CEFC China Energy Journal November 2015 Issue 6 by China Energy Fund Committee

CONTENTS

NOVEMBER, 2015, Seventh Issue

New Energy Cars Highlighted

Greenhouse Gas Emissions China Has Nothin价 to Be Apolo价etic About! 中国并非温室气体排的罪魁祸首

18 22

China a Global Leader in Climate Chan价e Fi价ht 中国——应对全球气候变化的领导者

8 Opinion 观点 Establishin价 an Ener价y Community alon价 the Silk Road Economic Belt 打造丝绸之路经济带的能源共同体

New Ener价y Cars Hi价hli价hted in 13th Five-Year Plan 新能源汽车成中国“十五”规划热点

Rosne件t Emphasizes Greater Ener价y Cooperation in Eurasia 俄石油欲扩大欧亚能源合作

44 Major Events 主要事 China’s Nuclear Power Industry Enters a Golden A价e 中国核电迎来黄金发展期

Energy Security 能源安全 Enhancin价 China’s In件luence on World Ener价y Pricin价 Throu价h RMB Internationalization 人民币国际化有助于提升中国能源议力

Technology 技术

Planet 地球 China Huanen价 Group Delivers Ecolo价ical Development to the Loess Plateau 生态华能造福黄土高原

China Ends Dependence on Outsourced Pipeline Inspection 中国油气管道摆脱“洋检测”

Foresight 前瞻 China to Deepen Ener价y Re件orm in the Next Five Years 中国未来五年将继续深化能源改革

China’s Imminent Coal Industry Re件orm 中国煤炭行业改革迫在眉睫

策

China to Cap Coal Consumption 中国煤炭消费总量控制势在必行

Dialogue 对话 Beijin价-Tianjin-Hebei (Jin价—Jin—Ji) Leads China’s Economic Transition towards Sustainability 京津冀引领中国可持续经济转型

Global Ener价y Network Boosts World’s Sustainable Development 全球能源互联网助力世界可持续发展

12 Policy

Figures 数字 Cover Story 封面文章

Optimize Wind Power Industry

Imminent Coal Industry Reform

4 Editorial 编者的话

First Nuclear Plant

Business 商业 China to Optimize Wind Power Industry 中国风电产业需 “优化” Oil件ield Service Companies to Thrive A价ainst Trend 油服行业逆势奋进

Oilield Service Companies Thrive

54 Ecological Development to the Loess Plateau

Editorial

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The attention that China receives in climate change coverage is, however, often biased and misleading. The media is quick to label China as the biggest current aggregate emitter of greenhouse gasses – a title China only recently inherited from the United States. While, on its face, true, the simplicity of this statistic hides and shifts the considerably greater responsibility of the developed world in causing climate change. A more comprehensive analysis of emissions reveals the inaccuracy of the label. Several factors demonstrate that China’s responsibility for emissions is overstated by the title of the largest current aggregate emitter. Per capita emissions, consumption-based emissions, cumulative emissions, and China’s contributions to emissions reductions thus far all demonstrate that China’s responsibility for climate change is far less than what is regularly implied in mainstream media. Superficial coverage of China’s emissions is, therefore, not only unfair to the Chinese people, but also distracting the world from addressing more signiicant causes of climate change.

Greenhouse Gas Emissions –

China Has Nothing to Be Apologetic About!

the world’s biggest investor in renewable energy,2 and an innovator in nuclear and alternative fuel technology. 3As such, it is natural that China’s actions will be followed closely.

Ho Chi Ping Patrick When world leaders gather in Paris this December to conclude a legally binding agreement on climate change, China’s actions will undoubtedly 4

receive considerable coverage. China is, after all, the world’s second largest economy1 (by nominal GDP) and has featured in climate related news lately, thanks in part to its initiatives in combating climate change. Among other things, China is also

By nominal GDP; International Monetary Fund, World Economic Outlook Database, http://www.imf.org/external/pubs/ft/ weo/2015/02/weodata/index.aspx. 2 FS-UNEP Collaborating Centre, Global Trends in Renewable Energy Investment 2015, http://fs-unep-centre.org/publications/ global-trends-renewable-energy-investment-2015; Climatescope 2015, China, http://global-climatescope.org/en/download/reports/ countries/climatescope-2015-cn-en.pdf. 3 World Nuclear Association, Advanced Nuclear Power Re-

China is the world’s most populous country. On average, Chinese citizens produce, and have produced, far less emissions than their Western counterparts. As of 2013, China’s per capita emissions ranked as 39th. 4 This is an important fact to consider, both out of a concern for fairness or even simple pragmatism in addressing climate change. On a per capita basis, the citizens of 38

actors, http://www.world-nuclear.org/info/Nuclear-Fuel-Cycle/ Power-Reactors/Advanced-Nuclear-Power-Reactors/; Methanol Institute, China: The Leader in Methanol Transportation, http:// methanol.org/Methanol-Basics/Resources/China-Methanol. aspx. 4 Global Carbon Atlas, http://www.globalcarbonatlas.org/?q=en/ emissions. World Resources Institute, http://pdf.wri.org/navigating_numbers_chapter4.pdf. 5

Editorial

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other countries pollute more than those in China. Their lifestyles and situations are, in other words, less sustainable than that of the average Chinese citizen, and conversely present many more opportunities for emission reductions. China is also the world’s largest exporter. 5 Foreign consumers are major beneficiaries of Chinese production which, among other things, offers significantly lower prices. In other words, Chinese factories emit carbon to meet the demand of foreign markets. If China did not produce these goods, they would have to be produced elsewhere, and the emissions would be attributable to another country. Other countries have thus effectively “off shored” their emissions (and pollution) to China. Accounting emissions on the basis of consumption of goods, rather than production, clearly indicates that China’s responsibility for climate change is not as great as one might gather from media reporting.6 In 2004, 22.5% of China’s emissions could be traced to exports to other countries.7 Other numbers, such as those produced by the United Kingdom’s House of Commons, suggest that a consumption based accounting would reduce China’s emissions by 45%.8 Consumption

International Trade Center, China Service Sector Analysis, http://www.intracen.org/uploadedFiles/intracenorg/Content/ Exporters/Sectors/Service_exports/Trade_in_services/China_ServicesBrief.pdf. 6 United States National Academy of Sciences, Consumption-Based Accounting of CO2 Emissions, http://www.pnas. org/content/107/12/5687.abstract. 7 Marco Springmann, et al., Consumption-Based Adjustment ofChina’s Emissions-Intensity Targets: An Analysis of its Potential Economic Effects, http://globalchange.mit.edu/iles/document/MITJPSPGC_Rpt241.pdf. 8 United Kingdom House of Commons Energy and Climate Change Committee, Consumption-Based Emissions Reporting, http://www.publications.parliament.uk/pa/cm201012/ cmselect/cmenergy/1646/1646.pdf. 6

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based emissions calculated on a per capita basis demonstrate that the consumption of the average United States citizens is four times higher than that of the average Chinese citizen. 9 China is also a developing country which began its rapid industrialization only in the inal decades of the 20th century. Western nations, which began to industrialize in the early 1800’s, have had far more time contributed to global greenhouse gas emissions – as well as reaped the economic beneits of industrialization.10 As of 2012, China ranked third in terms of cumulative emissions, and was responsible for approximately 10% of emissions. The United States, by comparison, ranked irst, and was responsible for 27% of emissions, while Europe ranked second, with 24%. Furthermore, on a per capita cumulative emissions basis, China still ranks below the United States, Canada, the European Union, Japan, and Russia. Compared to what one might understand from everyday media reporting, these figures paint a very different picture of China’s responsibility for climate change. Saying that China is the world’s largest emitter is meaningless. China is the world’s most populous country. Its individual citizens are

OECD, Carbon Dioxide Emissions Embodied in International Trade, http://www.oecd.org/sti/ind/carbondioxideemissionsembodiedininternationaltrade.htm. 10 It is also important to note that the West has known about climate change since the early 1990’s. If a climate agreement had been sought in those years, China’s responsibility would have been far less. From 1900 to 2005, the United States and EU combined accounted for over half of cumulative emissions; China accounted for only 8%. The delay in seeking a climate change agreement has thus been of beneit to the West, effectively reducing its contributions to cumulative emissions. For 1900 to 2005 igures, refer to the International Energy Agency’s World Energy Outlook 2006, http://www.worldenergyoutlook.org/media/weowebsite/2008-1994/weo2006.pdf.

As of 2012, China ranked third in terms of cumulative emissions, and was responsible for approximately 10% of emissions. The United States, by comparison, ranked first, and was responsible for 27% of emissions, while Europe ranked second, with 24% .

far less polluting, on average, than those of the developed world. The majority of its emissions have only been produced comparably recently, and, importantly, have been produced substantially for the beneit of foreign demand. Furthermore, China has already made great contributions to climate change mitigation. According to The Economist, the deepest cuts achieved thus far against climate change have been from the Montreal Protocol, the use of hydropower and nuclear power, and China’s onechild policy. China’s one-child policy is estimated to have prevented 1.3 billion tons of CO2 equivalent emissions. China is also the world’s largest hydropower producer, and has been leading in investment and innovation in nuclear power. Despite its contributions to mitigation thus far, China is not shying away from assuming greater responsibility for emissions. In addition to its investment in renewables, China has, among other things, agreed to cut its emissions intensity by 60 to 65% from 2005 levels by 2030. China recognizes its status as a leading nation, and is willing to assume the “common but differentiated” share of responsibility in addressing climate change. This also calls, however, for developed countries to take on more ambitious

commitments than developing countries. The Paris talks will reveal whether the developed world is ready to assume their share of responsibility. In the meantime, we should question why the mainstream media is presenting such a skewed and superficial image of Chinese responsibility for climate change. Such reporting is not only unfair to the Chinese people, but also reinforces barriers to action on climate change. People in developed countries will not demand or undertake action if they do not appreciate their responsibility for climate change. This is the likely outcome if they are presented only with evidence that suggests that China is to blame. The reality is that China’s responsibility for climate change is not as simple as “biggest emitter.” A more comprehensive analysis reveals that the Chinese people have contributed far less to climate change than the people of many other countries; more importantly, it also shows the great sacriices they have already made in mitigating the problem. China’s more recent commitments further demonstrate that it has stepped up to challenge presented by climate change. The rest of the world is now being asked to exhibit the same kind of leadership. The answer awaits in Paris. 7

Opinion

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Establishing an Energy Community along the Silk Road Economic Belt

to 518 million tons, among which 300 million tons were imported oil. Currently, 57.9% of oil consumption in China is made up of imported oil. This igure raises serious concerns about China’s energy security. The situation is also worsened by the fact that China has little sway in the global energy market. China’s lack of bargaining power in global energy needs to be reversed quickly. There are, already, at least three major challenges for China’s energy security.

▲ Gu Shengzu 辜胜阻

Vice-Chairman of the Financial and Economic Affairs Committee of the Twelfth National People’s Congress.

China is the world’s largest energy consumer a n d i m p o r t e r. A s s u c h , a n d t o r e d u c e i t s vulnerability to geopolitical risks and oil supply uncertainty, the country has been making aggressive efforts to diversify its sources of oil imports. Last year, China’s oil consumption added up 8

First, China has a high oil import dependency ratio, which is still growing. Analysts predict that the ratio will jump to 68% in 2020, putting China into a vulnerable position in the global energy arena. Second, China’s sources of energy imports are not sufficiently diversified. Currently, the Middle East and Africa supply a large part of China’s imported oil. This oil travels mainly by sea. The heavy reliance on imported oil, combined with the inherent political instability of the Middle East and Africa, may cause a very real threat to the China’s energy stability and national security. Third, the routes for oil import into China are inadequate. At present, about 80% of China’s imported oil is transported through the narrow and potentially risky Malacca Strait. China fears the route could be vulnerable to disruption. Therefore, in the long run, China should seek alternative oil sources and diversify its import routes. The Silk Road Economic Belt, which links

crude oil pipelines between China and Central Asia and Russia, can signiicantly improve the transport of land-linked crude oil for China’s import. This will diversify both oil sources and import routes. Furthermore, China will not be the only beneficiary in the Silk Road Economic Belt. Countries along the Belt complement each other in energy issues. The initiative carries benefits of all countries along the Belt, thus contributing to regional stability. Developing an energy community along the Belt provides a basis for further regional economic cooperation. There are several ways China can deepen energy cooperation with key energy stakeholders in the region. These include: 1.Pursuing a cohesive communication and cooperation mechanism with countries along the Belt, in order to build strategic consensus and mutual trust. 2.Formulating an overall energy cooperation

plan in a variety of energy ields, including oil, gas, coal, hydropower, and nuclear energy. 3.Establishing multi-national banking institutions to finance transnational projects of interest to the community as a whole. The Asian Infrastructure Investment Bank, Silk Road Fund, and the China-Eurasia Economic Cooperation Fund are all good examples. 4.Exploring all-round cooperation on energy exploitation, trading, materials processing, equipment manufacturing, as well as supporting developments of nearby countries’ investment environment, national security, social harmony, and eco-friendliness. 5.The Silk Road Economic Belt not only helps China boost economic and energy cooperation, but also enables it to further collaborate in trade, investment, finance, environmental protection and cultural exchange with countries along the Belt. The construction of the Belt will also function as a countermeasure to economic downturn. 9

Opinion

CEFC China Energy Journal

Global Energy Network Boosts World’s Sustainable Development The Global Energy Network, in essence, combines clean energy with ultra-high-voltage (UHV) grid networks with ubiquitous smart grid technology. The network utilizes UHV grids for backbone transmission of electricity generated from clean energy sources. Smart grid technology ensures ubiquitous connectivity between all sectors of the grid.

▲ Li Junfeng 李俊峰

Director of the National Center for Climate Change Strategy and International Cooperation, NCSC.

The world’s massive consumption of fossil fuels puts significant pressure on the environment and society, and thereby presents a series of challenges for humanity. To handle these challenges, wisdom and strength are urgently needed. These qualities should be embodied within the strategic concept of the “Global Energy Network”. 10

A global network will consist of cross-country and cross-continent grid systems serving as its backbone. Thanks to smart grid technology, it will be able to incorporate different national transmission and distribution grids, covering a variety of voltages. The Global Energy Network is designed to connect countries surrounding the Arctic Circle and Equator to abundant supplies of renewable energy and large-scale energy bases. In sum, the Global Energy Network serves as a green, low-carbon global energy distribution platform that provides extensive service with strong distribution ability, high safety and reliability. Today’s global energy development trends promise the eventual replacement of traditional polluting sources of electricity with clean and electric energy. This will be necessary to develop a sustainable supply of global energy, and entail an overthrow of the traditional methods evaluating energy production and consumption. Clean and electric energies are due to have a revolutionary impact on global energy development. They will fuel the transition from fossil to clean

energy, help to realize high energy eficient, clean, and low-carbon development. The global energy network is not merely a dream. It is a possible blueprint to be realized in the near future. In the wake of grid technology improvement, the international grid system will gradually connect together, promoting the expansion of a global energy network to largescale and high-voltage areas. In some countries and economies in Eurasia, the Americas and Africa, the governments have already implemented plans to develop extensive grid networks. The power system connections between the U.S. and Canada and the European Network of Transmission System Operators for Electricity (ENTSO-E) are both good examples to refer to while designing extensive grid networks. This February, the European Union endorsed the “Energy Union”, which aims for reaching a minimum electricity interconnection target of 10% by 2020. The EU is accelerating its grid interconnection development and establishing close connections with neighbouring countries like Turkey and Russia. Together with close grid connections linking China and Russia and Mongolia and Russia, the Eurasian region can achieve a largescale transverse grid interconnection. The International Renewable Energy Agency ( I R EN A ) , w ith s u p p o r t f r o m S iemen s an d the Deutsche Bank, is moving forward on the establishment of its Africa Clean Energy Corridor Initiative. Similarly, China aims to boost clean energy around China’s “Silk Road Economic Belt” region, which will serve as an energy bridge between Europe, Africa and Asia. T h e g l o b a l e n e rg y n e t w o r k i s o f g r e a t significance in achieving global economic, social, energy, and environmental sustainable development. It achieves this principally through ive means:

First, the network will ease resources limitations by promoting global energy resource sharing. The world currently faces an imbalance between the world’s population and the resources that support human lives. Greater mobilization and improved allocation of energy resources is crucial for countries with insuficient energy to attain the goal of sustainable development. Second, it will provide mutual benefits for cooperating countries. For instance, countries rich in energy resources but poor in electricity supply can be made better off by importing electricity through the use of a global energy network. Countries with advanced power generation technologies but scarce energy resources, on the other hand, can spur economic development through imported energy resources. Third, a global network can foster the development of emerging industries and boost technological advancement. In addition to driving economic growth and creating more jobs, the mass development of renewable energies associated with a global energy network will bring huge market potential for the development of manufacturing industries in equipment and material technology. F o u r t h , i t w i l l p r o m o t e g l o b a l e n e rg y governance and reduce environmental pollution. The global energy network initiates a complete use of renewable energies, by utilizing advanced technology and systems in order to avoid overexploration of fossil fuels. L a s t l y, a g l o b a l n e t w o r k w i l l e n h a n c e international energy cooperation and push forward peaceful global development. An interdependent energy relationship can create a favourable environment for the peaceful resolution of disputes and conflicts among countries and, hopefully, maintain and promote peaceful global development. 11

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China to Cap Coal Consumption

CEFC China Energy Journal

Kong Jueting

and dificult to achieve.

Recently Chinese State Council pledged that China will upgrade coal-fired power plants to cut pollutant discharge by 60 percent before 2020 , saving around 100 million tonnes of raw coal and reducing carbon dioxide emissions by 180 million tonnes annually. China aims to cut total coal consumption to below 65 percent of its total primary energy use by 2017 as part of adjustments of its energy structure.

In response to climate change and air pollution, over 20 leading Chinese organizations – including government think-tanks, research institutes, and industry associations – jointly launched the China Coal Consumption Cap Project in October 2013. The project brings together various experts to develop a comprehensive roadmap and policy package for establishing and implementing a binding national cap for coal consumption, with the aim of having China’s consumption peak by 2020. The project believes that accelerating the transition from coal to cleaner energy sources, along with increases in energy efficiency, will help China achieve its long-term economic, environmental, and climate goals.

Coincidently, the China Coal Cap Project recently released its report on strategies for capping coal consumption in China. The report, titled “China Coal Consumption Cap Plan and Research Report: Recommendations for the 13th Five Year Plan”, was released at an international workshop on the topic, which opened in Beijing on November 4.

Capping Coal Consumption Under Redline Restrictions

Yang Fuqiang (杨富强) , one of the leading experts of the China Coal Consumption Cap Project, explained that the new target complies with China’s ecological “redline”, which sets out restrictions on the basis of land and water resources, air quality, public health, and climate change. In order to achieve the target of an annual average PM 2.5 level of 45 μg/m3 by 2020 – as well as match targets set by the World Health Organization for China to reach by 2025 – coal consumption in 2020 and 2030 should be lower than 4 billion tons and 3.5 billion tons, respectively. Restrictions on water resources are relatively severe. In 2020, water use from coal mining and consumption must be limited to no more than 74.7 billion cubic meters. This means that coal consumption cannot exceed 3.8 billion tons.

In November 2014, the State Council, China’s Cabinet, released its Energy Development Strategy Action Plan (2014-2020). The plan set the target for capping coal consumption at no more than 4.2 billion tons of coal equivalent, with the share of coal in primary energy consumption kept below 62%. Compared with earlier targets, the China Coal Cap Project’s targets appear much more ambitious

Pan Jiahua (潘家华), Director of the Institute for Urban and Environmental Studies at the Chinese Academy of Social Sciences, said that coal cap policies do not necessitate economic slowdown. As China’s tertiary industries continue to grow, overall coal consumption will decrease. Mr. Pan also believes that coal cap policies can help China realize economic transformation.

The report provides forward-looking recommendations to control and reduce China’s coal use to below 3.8 billion tons and 3.4 billion tons by 2020 and 2030, respectively. In the interim, the report recommends that the country’s total energy consumption should be or no more than 4.74 billion tons of standard coal equivalent by 2020. The portion of coal within primary energy consumption for this period should be reduced to less than 57.4%.

Policy

Policy CEFC China Energy Journal

CEFC China Energy Journal

Coal Consumption Cap Calls for International Cooperation Experts from the coal cap project believe that global cooperation and knowledge-sharing will be important contributors to the early implementation of the coal consumption cap. Anton Beck, Director of the International Cooperation Department at Danish Energy Agency, shared his experience of Denmark’s energy transformation. He said that Denmark was badly hit by the oil embargo in 1970s, due largely to its heavy dependence on fossil fuels. Since then, the Danish government worked hard to reform and diversify its energy portfolio. This meant a shift from sources such as coal, natural gas, and oil, to renewable energies, which ensured that Denmark would not to be at the mercy of oil suppliers again. Denmark’s energy security has improved thanks to this shift; 25% of energy consumed in Denmark is powered by renewable energy sources, and per capita CO2 emissions have been reduced by 36.8%. In addition to energy diversification, advances in energy technology have also contributed significantly to Denmark’s energy transformation. The power sector is an illustrative example. Wind energy produced 39% of national electric power in 2014, and the share is expected to reach 50% by 2020. Denmark’s is now also able to transmit electricity to neighbouring European countries within one hour, thanks to its flexible power generation systems. The Danish government has sought to collaborate on energy not only with China, but also Vietnam, South Africa, Mexico, Indonesia, and Ukraine, among others. Denmark has proven development of clean energy to be successful, and its example is inluential for all of its partners. Mark Halle, Vice President of the International 14

Institute for Sustainable Development, emphasized the significance of effective subsidies for the renewable energy sector. He stressed that subsidies are particularly important for the current period of transition, and especially so because renewable energies are beginning to prevail. Because the UN Climate Summit this month will discuss, in part, the key issue of energy system reform, Mr. Halle believed that the summit will be a key opportunity to reform subsidy systems worldwide. He cited transparency and subsidy methods as critical, and also topics where China will play a crucial role. The Coal Consumption Cap Is Crucial for the Future Michael Anderson, CEO of the Children’s Investment Fund Foundation, explained that children have suffered serious health problems, both physically and mentally, due to deteriorating air quality and climate change. Over 88% of climate-related disease is borne by children under the age of ive. China is still the world’s largest producer and consumer of coal, accounting for nearly half of the world’s total annual coal consumption. While coal is the main energy source for China’s economic development, the ever-increasing demand for coal has caused serious damage to the environment as well as public health. Thus, there is no time like the present for China to implement a coal consumption cap. Finally, Mr. Anderson felt happy to see China submit a carbon-curbing plan to UN ahead of the Paris climate change summit. He was also aware that China had reached a crossroad – a point at which the country must decide which forms of economic development are necessary to attain the goal of low carbon emission, but at the same time meet increasing energy demand. He stressed that, in his view, for the sake of the health of the country’s children, it will be absolutely necessary for China to switch from coal to clean and renewable energies.

New Energy Cars Highlighted

in 13th Five-Year Plan Cheng Sisi

New Energy Vehicles (NEV) have been highlighted in the Chinese government’s proposal for the next Five-Year Plan, which was released on November 3. The proposal states that, over the next five years, the Chinese government will implement a NEV popularization program, as well as upgrade the industrialization level for electric car manufacturing. These initiatives are expected to guarantee the long term development of China’s NEV industry. The initiatives should also be understood as part of a change in the government’s policy approach. Earlier this year, the government announced that it would scale back its subsidies for NEV. The government expects Chinese NEV makers to hold down costs and maintain their own competitiveness, which is seen as crucial for the long term survival and success of the industry. According to statistics released by the Chinese Association of Automobile Manufacturers, automobile sales during the first nine months of 2015 reached 17.0565 million units. Of these, 136,733 units were NEV – 2.3 times the number from the same period last year – a historic high. Industry analysts expect NEV sales will exceed 200,000 units this year. Nevertheless, this accounts for less than 1% of the total number of automobiles sold. There is still huge room for growth for the

NEV industry. The Chinese government expects to develop a market-oriented NEV industrial system by 2020. By this date, domestically developed NEV sales are expected to exceed one million units, and account for more than 70% of total NEV sales in China. By 2025, China will build an independent, controllable and complete NEV industrial chain that will produce three million units of NEV per year, with quality matching international standards. The proposal aims for a greater than 80% share of the Chinese NEV market by domestically produced brands. It is also aiming to have two Chinese complete vehicle enterprises ranking among the world’s top ten for NEV sales. Their overseas sales should account for 10% of their total sales. The Chinese government also hopes to make breakthroughs in the whole automobile industry through NEV. Currently, foreign automobile makers have not been proactive in promoting NEV, due to over-reliance on gasoline and diesel cars. This presents an opportunity for China’s domestic brands to play a leading role in the ield. With the large number of favorable policies, it will not be surprising to see a market share of 80%. NEV Industry Seen as Too Dependent on Government Subsidies The Chinese government has made great efforts in developing the NEV industry. Through various 15

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CEFC China Energy Journal

actions and favorable policies, it has pushed for industry cooperation and provided incentives for innovation. However, many industry experts worry that the automobile industry is excessively dependent on government support. Some analysts argue that sales of NEV would not have reached a record high in the absence of government intervention. Since the beginning of this year, the government has introduced a series of favorable policies designed to encourage the usage of NEV. Such

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policies include exempting buyers of electric vehicles from the 10% purchase tax, issuing manufacturing licenses to electric cars makers, lifting purchase restrictions and removing traffic controls for NEV, and accelerating construction of electric charging infrastructure. Chen Qingquan ( 陈清泉 ), academician at the Chinese Academy of Engineering and founding president of the World Electric Vehicle Association, said the development model of China’s NEV industry is not sustainable. He attributed the

industry’s problems to over-reliance on subsidies. Chen Dongsheng ( 陈东升 ), Secretary General of the China Strategic Emerging Industry Alliance, National Development and Reform Commission, said that in the Twelfth Five-Year Plan, the NEV industry was mentioned in the government’s policy framework and overarching national goals on energy conservation. It was not, however, provided with detailed policy and implementation plans. He expected that the major task in the Thirteenth FiveYear Plan will be maintaining the sound operation

of the NEV industry in the circumstance of fewer or no subsidies. In June of this year, the government issued a notice, “Financial Support Policy for the Promotion and Application of New Energy Vehicles from 2016 to 2020”, which indicated that the government subsidies for NEV would gradually decline by 2020. In 2018, subsidies will decrease by 20% from 2016 levels. Afterwards, in 2020, subsidies will decrease by 40% from 2016 levels. For example, the subsidy for an electric car with 250 km driving distance per charge will be 55,000 yuan in 2016. It will drop to 33,000 yuan in 2020. Theoretically, carmakers can reduce their manufacturing costs by controlling core technologies and adopting mass production. In reality, Chinese carmakers have not yet fully acquired core technologies, but instead only assemble independently designed cars. In addition, although the government has given subsidies to the NEV industry, it cannot help the industry develop core technologies. M o r e s e r i o u s l y, g o v e r n m e n t s u b s i d i e s exacerbate the already severe competitive pressure on Chinese carmakers, causing unnecessary waste of resources. As a result, the prices of NEV remain higher than those of conventional vehicles. NEV in China are still not cost competitive. The policy-dependent market cannot last for long. As subsidies gradually vanish according to government plans, only the ittest competitors will survive. To ensure the comprehensive, sustainable and healthy development of the NEV industry, we should create a favorable market environment for NEV. This means improving after-sales services, enhancing customers’ experience, and, most importantly, focusing more on innovation and upgrading in NEV technologies. These are strategies that have gone mostly neglected during the Twelfth Five-Year Plan.

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China Leads Clean Energy Investment China invested $89 billion U.S. dollars in clean energy in 2014, up 32% from the preceding year. Chinese investment now accounts for 29% of total world investment in clean energy. These figures represent the country’s commitment to a low-carbon future. According to Climate Scope 2015, an independent industry report which surveys 55 nations, China scored highest on the list of clean energy investment and deployment (2.29 on a 0-5 scale). China also topped the list last year, with a score of 2.23. China has been leading global clean energy investment for several years now. In 2014, China added 35 gigawatts of renewable power generating capacity – greater than all the capacity online today in sub-Saharan Africa’s 49 nations combined, excluding South Africa and Nigeria. According to the National Energy Administration, China has also attracted $89 billion in new clean energy capital. Although the United States and some European countries have had an earlier start in developing clean energy, the Chinese government has worked hard to chase their lead and capture market share 18

in the clean energy industry. Currently, China’s hydropower and wind power capacities rank as irst in the world. Yu a n Yu e ( 袁越 ) , P r o f e s s o r a t H o H a i University, said China has become a model for other countries in large-scale utilization of clean energy. The government has developed wind, solar, and hydropower, and has done so by developing capacity where generating conditions are most ideal. China has also distributed energy load centers throughout its east coast. For example, around 70% of electricity used in Shanghai – China’s most populous city – is provided by clean energy. The bulk of the city’s electricity generation comes from the Three Gorges, together with wind and solar power stations located in more remote areas. Zhou Dadi ( 周大地 ), Vice Chairman of China Energy Research Society (CERS), said that since China has made environmental protection and carbon emissions reduction a priority, the country will need to work hard to develop the clean energy sector quickly. Mr. Zhou said China should aim to keep up with global trends of environmental protection and green economy.

China’s PV Power Capacity to Hit 150 Gigawatts by 2020 China’s photovoltaic (PV) power capacity will hit 150 gigawatts by 2020, said Dong Xiufen (董秀芬), Director of the New Energy Office, National Energy Administration (NEA). Ms. Dong said that China will continue to expand PV power generation over the next ive years.

Lower costs, technological innovation and better PV services are also expected, Ms. Dong added.

According to the NEA’s data, the country’s total PV power capacity stood at 35.8 gigawatts by the end of June this year.

Huai Jinpeng ( 怀进鹏 ), Deputy Head of the Ministry of Industry and Information Technology (MIIT), said that MIIT will continue to advance mergers and acquisitions among domestic solar PV companies, as well as push forward technological upgrade.

Ms. Dong stressed that future work will focus on distributing PV in central and eastern China, as well as building PV stations in western China. The aim is to increase PV capacity by 20 gigawatts annually from 2016 to 2020.

Mr. Huai also said that both research and development and company financing need to be pursued more aggressively. Future government policies are also expected to aid PV power grid connection and subsidies. 19

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Xinjiang to Boost Power Grid with Huge Investment

At the UN Sustainable Development Summit this September, President Xi Jinping ( 习近平 ) shared his vision for a global energy network that will meet global power demand with clean and green energy sources.

First Nuclear Plant in Western China Begins Operation The irst nuclear power plant in western China began operating on October 25. According to the China News Service, it is expected to provide up to 15 billion kilowatt-hours (kWh) a year of cheap, safe and clean power to the Beibu Gulf Economic Zone in southwest China. Lying only 45 kilometers from the border with Vietnam, the plant is located in Fangchenggang City, Guangxi Zhuang Autonomous Region. The Phase-1 project contains two 1,000-magawatt (MW) CPR-1000 reactors, which are domestically developed second-generation pressurized water reactors. Construction of the plant started on July 30, 2010. 20

Compared with a coal-fired power plant of the same capacity, the nuclear facility saves 4.82 million tons of standard coal every year. It also cuts down the annual emission of carbon dioxide by 11.86 million tons, and sulfur dioxide and nitrogen oxide by 190,000 tons. In environmental terms, this is equivalent to the growth of 32,500 hectares of forest a year. According to the development plan, Hualong One, China’s third-generation nuclear reactor design, will be used in Unit 3 and Unit 4 of the plant. This is of international significance as the same type of reactor will be used in the Bradwell nuclear plant in Essex, southeast England.

The Silk Road Economic Belt and the 21st Century Maritime Silk Road are examples of initiatives that are making this vision a reality. The Belt and Road will develop a trade and infrastructure network connecting Asia to Europe and Africa. A speciic project from this initiative comes in the form of an investment of 200 billion yuan over the next ive years. The investment will be made in northwest China’s Xinjiang region, and will aim to build power grids to connect the region to eastern China, Pakistan and central Asian countries. The Xinjiang Uygur Autonomous Region is a resource rich region and the core area for the Silk Road Economic Belt. The upcoming investments, a part of the “Power Silk Road” initiative, should enable the completion of new power transmission lines by 2020, said a representative from the Xinjiang Electric Power Company, a subsidiary of the State Grid Corporation of China. The representative said that the grid projects are an important infrastructure plan for the region, guaranteeing power supply for local residents and enterprises in Xinjiang. Xinjiang’s energy network

will also help narrow development gaps between different regions. Liu Zhenya ( 刘振亚 ), President of the State Grid, said that China is also aiming to accelerate grid interconnectivity with neighboring countries such as Russia, Mongolia, Kazakhstan, Pakistan, Myanmar, Laos, Nepal and Thailand. Such work will take place over the coming decade. Mr. Liu estimated that a global energy network would basically be completed by 2050. To achieve this, China’s annual investment in clean energy and related infrastructure projects will grow to 820 billion yuan from 2016 to 2030. By the end of 2020, China aims to increase non-fossil energy to about 15% of the total primary energy consumption, as well as raise the share of renewable energy in production. In 2020, China’s installed hydro, wind and solar power capacity reached 350 million, 240 million and 100 million kw, mainly in the west and north regions. The current operating capacity is about 482 million kW in China. Transnational grids are already operating in Europe, North America and Southern Africa. Global energy network construction faces some practical problems, such as the high cost of clean energy in the short term, as well as huge investment and operating models in the ield. 21

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China

a Global Leader in Climate Change Fight Wang Haixia

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One cannot expect politics and diplomacy to be easy at a complex global conference. It is clear that the road to a new climate agreement in Paris will be a long and hard one. But the world has to move forward with determination and hope. As the clock counts down to the Paris conference, China is delivering a strong and clear message to the world: China hopes “a powerful, ambitious and legally binding deal” can be reached in Paris.

Peak CO2 emissions by around 2030 and strive to achieve it as soon as possible

Submitted to the UNFCCC in June the Intended N a t i o n a l l y Determined Contributions (INDCs)

Reduce CO2 per unit of GDP by 60-65% by 2030 over the 2005 level

Build the world's largest carbon market by 2017

Contributions Made by China for Climate Battle Increase forest stock by around 4.5 billion cubic meters over 2005 level Raise the share of nonfossil fuels in primary energy consumption to about 20% 24

Integrate climate change efforts mediumand long-term program of economic and social development

After the unsuccessful climate summit in Copenhagen in 2009, China’s image on climate change was tarnished. During the past six years, however, China has developed awareness of environmental issues, improved institutional arrangements, bettered low-carbon commitments and cooperated with other countries on climate change. China is now in a better position to help promote an agreement in Paris. Uniting Forces against Climate Change China is much more active on climate diplomacy than ever before. This is demonstrated by the continuous and extensive high level political attention attached to the issue. President Xi Jinping ( 习近平 ) will attend the opening ceremony of the climate conference in Paris from Nov 29 to 30, at the invitation of French President Francois Hollande and French Foreign Minister Laurent Fabius. On November 30, President Xi and President Obama will meet on the first day of the two-week Paris climate talks. The two leaders will discuss a variety of environmental issues. With both vision and patience, China is striving to unite other countries in ighting climate change. During her visit to China at the end of October, German Chancellor Angela Merkel promised

that Germany is willing to make full use of intergovernmental consultations with China, in order to deepen cooperation in the ields of energy conservation and climate change. In early November, during a visit by President Francois Hollande to Beijing, China and France issued a joint presidential statement on climate change. The two countries are building diplomatic momentum for a strong outcome at the summit in Paris. Prior to Merkel and Hollande’s arrivals, President Xi made a state visit to Britain. During the four day trip, in a joint declaration issued by the two countries, China and Britain pledged to work together in a variety of ields, and highlighting the issue of tackling climate change. In an editorial, the UK’s Financial Times praised China’s leadership in combating climate change. The piece said that China is demonstrating leadership at a time when the climate agenda has lacked champions willing to take political risks. Beijing’s initiative adds needed momentum to the discussions in advance of the conference. In November 2014, China and the United States announced a climate change agreement. China pledged that by no later than 2030 its carbon emissions would peak, and non-fossil fuels would account for 20% of the country’s energy mix. In September of this year, during his state visit to the United States, President Xi and President Obama made another joint declaration on climate change. The two biggest emitters announced their support for developing clean energy and addressing the challenge of climate change. The support demonstrated by the two countries in the agreement will make a big difference in the fight against climate change. 25

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3.1 billion U.S. Dollars amount to set up a new “China South-South Climate Fund” to support low carbon and resilient development in the global South

Financing climate goals has been a key issue leading up to the Paris talks, with countries discussing how to unlock financial support to help developing countries achieve low-carbon growth. China, a developing country, has been uniquely active in its contributions to climate action. China has committed to spending $3.1 billion to help other developing countries slash their greenhouse gas emissions and adapt to climate change. This is a significant increase compared to previous commitments, and one that could potentially surpass the US’ contribution to the Green Climate Fund. This announcement was also made in September, during President Xi’s state visit to the US. China’s Position on the Conference In late June, China officially submitted to the UN its intentions to achieve peak carbon dioxide emissions by 2030 and lower carbon dioxide emissions per unit of GDP by 60 to 65% by 2030 from 2005 levels. 26

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According to the calculation made by the Bloomberg New Energy Finance (BNEF), China’s new climate pledge will require signiicant efforts, which would require China to peak its carbon emissions around 2030. BNEF ranks this effort as among the most ambitious carbon intensity targets of any country, on a par with the INDCs of developed countries. Xi e Z h en h u a ( 解振华 ), C h i n a’s s p e c i a l representative on climate change issues, said China will ensure the fulfilment of its pledges for cutting greenhouse gas emissions, regardless of the outcome of the Paris climate summit. As the chief negotiator, Mr. Xie also unveiled the country’s position on the Paris climate change conference recently, saying China hopes that “a powerful, ambitious and legally binding deal” can be reached in Paris. He also emphasized that a 2015 deal should relect the principles of “common but differentiated responsibilities” (CDR) and “respective capabilities.” Su Wei ( 苏伟 ), China’s chief climate negotiator and director-general of climate change at the National Development and Reform Commission (NDRC), said the signiicance of the Paris summit lies in whether it can successfully guide the world to switch to a sustainable, green and low-carbon pathway.

technologies to developing countries. “Each country should deliver what they have promised, which is the basic foundation of political trust,” said Mr. Xie, adding that mutual trust was a prerequisite to a successful conference.

enterprises which produce more than their share of emissions are allowed to buy unused quotas on the market from those that cause less pollution. The programs cover key industry sectors such as iron and steel, power generation, chemicals, building materials, paper-making, and nonferrous metals.

Curbing Greenhouse Gases To curb greenhouse gases, the latest move for China is to launch a nationwide carbon emissions trading market in 2017. The plan is part of China’s larger strategy to promote green, lowcarbon development and meet its goals for cutting greenhouse gas emissions. China initiated carbon trading pilot programs in 2011. Currently, there are seven pilot carbon trading programs in China. These are functioning in seven designated provinces and cities including Beijing, Tianjin, Shanghai, Chongqing, Shenzhen, Guangdong and Hubei. According to a report released by the NDRC, the seven trading programs’ total transactions have reached about 1.2 billion yuan. Under the schemes,

China’s blueprint for reducing greenhouse gas emissions also includes developing green energy. China is seeking to increase renewable energy and improve the energy efficiency of green buildings, in order to meet the target of 20% non-fossil energy by 2030. China will continue to shift its energy mix towards less coal and more renewables, nuclear and gas, reducing the emissions intensity of every unit of energy used. As a result of better energy efficiency and economic restructuring, China – which has been powered mainly by coal for years – saw its consumption of coal decline last year for the irst time. According to the 13th Five-Year Plan, China will make new contributions to global ecological security by pursuing green development. China will continue to accelerate its efforts as it begins to reap the beneits of its low-carbon transition.

“Reaching consensus on goals for cutting emissions is important, but what’s more important is to provide a direction for global sustainable development, as well as make more people aware of the urgent challenge facing humanity and the need to make adjustments accordingly,” Mr. Su said. Mr. Xie also stressed that developed nations still have much to do in their pledges to provide money and transfer low-carbon and environmental friendly 27

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Beijing-Tianjin-Hebei (Jing-Jin-Ji) Leads China’s Economic Transition towards Sustainability An Interview with Kate Gordon, Vice Chairman of the Paulson Institute.

Established in 2011 by Mr. Henry M. Paulson, the Paulson Institute is a “think and do tank”. Based in Chicago, the Institute promotes environmental protection and sustainable development in the United States and China. The Institute is committed to the principle that today’s most pressing economic and environmental challenges can be solved only if the United States and China work in complementary ways. On October 23, the Institute hosted the fifth Annual Urban Sustainability Conference in Beijing. The meeting coincided with the publication of a report on China’s Beijing-Tianjin-Hebei region, also known as “Jing-Jin-Ji”.

as well as the government’s initiative in addressing environmental protection in “Jing-Jin-Ji”. She found more and more electric vehicles running on the street, a result that could not be achieved without the government’s determination and action. Ms. Gordon also acknowledged that “Jing-Jin-Ji” has good infrastructure and easy access to wind and solar power, which provide the basis for clean, renewable energy production and deployment. She suggested that iron and steel industries can be encouraged to anchor these emerging clean energy and technology clusters, so as to improve their own production efficiency and achieve industry transformation.

Wang Haixia The Energy Journal used the opportunity to interview Ms. Kate Gordon, the Vice Chairman of the Paulson Institute. Ms. Gordon has a deep understanding of China’s energy transition and industrial upgrade process. She believes that “JingJin-Ji” will be at the frontier of China’s economic growth, and will lead the country’s energy transition towards sustainability.

▲ Ms. Kate Gordon

Ms. Gordon had several reasons for choosing “Jing-Jin-Ji” as a key demonstration area for China’s economic transition. She said that “Jing-JinJi” is China’s political center as well as a heavily industrialized region hosting many of the country’s largest steel and iron manufacturers. The latter casts a shadow on the region’s economic transition but, at the same time, provides incentive for the government to address air quality and mitigate climate change, while also continuing to promote economic growth. A strong policy and regulatory environment, together with the region’s economic structure, contribute to its potential for economic transformation. Ms. Gordon believes that “Jing-JinJi” is well-positioned to become a model for the rest of the country, and potentially the globe. In her research, Ms. Gordon was impressed by the rapid growth of interest in the green economy,

In September, President Xi Jinping( 习近平 ) made a state visit to the United States. China and the United States pledged to strengthen bilateral coordination and cooperation on climate change. Ms. Gordon said that China wanted to show the world that it was getting more serious about climate change. During President Xi’s visit to the U.S., he announced that China would launch its national emissions trading scheme in 2017. She believed that China’s program would surpass California’s as the world’s biggest emission trading platform. She also recalled that the U.S. Congress has long refused to commit to reducing its greenhouse gas emissions, claiming that China hadn’t acted on climate change as well. Since China has made its pledges, there are no longer any excuses for Congress’ failure to act on climate change. Finally, Ms. Gordon said that both climate change and air quality are urgent problems that China needs to address immediately. However, local policies in China too often highlight local environmental problems but neglect the issue of global climate change. China’s national commitments to clean up its pollution problem and address global climate change, which have received considerable publicity, are therefore noteworthy. 29

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China’s Imminent Coal Industry Reform

An interview with Qian Minggao, Academician at the Chinese Academy of Engineering. Wu Xiaojuan

C h i n a ’s c o a l i n d u s t r y e x p e r i e n c e d f a s t development over the past “golden decade”, but has now hit a bottleneck. Increasingly, people are calling for the abandonment of coal. In an interview with the Energy Journal, Qian Minggao (钱鸣高), Academician at the Chinese Academy of Engineering, and Professor at the China University of Mining and Technology, explained how the coal industry can overcome this challenge and move forward. Q: Some people blame coal burning for smog. What are the actual impacts caused by the coal industry?

▲ Qian Minggao 钱鸣高

A: Smog is largely caused by the massive usage of fossil fuels, especially coal, which accounts for 65% of total energy consumption in China. Today, the widespread burning of coal has caused high emissions of CO2 and particulate matter, which has exceeded the carrying capacity of the region. In addition, the exploitation of coal and coal burning activities usually cause harmful effects to the nearby physical environment. However, coal is still the dominant primary energy source, as well as an economic engine in China. The Chinese government is now seeking to address the challenge of environmental pollution caused by the coal industry, while also taking into consideration the fact that coal is an important component of China’s economy. Since coal has been blamed as the major culprit behind ecological and environmental problems, we should promote coal exploitation and clean consumption in a more clean and scientific way. Indeed, any process that allows coal exploitation and consumption to be controlled within the carry capacity of the environment must be clean and scientiic. Q: Some people are against coal because of the

huge number of coal mining accidents. What kind of measures should the industry take to ensure safe mining? A: The increase in coal mining accidents is a serious impediment to the future growth of the coal mining industry. In 2004, China’s coal output reached 2 billion tons, representing one third of the world’s total. The death toll caused by coal mining was 6,000, 80% of the world’s total. Although the number of deaths per million ton was reduced to 0.2 in recent years, it is still far from international standards. China is the world’s largest coal producer, but two thirds of its production still can’t meet international standards for quality and safety. The reasons behind this includes the complex geological condition of coal mines, insuficient technology for safe mining, flammable and toxic materials found in coal mines, and the risk of underground coal dust explosion. Therefore, the Chinese government has urgently recommended that coal enterprises begin to make assessments for coal mine safety, and prepare prevention technologies and equipment before coal miners enter into coal mines. In the future, the industry should consider using automated mining machineries for coal mining, in order to reduce the number of coal miners needed in some of the underground mining activities. More importantly, the industry should provide a safe workplace through full compliance with all relevant laws and regulations governing the mining activities. Sowing the Seeds of Coal Revenue Q: Over the past “golden decade” for the coal industry, what were the main problems which arose from China’s coal industry? A: China’s coal industry has experienced a 31

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golden decade, and as a result China has become the largest coal producer in the world. The coal industry has long enjoyed a very low cost of production, accomplished by shifting the ecological management cost away to the society. Currently, China has yet to establish a mechanism that can compel the industry to pay for the ecological damage caused by its activities. Moreover, the coal industry lacks a long-term perspective on development. Profits generated from coal mining activities is not be reinvested in research and development that might increase the industry’s overall productivity. In other words, the industry has failed to sow the seeds of future coal revenue. Q: Currently 80% of China’s coal producers are experiencing losses and most of them intend to cut jobs. The regions depending heavily on coal will suffer most. Shanxi province relies heavily on its natural coal resources and also ranked last, in terms of GDP growth, among the 31 provincelevel regions in China last year. What are the main reasons for the downturn in the coal mining sector? A: Enterprises in these coal-rich regions are relying too much on their natural resources wealth. Although natural resources can help increase enterprises’ revenue, they are always scarce and finite. In my opinion, enterprises should use their vast coal revenues to inance diversiied investments and advance local industrial development. Natural resources will no longer be a decisive advantage for business growth. Meanwhile, some coal enterprises have failed to properly maintain their public image and reputation. They have neglected their social and environmental responsibilities. Fatal mining accidents have also unfavorably affected their business environment. In my view, these enterprises should reclaim their social identity by interacting more with the public 32

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and by contributing more to society. This will win them a better social atmosphere, which in turn will provide a smooth business environment. High Energy Consumption and Low Eficiency Cannot Last Long Q: Coal has made great contributions to China’s economic development. Why should energy reform begin with the coal industry? A: A thing turns into its opposite if it is pushed too far. Coal has made great contributions to economic development over the past decade in China, yet the massive consumption of coal has exceeded the carrying capacity of the environment and should be tackled by energy reform. As China’s economy continues to grow alongside deteriorating environmental conditions, energy reform is necessary to address the problems inherent in energy consumption, energy supply, technology and the industrial system. The coal industry is dominating China’s electricity market and contributing largely in pollution, and as such it will be the irst reformed. Energy reform is not uncommon in other industrialized countries. In the 1950s, the British government also spent lots of effort to tackle the Great Smog. The government shut down power plants in London, raised industrial standards, and propelled a large-scale transformation of traditional stoves, among other things. But China has a different scenario. China still trails behind the western countries in terms of environmental protection, because China’s energy structure is more complex and China’s economy is still developing. For these reasons, the Chinese government has been very cautious in reforming the energy industry. Q: As more voices from the public call against coal exploitation and consumption, what do you

think is the future of the industry? A: Indeed, it is not easy to avoid using coal in China. Today, China’s coal production exceeds 4 billion tons, accounting for half of the world’s total. The installed capacity of coal-ired units is around 800 million kilowatts, representing three-fourths of the total generating capacity. Coal output takes up 40% of the railway freight volume. In short, China has been highly dependent on a carbon intensive energy industry and system, and the existing facilities have capacity to run in the next one to two decades. Therefore, it is impossible to avoid using coal in the short run. Although the city of Beijing has made great efforts to shake off its heavy reliance on coal, the efforts may not be applicable nationwide. The Chinese government proposed to double its GDP by 2020, based on 2010, so coal consumption will undoubtedly increase rather than decline. So the way to ease the environmental burden for society is to make breakthroughs on technology and promote renewable energies. The coal industry must undergo the transformation or it will be abandoned by society.

At this stage, the coal industry should speed up its transformation by formulating a top-level design founded on scientific exploitation, the country’s actual coal demand and high-level research at qualified enterprises and universities. Acquiring institutional support and the government’s coordination are crucial for this transformation to succeed. Q: How are high-level research institutes important for coal industry transformation? A: Our scientific research in the past focused on coal mining and coal processing but neglected coal utilization. Therefore, the high-level research institutes are important to re-define the research focus, placing clean utilization of coal as priority over other works. In addition, research institutes are needed to assess the safety and cleanliness of coal mining and to provide solutions. Last but not least, the state-supported research institutes can attract and retain the very best of today’s and tomorrow’s researchers, thereby fostering scientiic development for the coal industry. This would help the industry regain respect in our country. 33

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China to Optimize Wind Power Industry

Zhang Zirui At the International Wind Power Conference recently held in Beijing, Li Peng(李鹏) warned that the wind power industry will suffer major setbacks if the problem of abandoned wind electricity is not solved during the 13th Five-Year Plan period. Mr. Li, the Deputy Director of the New Energy & Renewable Energy Department under the National Energy Administration, attributed the problem of abandonment largely to limitations in wind farms and grid capacity. Proits Diluted by Wind Power Abandonment Abandonment of wind power has occurred

in China since 2010. It reached its peak in 2012, when the country abandoned a total of 20.8 billion kilowatt-hours of wind power electricity. This accounted for 17% of wind power electricity generated that year in the country – double the igure in 2011 – and caused direct economic losses of 100 billion yuan. The situation began to improve in 2013, when wind power abandonment dropped to 11%. In the irst half of 2014, the igure dropped further, to 8.5%, but the situation worsened again in the first half of 2015. The rate for this period reached 15.2%. Mr. Li stressed that wind power utilization was not a matter of technology but of profit distribution. There has been intensive discussion over whether wind power should be awarded a priority connection to the grid for power generation. If this connection is awarded, China could boost its wind capacity to 400 million kWh. If the situation remains unchanged, even a goal of 200 million kWh will be dificult to achieve. The root cause to the problem is yet to be eliminated. A turbine engineer speaking at the conference said that laws and regulations are necessary to grant priority to wind power, but are not yet ready. But ironically, in coal abundant places like Jilin province, coal has been awarded priority for power generation without any official certification. This is the case despite the fact that if annual utilization hours of power generation equipment drop to 4,500 hours, coal will still be sufficient to cover all electricity consumption. In other words, in areas where such policies are in effect, some of the electricity generated by renewable energy sources is guaranteed to be abandoned. According to Zhu Ruizhao (朱瑞兆), a researcher at the Chinese Academy of Meteorological Sciences, there is a lack of planning between wind power and power grids, and between wind power and other sources of

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energy. Although the construction period of wind power is short, it takes longer to connect wind power to the grid. Therefore, in many regions in China, it is common that wind power development exceeds original plans, but grid construction lags behind, causing losses of wind power generation. Wa n g Z h o n g y i n g ( 王仲颖 ) , d i r e c t o r o f the China National Renewable Energy Center (CNREC), said that wind power abandonment mainly results from poor wind power utilization. This limits the development of renewable energies. Mr. Wang believes that falling electricity consumption, together with the implementation of power sector reform, will refresh discussion over how to coordinate the use of renewable and conventional energy. Cutting Costs to Boost the Industry For Mr. Li, there is still plenty of room for improving wind power performance, including turbine manufacturing, farm selection, management and maintenance. “To boost the wind power industry, some of the costs inherent in wind power generation must be cut during our 13th Five-Year Plan period,” explained Mr. Li. Currently, increasing electricity output and cutting operating costs are the two major tasks facing the wind power industry. Both depend on technological advancement. The wind power industry has been developing quickly in China for over a decade, but has recently hit a bottleneck. “There was no revolutionary technological innovation over the past years, and operating costs were too high to afford to generate electricity,” said a worker from Sany Heavy Industry. At the conference, Sany exhibited its newly invented technology, which can optimize most of the components in wind turbine. 36

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Based in Guangdong Province, Ming Yang Wind Power Group Ltd. has been developing wind turbines and wind farm solutions that focus on high electricity generation and low life-cycle cost. Workers from the company said that their solutions focusing on distributed energy can improve both the utilization rate and efficiency of renewable energy. They also believe that their solutions can help spur investment in distributed energy in China.

Oilield Service Companies to Thrive Against Trend

Vestas was also one of the participating companies at the conference. Vestas is a Danish manufacturer, seller, installer, and servicer of wind turbines. After 30 years of success, the company has developed technological strength in far more than just turbine design and manufacturing. At the conference, the company exhibited its customized technological solutions, computational hydromechanical models and optimized wind farm site selection methods. Optimizing Existing Plants to Ensure Maximum Production Capacity Currently, China’s installed wind power capacity has reached 100 million kWh and is expected to continue to experience substantial growth. However, Mr. Li does not believe that Chinese government should start new projects to ensure a steady annual growth of wind power. Instead, the government should give priority to tapping into existing potential over starting new projects, in order to maximize current production capacity and effective management during the 13th Fiver-Year Plan period. Some analysts are skeptical that a goal for installed wind capacity will come to fruition. Rather, they believe that what should be prioritized is a clearly deined development path, high product quality and more eficient power generation.

Qu Peiran

of 80% compared to last year.

Plummeting oil prices have had significant impacts on the oil and gas industry. Since the second half of 2014, this impact has also spread to the oilield service industry.

Plummeting oil prices are putting the entire oilield service industry in jeopardy. It is not clear whether this shift marks the end of an era for the industry, or whether some new opportunities will lead to future prosperity.

In its recent financial report, the Sinopec Oilfield Service Corporation announced a net loss of 2.06 billion yuan in the first three quarters of 2015, one of the most severe deficits among all listed companies. Other private petrochemical companies, such as Xinjiang Zhundong Petroleum Technology Co., Ltd., Sichuan Renzhi Oilfield Technology Services Co., Ltd., Sino Geophysical Co., Ltd., also recorded losses. Jereh Oil, which managed to continue making proit, still saw a drop

Different Countermeasures, Same Goal “Low oil prices are not necessarily a bad thing. They can also serve as an opportunity for the industry. It actually depends on one’s way of thinking,” said Liu Qing ( 刘青 ), a Chief Inspector of National Oil well Varco. Mr. Liu believes that low oil prices will force companies to come up with 37

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new ideas in order to survive. History demonstrates that some international oilfield service companies can manage the impact brought about by low oil prices by relying on a mature management system, sizable accumulation of business capacity, world class technology and market diversification. Mr. Liu said that some foreign oilfield companies chose merger and acquisition (M&A) as their methods to cope with luctuating oil prices in 2008 and 2014, while others opted to increase their competitiveness. Either method can grant companies the ability to resist price luctuations. Mr. Liu also talked about the current M&A news between Baker Hughes and Halliburton. He believed that this M&A will succeed, as both know the other very well. The two companies can thus join forces and quickly combine capabilities, allowing them to better deal with dificult situations. Instead of battling alone, they will be able to deal with similar challenges together. Chinese oilfield companies also have two countermeasures to deal with low oil prices. The first countermeasure is to expand abroad. Private oilfield service companies have a hard time surviving in China, since state-owned companies dominate the market. Expanding their businesses overseas helps them bypass local competition. The second countermeasure is to diversify their business activities. Many oilfield companies have realized the strategic importance of expanding their business towards a multi-field development path. They can thus seek vertical or horizontal expansion along the industry value chain. Technological Innovation and Integrated Services Mr. Liu believed that low oil prices can be a 38

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blessing in disguise – companies may otherwise have never realized that technological innovation is of great importance for their competitiveness and long term survival. Li Li (李莉), Chief Inspector of the ICIS Energy Research Center, holds the view that low oil prices will ensure the survival of the ittest in the industry. When oil prices remain low and profits decrease, competition will become fiercer. Companies with more access to capital may choose M&A as a growth strategy. But it is not guaranteed that companies will gain competitive advantages over others. The key element for companies’ survival lies in technological innovation. Another key element for companies’ survival lies in business restructuring. Tong Oil Tools, a Xi’an based company, raised 410 million yuan from issuance of shares for business acquisition. Zhang Guo’an ( 张国桉 ), the Chairman of the Board of Tong Oil Tools, believes that the oilield service industry will be soon experiencing a rebirth. The company will thus not require any curtailment of capital investment. Instead, the company is making more efforts to restructure the business, so as to seek possible expansion in the future. What Tong Oil Tools intends to do is consistent with Mr. Liu’s opinion. In the company’s semiannual report, Tong Oil Tools stated that the company will accelerate business restructuring during times of difficulty. The company will also look for M&A chances, so as to improve its risk resistance and value generating capacity. Under the pressure of low oil prices, companies will try to upgrade technology and extend their services to both upstream and downstream fields. Consequently, integration can form connections between different service lines to eliminate inefficiencies and maximize profits. Liu Qing 40

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said this will be the way out for oilfield service companies to stay alive at present.” Transformation and Survival of the Fittest To succeed in their transformation, oilfield service companies should be innovative and should not be held back by short-term interest. When the winter of low oil prices inally passes, the dynamics among oil companies, oilfield service companies and manufacturers will also change.

Rosneft Emphasizes Greater Energy Cooperation in Eurasia

Currently, boundaries between and within companies have been weakening. Mr. Liu believes that many small and medium oilfield service companies in China will soon begin to cooperate, combing their competitiveness and knowhow to go public or even global. Wu Siwei ( 吴思卫 ), an employer of Sinopec Oilield Service Corporation, however, had a negative view on low oil prices. He said that low oil prices are a crisis for the whole oilield service industry, and the only way to get remove the crisis is to achieve cost efficiency. This calls for a transformation towards eficient business management and operation, as well as technological innovation. Mr. Liu agrees with Mr. Wu’s opinion, in part, since advanced technology cannot guarantee lower costs, and lower costs cannot ensure higher proits. Blindly pursuing low costs might even limit technological development. At the same time, Mr. Li and other “pessimists” don’t expect too much from the new round of oil and gas reform in China. They predict that reforms will have little impact on the oilfield service industry. Judging from the present situation, they do think it will be realistic for the oilfield service industry to achieve privatization and marketization in the near term. 41

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Kong Jueting On October 22, at the opening of the Fourth Eurasian Forum in Verona, Italy, Igor Sechin, Chairman of the Rosneft Management Board, presented a keynote speech on “Common Economic Space in Eurasia: Open Borders, Partnership, Flow of Resources, Capital and Technologies”. Mr. Sechin highlighted areas concerning the current and future Eurasian energy landscape. Analyzing the complex geopolitical energy situation, he stressed the importance of cooperation in the Eurasian region. The Eurasian Energy Landscape Currently, Eurasia is the world’s largest producer and consumer of oil. 59% of the world’s oil reserves and 60% of the world’s refining capacities are located in the region. The world’s two largest oil producers – Russia and Saudi Arabia – are also situated in the Eurasian continent. Mr. Sechin said that production in the region, however, does not entirely cover demand, which accounts for 65% of the world’s oil consumption. The shortage is currently equivalent to about 100 mmt of oil per year, and is expected to increase to 500 mmt by 2030. The oil producers of Eurasia thus have a competitive advantage, due to their location in receptive oil markets. When it comes to primary energy consumption, the shares of Europe and Asia show different tendencies. Europe’s share of global primary energy consumption declined from 32% in 1985 to just 19% in 2015, and is expected to drop to only 16% by 2030. By contrast, Asia’s share increased from 31% to 50%, and is projected to rise to 54%. In liquid hydrocarbons consumption, the three largest consumers in Asia, which are China, India, and Japan, outpaced all European Union countries combined by the early 2000s. 42

CEFC China Energy Journal

Mr. Sechin said that it was also worth noting that Saudi Arabia has ramped up oil production in recent years. In September 2015, Saudi Arabia’s crude oil production grew to 10.2 million barrels per day, exceeding the previous year’s figure by 0.5 million barrels. The increase in oil production results in not only more exports, but also additional throughput–equivalent to 0.8 million barrels per day, within the past two years, at two major reineries in the country. The shale oil and gas revolution along with the ongoing conflict in Ukraine could very possibly affect Russian and Middle Eastern oil and gas exports to East Asia, with a further effect on the energy politics of Eurasia. According to Mr. Sechin, despite the negative economic environment and the pressure of sanctions on Russia, the economy of the country has remained stable, and the power sector has actually demonstrated some growth in both hydrocarbon production and exports. In contrast, the European power industry is currently experiencing dificulties that may last for a long time. Mr. Sechin stressed that the potential expansion of cooperation among Eurasian countries is fundamental, since ensuring future economic success is a critical issue for all countries. Diversiied Cooperation in Eurasia In his speech, Mr. Sechin said he was impressed by the partnership between Rosneft (the largest national petroleum company in Russia), Pirelli (a globally inluential Italian tire company), and China National Chemical Corporation (ChemChina). He noted this as an example of the type of cooperation that is necessary in the Eurasian region. In particular, Mr. Sechin had high praise for Pirelli, which pioneered a large-scale introduction of European tire technologies to Asia-PacificRegion markets, relying on Russian resources and Chinese inancing. Mr. Sechin said that Pirelli had

demonstrated a commendable risk minimization approach by utilizing a synergy of Eurasian cooperation. As two of the largest consumers and producers of oil in Eurasia, Russia and China have a long history of cooperation in the energy sector. As the largest national oil company in Russia, Rosneft is at the forefront of trade between the two countries. For example, Rosneft has been supplying oil to Sinopec since 2009. A historic 25-year oil contract between Rosneft and CNPC, signed in 2013, also confirms the strategic trend towards cooperation. Mr. Sechin posited that, despite changes in their overall macroeconomic situations, energy cooperation between China and Russia is only growing stronger today. A number of agreements signed during President Vladimir Putin’s visit to China this September highlight the importance of the cooperation. Rosneft and Sinopec signed a term sheet on cooperation for the proposed joint development of the Russkoye and YurubchenoTokhomskoye fields, while ChemChina and Rosneft signed a term sheet for investment in equity of ChemChina Petrochemical Company. An MOU was also signed covering cooperation in the Far-East Petrochemical Company Project. The project will create an industrial hub in the Russian Far East to support delivery of energy products to high-margin markets of the AsiaPaciic region. Mr. Sechin concluded that by underscoring the importance of energy. Energy, he said, is as crucial as food production. Because it is essential to ensuring a high quality of life, it is of strategic importance for every economy. Accordingly, energy cooperation should not be subject to interference, pressure, or manipulation. People around the world rely on the flow of energy resources, and as such lows of capital and technology should not be used as bargaining chips.

Cooperation between Rosneft and Chinese Companies in Recent Years Includes:

1. Rosneft has been supplying oil to Sinopec since 2009; 2. Rosneft signed a historic 25-year oil contract with CNPC in 2013; 3. Rosneft and Sinopec signed a term sheet on cooperation for the proposed joint development of the Russkoye and Yurubcheno-Tokhomskoye fields this September; 4. Rosneft and ChemChina signed a term sheet for investment in equity of ChemChina Petrochemical Company this September; 5. An MOU was also signed covering cooperation in the Far-East Petrochemical Company Project this September. 43

Major Events CEFC China Energy Journal

China’s Nuclear

Power Industry Enters a Golden Age Zhu Xuerui

It is the time for China to pursue leadership in civil nuclear power in the international arena. From October 19 to 23, President Xi Jinping ( 习近平 ) made a state visit to the United Kingdom. During this visit, the two countries signed deals amounting up to 40 billion pounds (62 billion in USD). Among these deals Sino-UK nuclear power cooperation is of particular importance. Such cooperation includes the construction of the Hinkley Point nuclear power plant, among other nuclear power projects.

Major Events CEFC China Energy Journal

Since 2014, China’s nuclear power accelerated the speed of “going out”. The Chinese authorities and the nuclear power and nuclear power companies had signed documents on cooperation with France, Argentina, Italy, Spain, Canada, the Czech Republic, Kazakhstan, the United Kingdom and other countries.

Witnessed by the Chinese President and the British Prime Minister, the deal was signed by Electricite De France (EDF), the France-based world’s power giant. EDF will take up 66.5% share of the project, while China General Nuclear Power Corporation (CGN), a Chinese state-owned nuclear power operator, will account for a 33.5% share of the project. Both parties will jointly invest and build the Hinkley Point C project, as well as promote followup nuclear power projects, such as Sizewell C and Bradwell B. These projects are expected to adopt “Hualong One” technology, China’s domestically developed third generation reactor design. 44

Major Events

Major Events CEFC China Energy Journal

Located in south western England, the Hinkley Point C plant is now expected to start operating in 2025, with a 3.3 – gigawatt total capacity – larger than the output of any existing single plant in Britain. The estimated construction cost of the project is 18 billion pounds (28 billion USD). Significantly, the plant will be the first time “Hualong One” technology is applied in a nuclear power plant in Britain. British Prime Minister David Cameron described the agreement as “historic”. The project will provide reliable, affordable energy to nearly 6 million homes. Building a nuclear project in Britain with Chinese investment and technology is a win for both countries. For China, it unlocks the potential for Chinese firms to play a bigger role in Britain’s energy market, as well as for China to export its nuclear technologies and equipment to other parts of the world. For Britain, it heralds a rejuvenation of the country’s aging nuclear power system with Chinese investment, and promises to create more jobs. Chinese Nuclear Power Expands Worldwide Until construction at Hinkley Point begins, the Chashma Nuclear Power Plant in Pakistan remains the only oversea nuclear power project in which a Chinese nuclear power company has participated. The application of “Hualong One” technology in Hinkley Point C of Britain – a country which is renowned for its strict approval for building nuclear power plants – will significantly enhance international recognition of Chinese nuclear power technology. He Yu ( 贺禹 ), the President of CGN, told the media that successful implementation of the project will demonstrate the quality and reliability of Chinese nuclear power technology. 46

CEFC China Energy Journal

China’s participation in Romania’s Cernavoda nuclear power project, the joint construction of the Hinkley Point C project, and the adoption of Chinese developed technology at the Bradwell B plant, demonstrate that China nuclear power industry has been branching out incrementally. The decision by EDF, the world’s nuclear power giant, to cooperate with a Chinese nuclear power company also demonstrates China’s unparalleled strength in nuclear power development, including its domestically developed technology, building and operation management and equipment manufacturing. Although Germany – Europe’s most powerful economy, with correspondingly high energy demand – has announced the abandonment of nuclear, there is still a large potential market for nuclear power development in Europe. Other European countries, such as Holland, Belgium and Spain have expressed their willingness to develop nuclear power in their countries. Furthermore, many of emerging countries, including Thailand, Indonesia, Kenya, South Africa, Turkey, Kazakhstan, have plans to develop nuclear power. Many have expressed their interest in adopting “Hualong One” technology at their nuclear power plants, said Mr. He. In recent years, China nuclear power industry has begun to implement an export strategy. Currently, China’s two stated-owned nuclear power giants frequently appear in the global nuclear power market, both in European countries and emerging countries. For example, CGN is taking part in the bidding for 1Malaysia Development Bhd’s (1MDB) power business. 1MDB, a debt-ridden state investment company, expects 16 billion ringgit (3.8 billion USD) to 18 billion ringgit for its power plants, and has received bids close to that figure, company president Arul Kanda said on Oct 31. The sale is part of 1MDB’s plan to wind down its operations

after it drew criticism from lawmakers for rising debt, which totaled 41.9 billion ringgit as of March 2014. The winning bidder will be chosen by the end of this year. CGN is expected to win the bid, thanks to its advantages in financial support and technology.

Nuclear Power Boosts Global Low-Carbon Development

During the 10th summit of the G20 in Antalya, Turkey, China National Nuclear Corp (CNNC), the other of Chinese stated-owned nuclear power company, secured deals with Nucleoelectrica, the state-owned nuclear operator of Argentina. This opened doors for exports of nuclear equipment, which might amount to 30 billion yuan (4.7 billion USD) to the South American country.

A low-carbon transition is one of the top priorities for both China and Britain. Both countries are working hard to meet the challenges presented by climate change. In the joint declaration issued by the two countries, China and Britain have pledged to work together in various ields, and highlighted the ield of tackling climate change.

The deals inked by CNNC relate to work on Argentina’s fourth nuclear reactor, as well as a fifth nuclear power plant. The fourth reactor, Atucha 3, built on the Atucha Nuclear Power Plant Complex in Buenos Aires province, will use heavy-water technology developed by Canada’s Candu Inc. The ifth rector will use China’s domestically developed pressurized-water nuclear technology, “Hualong One”. Qian Zhimin ( 钱智民 ), General Manager of CNNC, said, “We would like to share our experiences and advances with Argentina as it develops its nuclear industry. At the same time, we hope that the mutual cooperation will provide us with more market opportunities in Latin America and also boost the local economy.” Zhang Luqing( 张禄庆 ), a nuclear expert at CNNC’s science and technology commission, explained that nuclear power is still an important fuel for substituting fossil fuels. He believes that now is an opportune time for Chinese companies working in nuclear power. As a result of the global economic slowdown, many countries seek inancial support and high-standard nuclear technologies for nuclear power. This presents huge potential for exports of nuclear power plants.

Beyond collaborating on nuclear power projects, China and Britain are also stepping up their efforts to ensure a low-carbon future.

Richard Black, Director of the Energy and Climate Intelligence Unit (ECIU), a UK-based non-governmental organization, told the media that “given China’s huge commercial interest in growing a global low-carbon sector, and its growing awareness that fossil fuel-based investments are at risk in a climate-constrained world, it would arguably make sense for Chinese investors to insist that progressively greater proportions of their investments go into lowcarbon areas.” According to a report published by ECIU, over the last few years, China has adopted an increasingly ambitious and committed approach to climate change and low-carbon development. The report states that “China has become the world’s biggest investor in renewable energy, and has rapidly restrained and apparently reversed its growth in coal consumption.” “Pushed by climate change concerns and pulled by the lure of a rapidly growing global market, China is set to dominate both the politics and the business of the world’s low-carbon transition,” Black said. “It’s clear there are opportunities on offer to foreign companies if they and their governments are inclined to grasp them.” 47

Technology

Technology CEFC China Energy Journal

CEFC China Energy Journal

China Ends Dependence

and automatic analytic systems. Overall, the team has obtained eight types of patents for submarine pipeline inspection technology.

on Outsourced Pipeline Inspection

Wu Li On October 16, 2015, the China National Offshore Oil Corporation (CNOOC) reported that it had successfully fielded its self-developed submarine pipeline magnetic lux leakage detector. The fielding, which took place in the Bohai Oilield, provided a collection of valid data meeting international standards. As such, the achievement marks the end of China’s need to import such equipment. Magnetic lux leakage technology is widely used in more than 90% of inner pipeline examinations worldwide. It helps to reveal defects in metal loss, such as the corrosion of inner and outer surfaces of a pipeline, as well as mechanical damage. It also offers the advantage of less stringent cleanliness requirements for evaluation of targeted pipelines, and can also be used for both oil and gas lines. Finally, it helps to identify the type and position of defects, and facilitates statistical analysis. The latter can then be used to inform maintenance and management tasks. Because of the complex operating conditions of submarine pipelines, underwater inspection technology must have higher reliability and environmental adaptability than that used for land-based pipelines. This has made it difficult for domestic enterprises to develop adequate technology. Despite prioritizing the development of 48

Wang Jianfeng ( 王建丰 ), the director of the research project, said that the team tested key subsystems of inner detectors more than 60 times. It has also developed a closed-loop experiment platform in the Bohai Shipyard, in order to simulate the actual working conditions of inner detectors. The team has conducted trafic ability and detector performance tests more than 40 times, thus analyzing over 1,000 groups of defects.

such technology for over 20 years, a breakthrough was missing. The lack of domestic submarine technology also meant China had to rely on foreign services to inspect its pipelines. This dependence came at a high price. Domestic inspection equipment and services would save China about 80 million yuan each year.

These efforts have contributed to the success of the research program. More importantly, information provided by the research program has shown that some main indicators, such as detection rate, calibration accuracy and identification of inner/outer defects, have met world standards. This proves that domestically developed equipment has reached internationally advanced levels.

To developing domestic submarine pipeline inspection technology, a series of technical targets needed to be achieved. These included miniaturization, depth penetration, and precision analysis for data defects data. Space is always limited on offshore platforms, and thus the size of an inner detector must be kept small. Miniaturization is also necessary to ensure that the detector can clear the short-radius bends featured in submarine pipelines. Precise analysis, on the other hand, is necessary to properly identify defects. In March 2012, hoping to achieve a technological breakthrough and narrow the development gap with other countries, CNOOC initiated research on submarine pipeline detectors and created a project team comprised of different research institutes, universities and private enterprises. Since then, the team has achieved several key technology breakthroughs. These include development of integrative sensors for inner and outer defect detection, magnetic circuit loating

CNOOC now plans to further optimize some ancillary works, such as procedures for operation and statistical analysis of inner detectors. It is estimated that by the end of this year or early next year, the company can begin to deploy its inner detector technology. China’s submarine pipelines will soon to be examined by domestically developed equipment.

mechanisms for long distance operation, low power data processing and storage systems, and power supply systems, among others. The team’s work culminated in the development of an inner submarine pipeline detector that is ready to be ielded in Chinese pipelines. The team has also mastered other key technologies, such as automatic identification of data defects, quantitative analysis and algorithms for high-precision defect detection,

Yang Hua ( 杨华 ), President of CNOOC, said that oil and gas pipelines are fundamentally important to the company’s operations. CNOOC will continue to expedite its efforts to protect Chinese submarine pipelines and promote technological research on safety inspection. Mr. Yang also hoped that its submarine pipeline technologies and products will soon be fielded, so as to ensure the safe operation of China’s submarine pipelines, safeguard the nation’s energy security, and enable China to consolidate its maritime power. 49

Energy Security CEFC China Energy Journal

Enhancing China’s Inluence on World Energy Pricing Through RMB Internationalization

Sun Zhaodong （孙兆東 ) This year marks the sixth anniversary of China’s Renminbi (RMB) internationalization. Thus far, RMB internalization has achieved substantial progress. In the context of China’s energy trade, however, the slow pace of RMB internationalization immediately becomes apparent. There has been inadequate development of China’s bargaining power on energy prices. At this stage, China should prioritize improving its inluence on energy prices through RMB internationalization. There have been some impressive results in the last six years. In July of 2009, the RMB settlement trial for cross-border trade was launched in Shanghai and four cities in Guangdong Province. This can be seen as the starting point of RMB 50

Energy Security

CEFC China Energy Journal

internationalization. By the end of 2014, the ratio of RMB cross-border payment to all local and foreign currency payment rose to 23.6%. This ratio is likely to climb to 30% by the end of 2015. Meanwhile, there have been remarkable achievements in international collaboration on the RMB. By the end of September 2015, the People’s Bank of China had signed bilateral agreements on currency swaps with central banks and monetary authorities from more than 35 countries and regions. The amount has exceeded three trillion yuan. The RMB has become the second largest currency for trade financing, the fourth largest currency for payment, the sixth largest pricing currency for international bonds and the seventh largest transaction currency for foreign trade. In addition, with the objective of RMB internationalization, China’s capital market is gradually integrating into the global economy. For example, in November 2014, the “Stock Connect” between the Shanghai and Hong Kong stock exchanges was launched. This enabled investors in Hong Kong and the Mainland to trade a specified range of listed stocks in each other’s market. Other areas concerning RMB internationalization include improving the marketed RMB exchange rate formation mechanisms, accelerating the process of RMB capital account convertibility, strengthening efforts in building an offshore RMB market, and providing financial support for enterprises efforts to expand abroad. The New Silk Road Fund, Asian Infrastructure Investment Bank and other financial projects also support the addition of the RMB to the International Monetary Fund’s Special Drawing Rights (SDR) baskets as the ifth reserve currency. It is expected that RMB will be added to the SDR baskets by the end of this year, after assessment. If approved, the addition will undoubtedly be another milestone for 52

RMB internationalization.

basket for international reserve currencies.

The SDR is a “Quasi Currency” created by the International Monetary Fund (IMF). It is a kind of reserve asset and a unit of account. It is also called “Paper Gold”, and can be used as reserve currency by its member states, in order to cover shortages in state reserves. If there is any deicit in international payments among the member states of the IMF, and for other demands of payment, SDR can be used to exchange foreign currencies with other member states. In other words, SDR can be understood as a

At present, SDR currencies include the US Dollar, Japanese Yen, Euro and British Pounds. SDR review takes place every five years, and the next review is expected to be completed by 2015. As the currency of the biggest developing country, whose economy stands as the second largest globally, the inclusion of the RMB will improve the representativeness and stability of SDR. It also helps to promote better coordination among global currencies and raises the level of conidence for the mechanism of reserve currency. It is inevitable that the RMB’s introduction as a new reserve currency is the result of China’s rising national power and economic prosperity. It is also a necessary procedure for global economic rationalization. At the same time, the measure will promote the RMB at the international level, bring stronger market conidence for the RMB and raises the status of RMB as a reserve currency. China’s energy enterprises should raise their influence on the international energy market by making full use of RMB internationalization. In fact, RMB internationalization has already helped China strengthen its pricing power in commodities. To a certain extent, the RMB internationalization brings positive development of energy trade. China is the world’s largest energy commodities importer and consumer. However, China is still unable to exercise its pricing right, since most energy commodities are still traded in US Dollars. As a general practice, most transaction for energy commodities are based on listing prices of overseas exchange houses, where the settlement is in US Dollars. Therefore, when RMB internationalization is being introduced, China’s energy sector should relentlessly pursue their enhanced bargaining power and obtain a better price for energy commodities.

The following recommendations explore actions that can be taken by China’s energy enterprises to accomplish this goal. First, China’s energy enterprises should promote use of the RMB as medium of payment in international trade, energy commodity trading and other investment activities. Second, China’s energy enterprises should enhance purchasing power on energy commodities by better using financial credits and exchanges. Once the RMB is included into SDR, the credit standing of RMB on the international market will certainly improve. This will allow China’s energy enterprises to make less cash payments in international transactions. Third, China’s energy enterprises should have more contracts priced in RMB, in order to avoid the potential risk in exchange rate, as well as build conidence in international trade. As there is already a prominent trend of “de-dollarization” in the petroleum trade, thanks to today’s highly integrated global financial market, China’s enterprises may enjoy using RMB for trade settlement on petroleum products in the future. Lastly, China should launch its own crude oil futures denominated in RMB. Given the current situation – China’s crude oil imports remain high and international oil prices remain uncertain amid concerns over the U.S. interest rate – the absence of China’s influence in the international crude oil futures should not be sustained. It is believed that the futures market to be launched will better represent China’s growing importance in setting crude prices and will become one of the global benchmarks in oil price measurement. (The author is the senior economist of the China Construction Bank, and holds a PhD in Economics). 53

Planet

Planet CEFC China Energy Journal

CEFC China Energy Journal

China Huaneng Group

DeliversEcological Development to the Loess Plateau

Lu Bin China Huaneng Group, the largest state-owned power-generation enterprise in China, has been ambitiously pursuing ecological development through a variety of power projects in the Loess Plateau. Implementing cutting edge projects at coal, wind, and solar powered plants, the Group aims to boost local economies while also promoting a healthy environment. The Ningxia Daba Power Plant, built in April 1988 and situated 67 km from Yinchuan City, is one of many facilities administered by Huaneng Group. The plant was the first 330MW thermal power station in Northeast China, and was also the first million kilowatt thermal power unit in the Ningxia Hui Autonomous Region. Huang Tao ( 黄涛 ), Director of Huaneng Ningxia Daba Power Plant, said that the early years of the plant were dificult. “In the past, we could not guarantee regular operation. The power plant was unable to generate a stable electricity supply, and failed to meet safe operating standards.” Today, however, the power plant is a successful enterprise, with a well-established record of safety and consistent operation. It is widely recognised 54

for its excellence in energy conservation and environment protection. The plant’s present capacity has reached 1320MW, produced via four 330MW thermal power stations. Due to its continuing operation since 1990, the power plant is now categorized by the government as an “Old Power Plant”. Thus far, it has supplied 149.6 billion kWh in total for the Ningxia Hui Autonomous Region. Despite the fact that Huaneng Ningxia Daba Power Plant is located in a remote area in Western China, the power plant still adheres to the Huaneng Group’s principle of ecological development. For example, when the Huaneng Group acquired the power plant in 2007, it invested roughly 800 million yuan to revitalize the plant. Huaneng Group deployed a variety of nitric acid and desulfurization modifications, as well as an electric precipitation

The Loess Plateau, located in the north-central part of China, contains abundant coal and oil resources, and is the world’s largest loess area, covering 620,000 square kilometres across six provinces and autonomous regions. Its geographic location also makes it the most important solar and wind energy hub in mainland China. The area is, however, also subject to severe natural conditions, which bring signiicant challenges to industrial development and exploitation.

system, which further reduced the smoke content in exhaust gas. The plant was the first enterprise in Ningxia Hui Autonomous Region to receive a feed-in tariff of 0.2 cents, which it received for particulate matter emissions lower than 30mg/Nm3. Currently, all its emission indicators exceed local emission standards, with nitric oxide at 145mg/ Nm3, sulphur dioxide at 92mg/Nm3, and particulate matter at 12mg/Nm3. Mr. Huang recalled that the power plant originally lacked the capacity for cleaner operation, due to its old-fashioned design and planning. “We had to complete the installation work for the required equipment in very limited space, while still setting aside additional space for future upgrades.” Huaneng Group has also explored other opportunities for development at the power plant. Xiao Junmin ( 肖俊民 ), Party Secretary of the Huaneng Ningxia Daba Power Plant, said that two out of four units have been re-dedicated for heating purposes, and will supply 5.9 million square meters of heated water to Qingtongxia City. “This transformation will help to replace all boilers in downtown Qingtongxia City – a win-win situation for energy conservation and emissions reduction.” Two more sets of 660MW units have also been approved for Daba Power Plant’s fourth phase of development. The additional capacity will ensure that the Ningdong-Zhejiang Ultra High Voltage Direct Current Transmission Project can receive enough electricity to proceed. The use of coal for electricity generation per kW will also be reduced to 287g in the fourth phase of the project. The reduction is attributable to clean production advancements achieved by replacing wet ash handling with dry ash handling. The latter, by comparison, promotes water conservation. As a result, the project will not require additional water consumption, a particularly

important achievement in the western part of China, where water resources are always scarce. Huang Tao said that “as a state-owned enterprise, Daba Power Plant will continue to demonstrate Huaneng Group’s commitment to social responsibility. Huaneng Group’s commitment to environmental protection will directly benefit communities sited near power plants.” The Zhongwei Photovoltaic Power Station, located in the Shapotou District in Zhongwei City, is another important project for Huaneng Group. The station is at the heart of the Group’s efforts to implement photovoltaic in Ningxia. Visually, the station is an impressive sight: it is surrounded by vegetation, such as under shrub and forage grass, which is used to reduce heat loss. A forest protection system, comprised of straw checkerboard sand barriers and sand fixing plants, also surrounds the power station. The system helps to stabilize dunes, and acts as a desertification control. Huaneng Group has invested more than 14 million yuan in ecological protection at the station, which features a variety of green projects and techniques. Huaneng Group is also developing wind power in Shaanxi Province. In Jingbian County, spectacular rows of wind turbines line the sides of local highways. The turbines belong to the Huangeng Shaanxi Jingbian Company, which was established in August of 2010 and began operation in 2012. The company has a total installed capacity of 230MW, an accumulated wind power generation of 1.147 billion kWh, and a photovoltaic generation of 43.07 million kWh. Since its establishment, the company has generated 601 million yuan in revenue and 166 million yuan in profit. In order to enable the long-term development of new energy projects in Shaanxi, Huaneng Group has founded a new 55

Planet

Planet CEFC China Energy Journal

company, Huaneng Shaanxi Company New Energy Branch. The company will be responsible for developing photovoltaic projects in Shaanxi, and is aiming to establish a new energy base of one million kWh of power generating capacity before the end of the 13th Five Year Plan. The road to success, however, will not be easy. Assets like wind and solar are abundant in Jingbian and Dingbian counties, which have attracted many energy companies for development of new energy projects in the region. Huaneng Shaanxi Jingbian Company currently has the lowest average wind speed of the seven new energy companies operating in the area.

CEFC China Energy Journal

operation by the year’s end. The Huaneng Tongchuan Zhaojin Power Plant, located in Tongchuan City, is another cutting edge project by the Huaneng Group. Located 70 km from Xi’an, the plant is the irst thermal power plant in Northwest China to achieve ultra-low emissions. Huaneng Group has invested 580 million yuan in environmental projects at the plant. These

projects include equipment upgrades that meet or exceed environmental standards. In 2014, the power plant deployed ultra-low emission technology for removal of smoke pollutants from its coal burning boiler. This upgrade helped to support the Shaanxi government’s implementation of environmental protection policies. After the upgrade, emission indicators fornitric oxide, sulphur dioxide and particulate matter, among others, have dropped below the emission limits set for natural gas

generators. The upgrade has also been selected by the Provincial Environmental Protection Authority as a pilot transformation project for environmental protection. As such, it represents the example of clean energy production being set by China Huaneng Group. Because of this leadership and ambition, Huaneng Group is a role model for ecological development in China.

The company is determined to overcome its weaknesses. Liu Guangli ( 刘广利 ), general manager of the Huaneng Shaanxi Jingbian Company, said that stricter management measures are being implemented to improve eficiency. “We now make major efforts to repair and maintain the turbines when there is now wind. This helps to prevent failures from happening during times of electricity generation.” As a result, the company now has the highest utilization hours for turbines in the region. In 2014, the company also launched the irst 30 MW wind-solar hybrid project in Shaanxi Province. Utilizing the existing power output system, the project will deliver photovoltaic power equivalent to one-third of the wind power being generated. The project will help to stabilize power output, by taking advantage of the complementary nature of wind and solar power, and also help to address investment and land shortage constraints. According to Liu Guangli, the company spent only 100 days to complete construction of the 30MW photovoltaic project. He also said that the second phase of the project was initiated on September 30 of this year, and will hopefully be in 56

Foresight

Foresight CEFC China Energy Journal

CEFC China Energy Journal

China to Deepen

Energy Reform in the Next Five Years Wang Haixia On October 29, 2015, the Chinese government released its 13th Five-Year Plan. The plan, which covers the 2016 to 2020 period, is the central government’s blueprint for China’s long-term social and economic policies. The plan was adopted during the Fifth Session of the 18th CPC Central Committee in November. The energy policy described in the plan signal a major effort by China to adjust its energy mix and restructure its economic model. Green Development According to the plan, China will embrace a green development model over the next ive years. During this period, China will continue to implement more exacting environmental protection efforts, in order to reduce carbon emissions. The plan promises an “energy revolution” driven by development of clean and safe energy resources, such as wind, solar, biomass, hydro, geothermal and nuclear energy. These energy sources will be continuously promoted as replacements for fossil fuels. At the same time, energy-intense industries – such as power, steel, chemical and building materials – will be subject to carbon emissions control regulations. The plan posits that China will accelerate its energy revolution by

Foresight CEFC China Energy Journal

implementing these policies. In the view of many industry experts, the principal objectives of energy reform in the next five years will be controlling coal consumption, stabilizing the use of oil and gas, increasing the use of wind and solar power, and speeding up energypricing reform to support structural transition. According to a statement made by the National Energy Administration (NEA), China will also aim to upgrade its energy system over the next five years, particularly by implementing internet technology. Nur Bekri (努尔•白克力), head of the NEA, explained that the NEA has pledged to adopt measures to develop core energy technologies, as well as promote the industrialization of more developed technology. The NEA will continue to coordinate resources in developing energy industries, building smart grids, employing Internet technologies, and eficiently allocating resources in coal and thermal power production and oil reining. The NEA has also stressed the importance of green development, and has urged for a better proportion for non-fossil energy and natural gas in overall primary energy consumption. By the end of 2020, China will increase non-fossil energy to 15% of total primary energy consumption, and to 20% by 2030. Undergoing Reforms Over the past 30 years, the Chinese energy industry has been under continuous reform, with liberalization and development of energy productivity as the main objectives. By relying more heavily on market forces, the Chinese government hopes to boost oil and gas production. President Xi Jinping( 习近平 ) has been leading efforts to reform China’s energy sector, which has long been under the strict purview of state60

owned enterprises. In June of 2014,President Xi proposed an “energy revolution” with the objective of building an effective, competitive market structure and system. President Xi’s initiative also proposed transformation of the government role in energy regulation, including a reform of legal frameworks. Under the new guideline, some monopoly sectors will gradually be broken. With the numerous breakthroughs occurring in oil and gas exploration areas, and many state owned companies are expected to attract private investment in upstream operations. For example, China National Petroleum Corporation (CNPC) plans to attract private investment for part of its West-East gas pipeline business. CNPC will offer a 49% stake in its oilields in the Xinjiang Uygur autonomous region to other investors, including private companies. The company is also planning to restructure its oil and gas-service company. Another state owned company, China Petrochemical Corporation has completed the reorganization of its profitmaking sales unit by inviting private and non-state investors. China also hopes to overhaul its energy pricing structure. For example, prices for natural gas have been held artificially low for consumers for many years. This has reduced revenue for state-owned enterprises, discouraged production, and led to the ineficient use of energy. China recently announced a near 25% cut in wholesale prices of natural gas, the second reduction this year. China’s power sector reform also has entered a new phase. More and more private investment is participating in the market of selling generated power. Best of all, these reforms are only the beginning of energy reform in China. The country can expect even greater things to come.