do a better job, such as in upgrading nuclear power plant safety technology and improving management of nuclear plants. “Safety First” should be the priority of all nuclear power plants, coastal or onshore. The feasibility of nuclear power technologies, engineering and management can only be made convincingly through scientiic veriication. To go from nuclear ission to nuclear fusion is in our destiny. We cannot afford to diverge from that path. China should do its best to become a global leader in nuclear science, technology and engineering.

Three serious nuclear accidents have occurred as a result of human factors and extreme natural disasters. They are the 1979 Three Mile Island accident in America, the 1986 Chernobyl accident in the former Soviet Union, and the 2011 Fukushima accident in japan.

▲ Xu Mi 徐銤

Xu Mi, Academician at the China Institute of Atomic Energy and the Chinese Academy of Engineering, and leading expert on fast reactor technologies with China National Nuclear Corporation Currently, nuclear power, the cleanest energy of all, only accounts for about 2% of China’s total power supply. In France, the figure is as high as 75%. There are 18 countries which use over 20% of nuclear power in their power supply system, with an average of 13% in the whole world. At the end of 2013, the combined reactor years of the world’s reactor added up to 15,660. In China, the number only reached 160. But conditions in China are now inally mature enough to develop nuclear energy on a large scale. Innovation in China’s nuclear power industry has been focused on safety measures, such as passive residual heat removal systems, aircraft collision containment, and other designs that raise the margin of safety. Other safety issues like site selection of onshore nuclear power plants, seismic safety measures and lood prevention measures have

Each of these accidents has taught us good lessons. Proprietors and operators of nuclear power plants are now required to reduce possible errors caused by human factors. For example, the development of the principle of “deep defense” –which relies on detailed regulations, strict discipline, enhanced training and experience exchange and increased operational surveillance. Contingency plans now also exist to deal with lowprobability accidents. Yukiya Amano, Director General of the International Atomic Energy Agency (IAEA), has also commented on the improvements in safety following the Fukushima accident. He concluded that, due of the experiences gained from the accident, nuclear power is now actually safer. It is important to note that he also stressed that nuclear safety is something that can never be taken for granted. China now has 25 years of experience with nuclear power. Its first nuclear power plant was Qinshan No. 1, a 300,000 KW pressurized water reactor which was connected to the grid on December 15th, 1991. China now has 22 nuclear power plants, making it one of the leading countries in nuclear power. After the three serious nuclear accidents, the nuclear industry will undoubtedly pay more attention to its safety, reducing the potential 31

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malfunctions triggered by human factors and carrying out more emergency drills in case of natural disasters. Proprietors and operators of nuclear facilities will seek to improve their communication with national hydrology, geology and meteorology departments. At the same time, we should actively involve ourselves in the discussion of international nuclear safety regulations and standards, so that we can help draft outcomes that encourage the development

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of nuclear safety. Additionally, we should strive to further improve our control over safe production of nuclear power. With fossil fuel based energy resources being constantly consumed, it is inevitable that mankind will take the road of nuclear development. China will certainly need nuclear energy. History tells us that the emergence of new energy resources inevitably lead to a great leap forward in a country’s economy. The age of nuclear power is being ushered in.

Sui Yongbin, Chief Engineer of China Machinery Industry Federation

▲ Sui Yongbin 隋永滨

China’s nuclear machinery manufacturing industry has a history of thirty years, but the domestic manufacture of nuclear machinery in a comprehensive and systematic way did not begin until April 2006. On that date, a seminar was held to discuss the possibility of domestically manufacturing the machinery needed for the Hongyan River Nuclear Power Plant in Dalian. Looking to the future, China should cater its manufacturing industry to meet international needs, and should develop equipment that is self-reliant. This way, China will be able to export its nuclear power advancements.

is being used in a number of second-generation nuclear power plants, like Hongyan River, Ningde, Fuqing, Fangjiashan and Changjiang. Currently, approximately 80% of the equipment used in nuclear units under construction in China is domestically produced. Furthermore, Longhua-1, a third-generation nuclear power plant independently researched and developed in China, will be over 85% “Made in China”. It will, however, also import AP1000 third generation nuclear power units from Westinghouse, an American company. Going forward, a domestically made, matching kit of higher quality and better materials should be developed. We h a v e i n t r o d u c e d 1 2 e q u i p m e n t manufacturing technologies, which, after being digested, absorbed, and combined with technological breakthroughs made in national key projects, enable us to successfully make, test and appraise all the key equipment used in a prototype of AP1000 third-generation nuclear power plant. Two exceptions are the reactor coolant pump and explosion valve, which need more work. Overall, this has created favorable conditions for China to manufacture AP-series nuclear power units. It is estimated that the equipment used in CAP 1400 will

be about 80% “Made in China”. Without exception all the great powers of nuclear power – America, France, japan and Russia – are all nuclear equipment manufacturers. If we have to rely on equipment imports, China will never become a major of nuclear power. The signiicance of domestication of nuclear power equipment is far-reaching. For example, we will not only have the initiative in developing nuclear power, but also break the monopoly of foreign countries so as to cut the cost of nuclear power projects. Needless to say, without the domestication of nuclear power equipment, China never would have developed nuclear power at such a great speed, let alone have China’s nuclear power “Going Out”. Nuclear power equipment export remains the target we are working toward. We can do more to reach that goal faster. China’s equipment manufacturing industry should cater to the needs of international markets, focusing on areas like operation philosophy, management, product quality, standards, regulations and training. An internationalized manufacturing company should also be established. This way, China can be sure to achieve its goal of nuclear power export.

We are currently able to domestically massproduce a lot key equipment, from pressure vessels to steam generators, nuclear-grade valves, and generator units. Two difficulties for domestic manufacture, the main pumps on the nuclear island and the nuclear-grade DCS system, have been tackled through independent research or cooperation with foreign countries. As a result, we have mastered the key technologies and can now do independent integration. More and more domestically made equipment 32

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Hu Qing China’s development of the South China Sea and the 21th Century Maritime Silk Road means there is growing demand for the maritime engineering equipment needed to develop maritime infrastructure and marine resources.

China’s Maritime Engineering Equipment Embarkson the Fast Track

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This growing demand presents an opportunity for China’s maritime engineering equipment sector, which, as indicated in the “Made in China 2025” strategy, was set to search for market breakthroughs in the coming ten years. How will China move forward with

smart and green manufacturing? And how will the maritime manufacturing sector deal with the “new normal” of low oil prices and w e a k m a r k e t s ? Wi t h t h e s e q u e s t i o n s , w e interviewed Mr. Yang Shuangquan ( 杨双全 ), Secretary General of the China Petroleum and Petrochemical Equipment Industry Association

(CPEIA). Q: Maritime engineering covers a broad range of areas, such as mining, chemicals, and development of biological and geographical resources. If we can focus on just one sector – energy , could you describe the types of equipment used? A: Looking just at the petroleum and petrochemical industry, there are two major categories: offshore drilling equipment and platform structures. The former includes drilling modules, drilling tools, and other underwater equipment; the latter includes fixed platforms, mobile platforms, positioning systems, and transmission systems and vessels. Q: How does China compare with countries with established maritime equipment industries? A: In terms of drilling equipment, we started late and lag behind the US and UK. Although we are making fast progress in offshore drilling thanks to improved on-land oil and gas equipment, we still need to catch up in terms of innovation, reliability and durability. For deep-water equipment, China is absent in the global market, where several foreign companies lead in technology, standards and patents. For platform structures, we received US$14.76 billion of overseas orders in 2014, taking 35.2% of the global market and ranking number 1 in the world. Yet, China, like Brazil, is still in the third tier of manufacturers, mainly assembling and manufacturing products of low profit margin, such as oil rigs. Encouragingly, China is narrowing the gap with countries in the second tier, like South Korea and Singapore, which outperform us in profitability and technology. Countries in the first tier, such as US, UK, Netherlands and Norway, have accumulated

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years of R&D experience and have monopolized some core technologies. Q: Today, with the “Made in China 2025” strategy, what are your expectations for China’s maritime engineering equipment in the next ten years? A: The strategy is a ten-year blueprint for China’s manufacturing sector. For maritime engineering, our goal is to turn China into a major maritime equipment manufacturer, with an integrated industrial system of design, manufacturing, supply and services. We will make breakthroughs in critical technologies, such as in systems and devices that can work at 3,000 meters under the sea, and put in place a digital, smart, Internet-based and green manufacturing system for maritime engineering equipment. We will do so through partnerships between government, universities and business, and build on our successes in the ship industry and on-land oil and gas equipment manufacturing. Moreover, our products will be low-carbon, lightweight and eficient. Q: “Smart” is at the center of Industry 4.0. It is also a priority of the “Made in China 2025” strategy. How smart is China’s maritime equipment? A: The unique nature of offshore oil and gas exploration calls for high-tech equipment. Drilling technologies in the future must be more costeffective, cleaner, safer and smarter and ready to be employed at greater depths. For now, China is still working at the stage of electrification and automation, with fewer smart products. As the strategy is implemented, some automated and intelligent drilling equipment that is not often used in land-based oil and gas exploration will be employed offshore. The US and some European 36

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countries are developing a highly intelligent seabed drilling machine, which will be put into use before 2020. Multi-functional deep-water equipment such as floating LNG production and FDPSO will also be put into service. Q: What other challenges are there? And what ideas do you have for overcoming them? A: The international drop in oil price has caused a deep cut in investment in offshore oil and gas exploration, particularly deep-water development. A 9% decline is now predicted in global oil and gas exploration and production investment. The three Chinese oil giants (CNPC, Sinopec and CNOOC) have all cut back on their investment. Weakening demand has weighed on the maritime engineering equipment sector as well. Though China is now able to develop oil and gas at the depth of 3,000 meters, we still fall far behind in technological reliability, and are yet to have any presence in some areas. On the other hand, we have made major breakthroughs in 3,000-meter subsea Blow-out Preventers, 1,500-meter subsea Christmas trees, and E/H riser pipes. Domestic users are, however, reluctant to use them for fear of safety risks.

China’s Hydropower Industry Makes Signiicant Progress

“

”

A dialogue with Wu Yihang,Deputy Secretary General of CSHE

Fu Yuewen

This May, the “World Hydropower Congress 2015” was held in Beijing. The Beijing Hydropower Declaration, announced at the congress, declared that global installed hydropower capacity has surpassed 1 billion kilowatts, and that China ranks as first in the world with an installed hydropower capacity of 300 million kilowatts. As the world’s leading hydropower country, how can China’s hydropower industry continue to develop sustainably? And what role should China

play in the development of the industry? With these questions in mind, the reporter interviewed Mr. Wu Yihang ( 吴义航 ), the Deputy Secretary General of China Society for Hydropower Engineering (CSHE), for the CEFC China Energy journal. Q: Reporter. A:Wu Yihang. Hydropower development should leave the cloud of doubt.

To test these technologies, public sea trial platforms must be built. Without experiments and trials in real life situations, it is hard to convince clients to adopt the products, which often entails certain risks, sometimes enormous ones. Technological standards also need to be put in place to ensure the state, manufacturers and users share the risks. Lastly, businesses should be encouraged to industrialize using information technologies. To this end, the government must give them policy, financial, institutional and human resource incentives, as they make the transition to modern manufacturing service providers. 37

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Q:What kind of consensus has been reached at this World Hydropower Congress? What are the implications for the development of China’s hydropower industry? A: It was the first time that China held the World Hydropower Congress. It provided many opportunities for China to learn from current global hydropower development. During the congress, the Beijing Hydropower Declaration was announced. It declared that hydropower –a major global renewable energy source – should be given higher priority, in order to tackle climate change. It took us a long time to come up with this hard won consensus. Duo to their lack of knowledge, many people in China have misunderstood or exaggerated the environmental problems caused by hydropower. This congress had urgency because it could highlight the positive contribution of hydropower to the world’s development, so as to help change people’s perception of hydropower. Q: H ydr opower with energy and wat er storage capacity can not only provide energy but can also mitigate freshwater scarcity. However, hydropower is also recognized still having impacts on local ecosystems. What is your suggestion for maintaining the balance between the needs of nature and those of the economy? A: The Beijing Hydropower Declaration afirmed that hydropower is a clean and renewable energy source that helps improves our energy mix and cope with the problems of climate change. However, the declaration also mentioned that hydropower development could have adverse effects on ish populations and river habitats. In the 1990’s, after suffering years of criticism in western countries, including the U.S., the World Bank stopped lending money for hydropower projects. But after years of ongoing debates and thought, people developed a new understanding of hydropower and its key role in promoting economic 38

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development and environmental protection. Then, in 2012, the World Bank reafirmed its investment in hydropower projects, on the condition that projects should advocate for environmental and social sustainability. Nowadays, hydropower is used in number of countries, developed countries in particular, to reduce carbon emissions and tackle climate change. Hydropower has become the most important energy source among clean and renewable energy sources in the world. It has played a crucial role in global energy-saving, environmental protection and sustainable development. In addition, hydropower can be used to undertake many tasks, including lood control, irrigation, shipping, water supply and tourism. But everything has two sides. Hydropower will have adverse environmental impacts if we fail to manage it. Hydropower offers significant potential for carbon emissions reductions. However, in the development of hydropower, we need to improve the equipment and seek better ways to balance hydropower and the environment. China’s hydropower

enterprises have entered the international markets Q: In recent years, most of the hydropower potential has been developed in China. What do you think the hydropower market will be like in the future? How will the industry develop? A: China has witnessed high-speed hydropower development and made great gains. At the same time, since most accessible hydropower locations have been developed, future development will focus on Western China, mainly in Sichuan, Xizang, and Yunnan provinces. The total hydropower resource available for exploration in China is 600 million kilowatts. Half of this is made up by the capacity

in Sichuan, Xizang and Yunnan, which account for 1.2 million kilowatts, 1.1 million kilowatts and 1 million kilowatts respectively. It is much more dificult to develop hydropower in Western China than in Central and Eastern China. The consumption of electricity in the West remains low, so most of the electricity generated from hydropower there would have to be transmitted over long distances to the coastal regions, which have a gap in power supply. At the same time, the electricity price in China is too low to cover production and operation costs, as well as the cost of long distance power transmission. Without any government policy support, the development of hydropower in China will certainly be stagnant. China’s hydropower industry has developed quickly over the past three decades, especially during the last decade. The installed capacity of hydropower in China was only 1 million kilowatts in 2004, but by 2009 there were 2 million kilowatts, and in 2014 more than 3 million kilowatts. During this last decade, where capacity increased by 2 million kilowatts, the average production amounted to 20 million kilowatts annually. All the planning, engineering, construction, equipment manufacturing and operation management that has occurred in that time have helped generate beneicial economies of scales for the whole country. However, we should see a more ambitious plan for hydropower development. The World Hydropower Congress has set a target of 2050 GW of installed hydropower capacity by 2050. This is an exciting target because the current global installed hydropower capacity is only 1 billion kilowatts. To reach the goal, another 1.05 billion kilowatts of capacity will have to be added in the next 35 years. In other words, the target is to double the current capacity. Over the past ten years, China’s hydropower industry has made considerable progress both at home and abroad. By gradually expanding, China

has come to account for a 50% share in the global hydropower market. If we keep our hydropower development on track, the installed capacity for China’s hydropower enterprises in overseas will foreseeably exceed 500 million kilowatts – far beyond the construction scale in the domestic market over the past three decades. As we have seen during the World Hydropower Congress, many countries in Southeast Asia, Africa, and North America have shown great eagerness for capital, technology, power transmission, equipment and operational management of local hydropower development. The growth potential for China’s hydropower industry in the overseas market is therefore significant. In addition, hydropower development and China’s Belt and Road Initiative are highly complementary. The initiative may facilitate the healthy and sustainable development of hydropower projects in the country. Q: Any suggestions for how to further hydropower development? A: We cannot take our eyes off small-scale hydropower projects. China’s installed capacity of small-scale hydropower production is 128 million kilowatts, but only 70 million kilowatts has been developed. Due to the constraints that we faced in both capital and technology, the eficiency of water resource utilization and power station operation during the early stages of small-scale hydropower projects was not up to standards. The absence of scientiic planning and engineering also caused adverse effects on river channels and the environment. Fortunately, in recent years, the government recognized the problems in small-scale hydropower projects. It has strived to improve operational efficiency, expand capacity and redesign power plants in order to minimize adverse environmental impacts. We have learned that we should manage small-scale hydropower projects with the same attention that we use for the large-scale ones. 39

Major Events

Major Events CFFC China Energy journal

CFFC China Energy journal

10 million KW barriers – the irst region to do so in China. In the irst quarter of this year, its installed capacity of wind power reached 20.7652 million KW, making up 20.5% of the national installed capacity of 101.07 million KW and ranking first among regions in the country. Cities in western Inner Mongolia, such as Ulanqab League and XilinGol League, have installed a capacity of grid-connected wind power reaching 12.74 million KW, which accounts for 24.8% of the total installed capacity. Statistics by the East Inner Mongolia Electric Power Company Limited, a company afiliated with the State Grid, shows that the installed capacity of grid-connected wind energy in eastern Inner Mongolia reached 8.2 million KW in April this year. This accounted for 34% of the local installed capacity, and made Inner Mongolia one of the leading wind energy players on the national stage.

Inner Mongolia—the First

“Wind Power Three Gorges” in China

Xiao Qiang The installed capacity of grid-connected wind power in Western and Eastern Inner Mongolia has now reached 20.94 million KW. This year, as more and more projects are put into operation, the installed capacity of grid-connected wind power in these regions is expected to generate an estimated 22.98 million KW. This is 0.48 million KW more than the installed 40

capacity of the Three Gorges Dam. With its installed capacity set to surpass the Three Gorges Dam, Inner Mongolia will become the irst place in China to realize the “Wind Power Three Gorges”. China ranks as irst in the world for wind power capacity, and Inner Mongolia contributes the most to this ranking. Blessed with favorable national policies and the efforts of local companies, wind

power in Inner Mongolia is being developed at a very fast pace. It is the pioneer of wind energy development in China. With a vast territory, a small population, and stable wind conditions, Inner Mongolia holds the most abundant areas of wind energy reserves in China. Wang Bingjun ( 王秉军 ), the Director of the Inner Mongolia Economic and Information Commission, said that according to statistics assembled by the China Wind Energy Association, the wind energy capacity of Inner Mongolia is more than 150 million KW. This accounts for over 50% of the onshore wind energy potential in China. At the beginning of 2011, the installed capacity of wind power in Inner Mongolia broke through the

Inner Mongolia’s power grid has always kept a high wind power penetration record. In 2014, wind energy in western Inner Mongolia contributed 11.1% of all the electricity generated in this area, with total electric power generation reaching 23.48 billion KW – 6.8% more than in 2013. Wind farms were in operation for more than 2,090 hours, with the maximum generation load on the power system at 7.69 million KW, and a maximum daily generation capacity of 147 million KW. According to the Inner Mongolia Wind Energy Association, Inner Mongolia has the most abundant wind energy resources and the greatest potential of developable resources in China. It is also the designated pilot area for the Chinese wind energy industry. The total wind energy reserve is estimated at 898 million KW, while its estimated developable resources are 150 million KW, accounting for 50% of the whole country. Most areas around the 12 cities of this region are slated for installation of million-KW and even 10-million-KW wind power plants. 41

Major Events

Major Events CFFC China Energy journal

CFFC China Energy journal

Ultra High Voltage (UHV)

Transmission Will Drive the One Belt and One Road Initiative Jia Kehua At the recent summit discussing UHV Grids and Energy Interconnection, Hui Chenlin ( 惠春琳 ), associate professor at the International Institute of Strategic Studies, Party School of the Central Committee of the CPC, said that, “In order to carry out the ‘One Belt and One Road’ Initiative, more investment in energy infrastructure should be made, and ‘interconnectivity’ of energy pipelines should be maintained in new construction. We will also continue to pay special attention to nonfossil fuel based energy cooperation with countries along the route of Belt and Road Initiative.” Han Feng ( 韩丰 ), vice president of State Power Economic Research Institute, said that “the State Grid has proposed, for the first time, to interconnect four international grids, in order to implement the Belt and Road Initiative. The recently signed strategic cooperation agreement with Russia and Kazakhstan marks the substantial progress of the both intra- and intercontinental grid interconnection. Countries and regions along the route of Belt and Road initiative will interconnect with one another through the UHV grid. This will bring enormous advantages in their ability to service both their respective domestic and foreign markets. By pursuing cooperation, every country along the route of Belt and Road Initiative can realize local economic prosperity.” Wang Xuedong ( 王雪冬 ), a senior engineer with the State Grid, said: “Under the Global Energy Interconnection Blueprint promulgated by the State 42

Grid, by 2020 both theUHV AC backbone and the interregional UHV DC project sponsored by the State Grid will be completed. A strong, super UHV power grid will transfer the electric energy from Northeast China, Northwest China and Southwest China to North, Central and East China.” At the provincial level, power companies afiliated with the State Grid have been actively involved in planning and constructing UHV transmission to support the Belt and Road Initiative. For example, it is clearly stated in the Belt and Road Initiative that China should “fully utilize the advantages offered by Inner Mongolia, particularly its proximity to Russia and Mongolia”. With its abundant energy resources, Inner Mongolia will be incorporated into the Belt and Road Initiative, and will enjoy its local economic and social achievements by transferring energy to other provinces through high speed and long distance networks.

important part of the entire UHV power grid project. The UHV grid not only encourages the development of power industry in Inner Mongolia, but also pursues greater cohesion with Mongolia and Russia, which will be beneicial to the Belt and Road Initiative. The State Grid also stated that, by the end of the “13th ive-year plan”, 3 UHV DC projects in Xinjiang, namely Huaidong—Chengdu, Huaidong—East China ±1100 KW and Hami North—Chongqing ±800, will be completed and put into operation. After these projects are finalized, a “5 DC and 3 AC” network, with a capacity reaching 50 million KW, will be built in Xinjiang for sending out electricity. When it is completed, 30 billion KW of electricity from coal, wind and solar power will be disseminated to where it is needed most in China. The amount of electricity is equal to the amount generated from 100 million tons of raw coal. Henan province is currently working with relevant parties to complete the feasibility study of ±1100 KW Kazakhstan—Nanyang UHV AC project. The project is described as a “New Silk Road” of electricitythat connects Central China and Western Regions, with the potential of extending beyond China into central Asia, and finally becoming an indispensable part of alarger,

intercontinental UHV backbone network. Tianjin will play a crucial part in the Belt and Road Initiative, given its strategic location along both the China-Mongolia-Russia economic corridor and the Maritime Silk Road, and as the eastern starting point of the Eurasian Land Bridge. On March 27 of this year, construction began on the West Inner Mongolia—South Tianjin 1000 KW UHV DC project. It is the first UHV project approved by the National Development and Reform Commission, and with it, Tianjin has entered into the era of UHV development. Because Tianjin is a major city under the Belt and Road Initiative, the West Inner Mongolia—South Tianjin project will be a vital channel for the Initiative in the years to come. Fujian province has been described as the “core region of the 21st Century Maritime Silk Road” under the Belt and Road Initiative. On December 26 of last year, the irst UHV AC power transmission and transformation project, a 1000 KW line from North Zhejiang to Fuzhou, was put into operation. With it, Fujian province has also entered into the era of UHV development. More importantly, it is now embarking on its transformation into a strategic hub for the 21st Century Maritime Silk Road.

Pan Ersheng ( 潘尔生 ), deputy general manager of East Inner Mongolia Electric Power Company Limited, said that “according to the State Grid, during the ‘13th ive-year plan’, an investment of 81.41 billion yuan will be made to Inner Mongolia for construction of the UHV grid. This includes work on 5 UHV DC and 7 UHV AC lines, which Inner Mongolia will use to send out its energy. By 2020, the transfer capacity is expected to reach 70 million KW. Also, two of the international power grid interconnection projects: Russia—Hebei and Mongolia—Tianjin, will run through Inner Mongolia.” Mr. Pan also stressed that the UHV power grids in Inner Mongolia will become an 43

Business

Business CFFC China Energy journal

CFFC China Energy journal

scale to innovation. The only way to secure one’s position in the international market is by increasing competitiveness.” AD and CVD Investigations

Are Increasing

In early May of this year, the European Photovoltaic Industry Association lodged its latest complaint against Chinese manufacturers with the European Commission. It accused Chinese manufacturers of selling their PV products to Europe via Malaysia and other third parties, in order to avoid tariffs. The complaint is the most recent addition to a long dispute on trade in PV products between China and Europe. In August 2013, the two sides tried to resolve their dispute by making a price agreement. Accusations against Chinese companies for breaking the agreement, have, however, been unceasing ever since.

Chinese Companies Better Positioned

to Handle Double-antiInvestigations Cheng Sisi Anti-dumping (AD) and countervailing duty (CVD) investigations are nothing new for Chinese solar panel makers. The United States was the irst to sue China over these practices in 2011. Since then, manufacturers have had to endure such cases on a regular basis. AD and CVD investigations have become part 44

of the ordinary course of business for China’s PV industry. Lin Boqiang ( 林伯强 ), Director of China Center for Energy Economics Research of Xiamen University, explained how manufacturers will have to overcome this challenge: “To reduce trade frictions, Chinese manufacturers must speed up their reorganizations, which will be centered on a shift in strategy from

Don’t Read Too Much into AD

and CVD Investigations

According to Lin Boqiang, “recent EU and Canadian investigations are a continuation of previous anti-dumping measures by Europe and America.” Some argue that the European Photovoltaic Industry Association had hoped that its complaint would instigate an EU anti-circumvention investigation against China’s silicon and PV components. It is now believed that their real intention was to acquire evidence, which it could later use to urge the European Commission to extend the China-EU price agreement. The agreement is due to expire this December. The Commission will review the current implementation before deciding to extend or cancel the price agreement. If a violation and circumvention is found, the parties concerned will be disqualiied and stiff duties will be imposed.

In March of this year, the European Commission proposed to disqualify China’s ReneSola, ET Solar and Canadian Solar Inc. from the Minimum Import Price (MIP) agreement between China and the EU on ground of violation of the price agreement. On June 7, the European Commission announced higher tariffs would be imposed on the three companies, and asked them to withdraw from the MIP. If this moves ahead, the three manufacturers will face an average 47% tariff, making their exports to Europe more expensive.

With regard to Canada’s investigations, Xie Feng( 谢锋 ), a senior analyst from IHS, said that “Canada and the EU always stand together in their attempts to curb China’s PV industry. Canada wants to develop solar power. But because its PV manufacturing capability is quite weak, it needs low-cost and quality Chinese PV components. By investigating Chinese products, Canada will only increase the manufacturing cost of its own PV industry, and cause damage to its own interests.”

Canada has also launched AD and CVD investigations against Chinese photovoltaic components and silicon modules. On june 3, the Canada Border Service Agency designated China’s PV industry as a non-market economy sector, then made rulings on the investigations, which it planned to disclose within 15 days of the designation.

According to Ding Wenlei ( 丁文磊 ), Chairman of Hangyu Solar Technology, the investigations don’t pose serious problems for some Chinese manufacturers:“People should not read too much into these investigations. They are market behaviors. As the terminal markets expand, Chinese PV companies have more options. Every year, global PV power generation capacity increases 45

Business

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by 40 gigawatts, and in China, it grows by 10 gigawatts. This means big space for domestic companies. AD and CVD investigations really only have a signiicant impact on small companies. The big players are much more comfortable, and are better able to cope.” Technological Innovation Offers

a Way Out of Price Wars

CFFC China Energy journal

reduce dependence on foreign markets and turn to a growing and strengthening domestic market.” “Since growing domestic demand already provides a huge market, more companies are, in fact, turning inward. Demand is also growing quickly in japan, Southeast Asia and other emerging markets. To some extent, that makes European and American investigations less damaging.”

“ nternet Plus” Boosts CNPC and Tencent Partnership Wu Li

“Companies may respond differently to investigations,” Xie Feng added, “In the face of the probes, Canadian Solar Inc., the No.1 seller in the first quarter, chose to appeal, while ReneSola, which ranked No.8, and ET Solar, which failed to make it to the top ten, opted out of MIP and stopped exporting to Europe.” “As a result of the investigations, many small companies give up the European and American markets. Those unwilling to quit inevitably face rising costs.” Lin Boqiang pointed out, “For China’s manufacturers to develop sustainably, they must

When interviewed, many said Chinese products have been intentionally targeted, largely because China’s PV industry is competitive in scale and price, not technology.

Last month, China’s oil giant, China National Petroleum Corporation (CNPC), and China’s leading internet company, Tencent, signed a strategic partnership

In response to these setbacks in European and American markets, many from the industry have suggested relocating factories overseas. But Ding Wenlei argued otherwise, stating that “Relocating is one option. But what is really important is to speed up the reorganization of the sector, improve technologies, and ultimately reduce cost. These are the true sources of competitiveness.”

Business

Business CFFC China Energy journal

agreement in Beijing. The goal of the partnership is to promote mutual development by leveraging each other’s advantages and resources, in line with the country’s “Internet Plus” action plan, proposed by the Premier Li Keqiang ( 李克强 ) in March. Under the agreement, the two heavyweights will cooperate on a wide range of areas, such as mobile payment, internet finance, online-tooffline commerce, tourism, and membership management. Given the massive data CNPC possesses on energy consumption, Tencent will also partner with CNPC on cloud computing and big data applications. Wang Yilin ( 王宜林 ), chairman of CNPC, said petroleum enterprises must urgently take advantage of the Internet to improve their competitiveness, because the industry is undergoing huge transformations brought about by cutting-edge technologies. The “Internet Plus” action plan promotes building alliances between traditional and IT companies. In accordance with the action plan, traditional industries and the IT industry will approach each other to explore new opportunities in the internet economy. CNPC and Tencent have complementary advantages in both their core business and strategic resources, so their cooperation is expected to advance their innovation, services, and products. Yu Baocai ( 喻宝才 ), Deputy General Manager of CNPC, said, “The rapid development of internet technology has brought great convenience to our daily lives. It is now necessary for enterprises to innovate their business models, by adopting internet technology to help meet people’s needs.” He predicted that the cooperation between CNPC and Tencent would help expand the type of services CNPC offers, as well as boosting the long 48

CFFC China Energy journal

term growth of CNPC.

Assimilating into the Global Market:

CNPC and Tencent have already collaborated on online services and online marketing, such as their use of WeChat. Tencent’s experience in internet and data analysis will also prove useful for CNPC’s non-consumption business.

A Story about a Chinese Oilield

Ma Huateng ( 马化腾 ), Chairman of Tencent, also expressed his belief that CNPC’s traditional business conforms with Tencent’s development strategy. He predicted that integration with the IT industry will help improve business for traditional companies, and said that Tencent plans to speed up its collaboration with CNPC on a variety of business.

Wu Li

Ma also said that Tencent is currently making a strategic shift towards the social media platform and content industry. In China, social networking applications such as QQ and WeChat have become huge platforms where users can chat with friends and make online payments. According to some statistics, social networking applications such as QQ and WeChat in China account for 70% of time spent on all apps. Earlier in june, Tencent also joined hands with the Sichuan branch of the State Grid Corporation of China to improve the digital management of grid systems and offer better services to consumers. As early as last August, another energy giant, Sinopec, signed a framework cooperation agreement with Tencent over sales, mobile payment and data services. In April of this year, Sinopec also partnered with Alibaba for cloud computing services and data analysis. These examples show that in the “Internet Plus” era, collaboration with IT and web companies is a great opportunity for traditional companies to innovate and expand their services.

Equipment Company Going Global

Do Chinese oilfield equipment manufacturers want to join the global market? The answer is definitely “Yes”. Chinese enterprises want to smoothly enter the global market, and tell the story of “Made in China” to our friends worldwide. From Asia and Africa to America and Europe, from low-end to high-end, from components and parts to complete sets of equipment, and from equipment exporter to provider of comprehensive solutions, the oilfield equipment manufacturers of China have strived to enter the global market through a steady internationalization process since 1980s, when the “Going Global” strategy was unfolded. Today, the “Made in China” brand is recognized and known by customers worldwide. A Comparatively Complete Manufacturing System Was Established Welding sparks are flying about and different types of steel pipes are laid in order. This is what our reporters saw when they walked into the pipemanufacturing workshop of Baoji Petroleum Steel Pipe Corporation(abbreviated as BSG). The company is an afiliate of CNPC, and is located in Shaanxi. Bai Gongli( 白

利 ), the general manager of

BSG, told this reporter that the company was capable of providing a series of products and services, including, but not limited to, oil well pipes, coiled tubes and anti-corrosion services. The average production capacity of the company’s pipe products has reached 1.8 million tons, and has occasionally hit a maximum capacity of 2.6 million tons. At present, BSG is not only selling pipe products for its domestic market, but also becoming a supplier for 12 renowned international oil companies. The oil equipment manufacturing industry grows with the prospects of the oil industry. It has risen to national prominence through continuous transformation. At first, the industry only made repairs and supplied replacement parts. Today, it manufactures a range of oilfield equipment and provides comprehensive services. Perhaps the first milestone for the industry was in the 1950s, when China made its first spiral submerged arc welded pipe. In the 1970s, it built its first 5000-meter oilrig. In the 1980s, it began offering oil equipment design and manufacture technologies to the U.S. . After 60 years of pioneering work, the industry now boasts a comparatively complete manufacturing system for oilfield equipment. Today, CNPC has over 24 subsidiaries providing equipment and manufacturing services, including China Petroleum Technology and Development Corporation, CNPC Baoji Oilield Machinery Co., LTD (BMG) and BSG. 49

Business

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CFFC China Energy journal

at BMG and BSG. When reporters walked around the National Oil and Gas Drilling Equipment Engineering Technology Research Center of CNPC, they saw two researchers executing a drilling rig simulation. This is expected to help them understand more about drilling operations, and to help improve their operational performance in the future. As a national-level research center, the National Oil and Gas Drilling Equipment E n g i n e e r i n g Te c h n o l o g y R e s e a r c h C e n t e r possesses many key technologies, such as oilrig automation, intellectualization and integration, deep-water heave compensation, marine riser design and manufacturing, and marine deep-well equipment and control. These technologies make up the backbone of Chinese oilfield equipment manufacturers’ strategy for going global.

Zhang Hanliang ( 张晗亮 ), the general manager of China Petroleum Technology and Development Corporation, told this reporter that CNPC is now able to develop, design, manufacture and market over 200 products. This includes nine categories of equipment, such as drilling, extraction, steel pipes, power, offshore, refining, chemical, natural gas, geophysical prospecting and well logging equipment. The company’s major products meet international standards and can satisfy the market demand for onshore oil and gas development. Technological Innovation: An Important Basis for “Going Global”

market, the path for Chinese oilfield technology development has never been smooth. According to Bai, he still clearly remembers the obstacles he encountered twenty years ago, in the 1990s. At the time, the coiled tubes used in China were all imported. Because of its nature as a low-cost, but high-eficiency design, the coiled tube was described as an “all-powerful equipment” for achieving reservoir protection and efficiency gains. Since there were only two to three companies in the world capable of making the coiled tubes at the time, representatives of CNPC went to a U.S.supplier to acquire the technology. Unfortunately, they were turned down by the supplier.

To go global and compete on the international stage, what can Chinese oilfield equipment manufacturers do, and how can they compete with international corporations? The answer lies in technological innovation.

In 2006, with the aid of the National High-Tech R&D Program (863 Program), BSG was able to produce coiled tubes. Two years later, China’s irst coiled tube production line in Asia – and the third in the world – was launched.

As a latecomer to the international oil

Today, technological innovation is a priority

Zhang also told reporters that, in recent years, Chinese companies had been paying more attention to the different challenges and opportunities shaping up in the international market. They have been investing more in R&D and making more efforts to introduce advanced technologies to the international market, aiming to improve both China’s oil equipment innovation system and the healthy development of Chinese enterprises. Technological innovation has become necessary for Chinese oil equipment to compete on the international stage. Three “Trump Cards” for “Going Global” Tao Changyin ( 陶长银 ), a maintenance itter at BMG, told reporter that the winches speciically produced for the National Drilling Company of UAE (NDC) are living up to the high standard set by the customer. One could see the pride in his face as he spoke. Nezar, a project manager of NDC in Baoji, agreed with Tao. In his opinion, the equipment and

services provided by CNPC were both cost effective and high quality. In early 2009, NDC invited tenders for its biggest rig purchase project from all over the world. The tender price reached as high as 300 million US dollars. Although NDC is well known in the industry for its high work standards, BMG stood out from the 13 competitors and became the sole successful bidder. At the time, this was the biggest order that Chinese companies had ever received. It was also the first rig-purchasing contract of NDC that an Asian company ever won. BMG was the first Chinese oilfield equipment company to make its debut in the Middle East. In 2013, BMG was also requested by NDC in a contract renewal worth up to 2.62 billion yuan. In 2015, the contract between the two companies was renewed again. This time, the contract worth about 1.88 billiom yuan, and marked BMG transformation into an international high-end brand on the global mainstream market. Guo Mengqi ( 郭孟齐 ), the general manager of BMG, explained that these achievements had been made because of three “trump cards”. These were “Leading Technology”, “Supreme Quality” and “Considerate Service”. Other equipment manufacturing companies affiliated with CNPC are following the same path that BMG did. The motto of BSG’s production is “to treat every steel pipe like a baby”. For customer service, BSG adheres to the slogan “service goes before pipe delivery”. Wi t h i t s u p g r a d e d o i l f i e l d e q u i p m e n t technology, CNPC hopes to achieve the ambitious “Going Global” and “Made in China 2025” goals. CNPC will continue to focus more on the international market and make the transition from a production oriented business to a service oriented business. CNPC will also take advantage of the “Belt and Road Initiative” by cooperating with resource rich countries. 51

Energy Security

CFFC China Energy journal

Building a Strategic Oil Reserve System

—— a Long-Term, Arduous Task for China

reserves are government-controlled reserves that are only be used to combat major disruptions in oil supply, such as might occur during war and natural disasters. The commercial oil reserves are built by oil enterprises, and aim primarily to offset sharp fluctuations in oil price. The amount of oil commercial reserves hold is determined by laws and regulations. According to the current commercial oil reserves policy, each oil refinery company is obliged to keep an oil reserve equivalent to at least 15 days of their reining capacity.

▲ Huang Xiaoyong

Huang Xiaoyong ( 黄晓勇 ) The first phase of the national strategic oil reserve project came into service in late 2014. The project consists of four national reserves in Zhoushan, Zhenghai, Dalian and Huangdao, together a massing an overall storage capacity of up to 16.40 million cubic meters, and a reserve of 12.43 million tons of crude oil. The object of the reserve is to offset oil supply risks and reduce the impact of luctuating global energy prices. As such, China’s oil reserve has become a global concern. The oil reserve system of a nation includes both strategic and commercial oil reserves. Strategic 52

The Chinese government irst proposed building strategic oil reserves in March of 2001. The decision was timely, since high oil prices triggered by the outbreak of the Iraq War threatened China’s oil market. In 2003, China officially launched the national oil reserve bases program, which was set to be completed in three phases. After completion of the third phase, China’s strategic oil reserves capacity will equal approximately 500 million barrels, or about 68.21 million tons. A report issued last year by one of China’s energy giants – PetroChina Company Limited – shed light on the status of China’s oil reserves. The report stated that China’s strategic oil reserve capacity had increased to 141 million barrels in 2013. With China’s oil consumption for that year at 1.39 million tons of oil per day, China’s oil reserves would have lasted for only 22.7 days, counting 8.9 days of strategic oil reserves and 13.8 days of commercial reserves. Even with the current commercial oil reserve policy, China’s total oil

reserve reaches only 30 days of consumption. Even in times of economic downturn, oil consumption will usually keep rising. On a yearto-year basis, China’s oil consumption typically increases by 3.8%. In 2013, China’s oil consumption rose to 498 million; in 2014 it exceeded 500 million tons. According to the PetroChina report, China’s oil consumption –taking implementation of alternative energy sources into consideration – is expected to peak at 810-870 million tons in 2040. This means a rise of about 60% from today. Using this estimate for peak demand, China’s strategic oil reserve project, if completed as planned, will still only hold no more than a month’s worth of supply. The total oil reserves are simply inadequate for satisfying the nation’s energy thirst. China’s oil reserve quantity is far short of the recommendation by the International Energy Agency that countries should keep the equivalent of 90 days’ worth of oil consumption on hand in strategic reserves, and is even further below the current average of 172 days held by the IEA member countries. By contrast, japan’s oil reserve has 172 days of consumption, and the United States up to 240 days – and both of these countries have already reached their peak oil consumption. Insufficient oil reserves thereby risk hindering China’s access to international energy governance. Over the past few decades, the major factor in rising oil price has been emerging economies, which created an increase in oil imports. China is an obvious case: its crude oil external dependence hit 59.5% in 2014, and is still increasing. These economies, China’s included, bear the high price of oil import and have little say in international oil pricing. Emerging economies that do not have adequate storage capacity need to scale back purchases of oil even when oil prices are cheap. As a result, some serious risks emerge: economic and security, among others.

Apart from moderating the price of oil, oil reserves play a crucial role in military strategy. The Air-Sea Battle and Offshore Control strategies proposed by the US against China may interrupt or disrupt China’s oil imports. If China’s oil import supply line is blocked, China may struggle to keep up with the US and japan in the “battle for energy”. Also of concern is the fact that the four strategic reserve bases in China are all located in coastal regions. Oil tanks occupy large sites and are exposed to attack. Their destruction can have major consequences. For example, during World War II, the US navy’s entire oil supply at Pearl Harbor was stored in above-ground tanks. The 4.5 million barrels of oil they held might have been easily destroyed by a small warhead. Had the japanese destroyed those oil tanks, the US war against japan might have been prolonged for another two years. This also explains why current US oil reserve bases are well guarded and built to resist nuclear attack. The completion of the irst phase of the strategic oil reserve system should be seen as a major achievement in safeguarding China’s economic development and national defense. In the meantime, China is still combating a number of energy security concerns. It may take a long time for China to complete a strategic oil reserve system with safe bases and facilities. To improve construction eficiency, the Chinese government can seek investment from private enterprises. It can also introduce new laws and regulations to govern the construction of the reserve and to dictate the conditions under which it may be used. In this regard, the experiences of the US and japan are worth learning from. (The author is the president of the Graduate School of the Chinese Academy of Social Sciences, and the director of the International Energy Security Research Center). 53

Technology

Technology CFFC China Energy journal

CFFC China Energy journal

China’s Nuclear Robots,

Ready to Go Zhu Xuerui

The world has been researching robots for use in nuclear power plants from the very birth of the nuclear industry. With the increasing number of nuclear power plants being constructed in China, the need for research and development of nuclear power plant robots has become more urgent. Last month, the “nuclear reactor robot” project at the nuclear power base in Fangchenggang, Guangxi – undertaken by China General Nuclear Power Corporation (CGN) with grant support from the National High-tech R&D Program (also known as the “863” program) – passed the Ministry of Science and Technology’s evaluation. At almost the same time, the Alliance of Intelligent Nuclear Equipment and Robotic Technology Innovation was established. After witnessing tests of refueling and repairing robots and mini underground robotic devices, as well as hearing presentations from the team members, the examiners gave the project an “A” grade. Zhang Yixin ( 张一心 ), the project’s group leader and the vice president of the China Nuclear Power Technology Research Institute, said that because China has the largest number of nuclear power plants under construction in the world, the demand for robots is increasing. The Hualong One Reactor, in particular, stimulates enormous domestic and international 54

demand for robots designed specifically for thirdgeneration reactors. In 2013, China became the world’s largest market for industrial robots. Because they are highly resistant to radiation, robots are perfect for the work required in a nuclear reactor. They can play a valuable role in emergency relief and maintenance and repair, and can also be used outside of nuclear power plants, wherever similar functions are required. The usefulness of robots that can survive hostile environments, such as a Fukushima-type nuclear disaster, has already been demonstrated. To investigate the situation in the abandoned Fukushima nuclear power plant, Tokyo Electric Power Company recently said that it will send another robot to complete the job that had not been inished by the previous one. The research team of CGN has spent the last four years inventing robots that could replace men working in radiation, with the goal of making nuclear plants safer and more cost-effective. They have now developed their technologies and produced model robots, some of which have already been installed for demonstrations at the Fangchenggang nuclear power station. This breakthrough has prompted cooperative endeavors by players in China’s nuclear sector. On May 29, the China Nuclear Power Technology Research Institute, together with universities, research institutes, equipment manufacturers

and nuclear power companies, established the Alliance of Intelligent Nuclear Equipment and Robotic Technology Innovation. With 31 members, the alliance aims to improve China’s innovative capabilities in robotic technologies, as well as foster partnerships between research institutions and businesses, in order to commercialize scientiic discoveries. Local governments are also onboard. In November 2014, Shenzhen prioritized R&D and commercialization of robots for nuclear reactor maintenance, repair and disaster relief in its industrial development plan. In recent years, CGN has increased its input in R&D as part of its innovation strategy. In the irst four years of the 12th Five-Year Plan period (2011-2015), it invested 6.35 billion RMB in R&D, accounting for 4.4% of its revenue. It has a 3,000 person strong R&D team working at 10 of its institutes and 8 national-level R&D and engineering centers. 55

Planet

Planet CFFC China Energy journal

CFFC China Energy journal

Suggestions for China’s

Carbon Emission Reduction

Kong Jueting On june 30, the Chinese government submitted its Intended Nationally Determined Contributions (INDC). In it, China says it will curb emissions of greenhouse gas with an investment of 41 trillion Yuan. In order to achieve this goal, China will transform it national energy structure from one heavily relying on coal to one that increasingly based on clear energy sources. China is committed to understanding how market forces can be used to efficiently allocate energy resources and reduce carbon emissions. China has prioritized resolving questions of what kinds of policies it can adopt to simultaneously address air quality and economic growth. China is also trying to see what experiences and lessons it can draw from other carbon reduction markets. josh Margolis, Managing Director of the Environmental Defense Fund’s China Program, recently shared his opinions with the CEFC China Energy journal. The Environmental Defense Fund is one of the world’s largest environmental organizations in the United States, and has been active in China since 1996. Q: Reporter. A: josh Margolis. Q: China is transforming into an innovative, 56

low-carbon economy. In your opinion, what are major challenges and opportunities for China during this process? A: China has a great opportunity to deploy low-carbon technologies, which could help drive economic growth while improving environmental and energy performance. There are many challenges, including seeking ways to reduce the carbon content of fuels, increasing energy efficiency in manufacturing and buildings, and capping emissions in a way that accommodates economic development objectives. But inherent in these challenges are opportunities for renewal and transformation. In order to overcome these challenges, China can adopt an emission trading system (ETS) that creates a price on carbon pollution and gives the market a decisive role in resource allocation. Q:The EU emissions trading market is currently the world’s largest. China’s carbon trading market also shows great potential; it is expected to begin its trials by the end of 2016. What can China learn from the EU ETS? A: The EU ETS is considered successful, due to its lower-than-expected cost of reducing Europe’s carbon emission and its secondary beneits. Over its ten year lifespan, the EU ETS has kept

emissions below the established cap at a fraction of the anticipated cost. The same lesson can be drawn from the U.S. acid rain program, namely the U.S. Regional Greenhouse Gas Initiative and California’s A B 3 2 . B o th p r o g r ams h av e r eco r d ed h ig h compliance rates at low operating costs, thereby increasing the level of environmental ambition for greenhouse gas reduction. Higher rates of compliance have also generated secondary benefits. These include mitigating nontarget pollutants such as PM2.5, NOx, SOx and VOCs, reducing morbidity rates, increasing energy security, and creating more green jobs. However, I think the most important lessons can be drawn from China’s own pilot carbon trading programs. In 2013, China launched a pilot ETS program in two provinces (Guangdong and Hubei) and five cities (Shenzhen, Shanghai, Beijing, Tianjin, and Chongqing). The purpose of these pilots was to accumulate experience and inform the development of the future, nationwide ETS. In 2015, these areas collectively represented 27% of China’s GDP, and have a population of more than 250 million people. The programs thus ensured that China would gain experience over many issues associated with application of an ETS, including socio- economic status, urban-rural location and industrial development. China can draw experience from both its own ETS pilot programs and the West. In doing so, policymakers will be able to select best practices and develop a national ETS with Chinese characteristics – a system that can address the nation’s own unique challenges and opportunities. Q: In China, the carbon emissions pilot schemes cover enterprises in 32 different industries. Each province and city in China contains a different mix, or concentration, of these industries. Will it be necessary to implement a different scheme for each region, tailoring the ETS and its targets to local

conditions? A: In this sense, China is a good summary of the world. China has diverse economic structures and key industries vary considerably among its provinces and cities. Because ETSs have been applied around the world, in a variety of economic contexts, it is believed that an ETS can provide sufficient flexibility for Chinese policymakers to come up with a system that best suits their needs. I believe that China can develop a unique pilot ETS which takes all local challenges and opportunities into consideration. Q: It is important to ensure that carbon emissions data is accurate, so that policymakers are properly informed when crafting their emissions policy. To ensure accuracy, cooperation between enterprises, third party certiication authorities and government is crucial. How can we guarantee that all parties will be strictly obligated to provide accurate data? A: Data accuracy is fundamental for establishing and operatingan ETS. Fortunately, numerous measures exist for monitoring energy use and emissions, reporting data to policymakers and third party inspectors, and most importantly, verifying the accuracy of emission reports. For examples, Continuous Emissions Monitors (CEMS) are a perfect tool for providing real time pollutant concentration data, and ensure that pollutants emitted do not excess the mandated standards. We can also verify data accuracy by cross-checking fuel purchase reports, operation records, and materials balance evaluations. A system that features independent verifiers for emissions should be an integral part of the ETS. Well trained verifiers are capable of carrying out independent assessments on the accuracy of the emissions reports submitted by enterprises. Government advisors and other independent qualiied entities should also be allowed to doublecheck the third party assessment. 57

Foresight

Foresight CFFC China Energy journal

CFFC China Energy journal

than normal, meaning that more power will be generated through hydropower resources.

Price of Coal Expected to Remain Low in the Second Half of 2015

Li Ting Coal consumption in China is expected to continue to decline in the second half of 2015, due largely to the rapid growth of the alternative energy sources and the sharp decline in real estate investment. Production of alternative energy sources is expected to grow substantially. For example, according to the Changjiang Flood Control and Drought Relief Headquarters, the Yangtze River is set to receive above average precipitation in the upcoming rainy season. This will cause the water level in the middle and lower reaches of the river to be higher 58

Nuclear power, wind power and gas power are also expected to continue growing. In May of this year, the installed capacity of nuclear power and wind power reached 21.05 million kilowatts and 103.2 million kilowatts respectively, or 18.4% and 25.4% more than in the same period a year ago. Gas power generating capacity is also growing rapidly, and is displacing coal power generation in some areas. In 2014, the installed capacity of national gas power generation reached 55.67 million kilowatts, or 28.5% more than in 2013. The conservative estimate is an increase of 15 million KW for 2015. Investment in fixed assets, particularly real estate, might continue to decline. Due to the large overcapacity in construction materials, the demand for steel and cement will be reduced. This will further decrease the demand for coal. From january to May of this year, the area of land sold and the area of land under new construction fell by 31% and 16% respectively, compared to the same period last year. These two indicators imply that the growth rate of real estate investment will continue to decline in the future. Coal Output Will Continue

to Plunge

In the current situation of persistently weak demand of coal, China should reduce its coal output to bring the coal market back into balance. Since the beginning of this year, some energy giants in China â&#x20AC;&#x201C; such as China 59

Foresight CFFC China Energy journal

Shenhua Group and China National Coal Group – have suffered large declines in coal production, with reductions far more serious than is visible at the national level. There are two main factors affecting coal production in China: public policy and the market. From the perspective of the market, energy giants such as China Shenhua Group– which has a cost advantage over the rest of the industry – do not need to cut down their coal output even when the coal market is declining. Instead, a company can choose to reduce its coal price, which will exert leverage against competitors and maximize proits. In reality, these companies were compelled to cut down their coal output because they are stateowned enterprises. Their goal is not just to compete in the market, but also to perform duties and responsibilities on behalf of the state. In the remaining half of this year, both public policy and the market will continue to dictate the terms of the reduction in coal output. The market will be particularly signiicant. For example, since March of this year, the relevant governmental departments have required local authorities to strengthen supervision of illegal coal production. But the result of the control is still not satisfactory, mainly due to changing market conditions. The upcoming peak summer demand on coal will likely make the energy giants increase their commercial coal output, which means government cannot expect to see noticeable results from coal output control in the short term. If the price of coal bottoms out and stays low for an extended period, small and medium sized companies – which have already suffered losses in the earlier parts of the year – are unlikely to see the price of coal recover and risk being squeezed out of the market. This will cause total coal output to plunge even further. 60

Coal Import Will Continue

to Decline Slowly In the next half of the year, the low domestic demand for coal will continue to pressure coal imports. This trend will be furthered by the implementation of more rigid quality inspections of imported coal. We can expect our coal imports will continue to decline, although at a slower rate than the first half of 2015. Monthly coal imports will likely remain around 15 million tons. This trend is explained by three factors. First, coal prices are expected to be low, but also stable. This provides a low-risk environment for coal operators, and hence prevents a faster decline in coal imports. Second, imported coal still gains a price advantage over domestic coal, although the price spread between domestic and imported coal is now narrowing. Third, there is still rigid demand for coal imports, particularly from coastal areas in east and southeast China. As coal demand continues to shrink and the problem of overcapacity remains unsolved, the coal industry may need to spend a couple of years waiting for the market rebalance. Moreover, the coal industry in China may lack motivation to bring up coal prices at a time when international coal prices continue to fall hard. The fact that downstream coal operators have finished their destocking process may help alleviate downward pressure on coal prices and help keep prices stable. Similarly, the coal price slump in the earlier part of the year has also dampened production enthusiasm. This may in turn prevent the price of coal from further declining. Therefore, we believe that the domestic coal price will stay low, but steady, for the second half of the year. (The author is the Chief Analyst of Ruineng Consulting Group)

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