CEFC China Energy Journal January 2016 Issue 9 by China Energy Fund Committee

CONTENTS

JANUARY, 2016, the Ninth Issue Resolve Overcapacity

Lower Benchmark Price

4 8

Editorial 编者的话

The 13th Five-Year Plan: A Roadmap for China’s Energy Future 十五计划：规划中能源路线

China Sets Lower Limit of Domestic Petrol Price at $40 Per Barrel 中设 40 美元成品油地板

Opinion 观点

Beijing to Eliminate Coal Use by 2020 京重拳治污 2020 实现无煤

China’ s Energy Future: Innovative, Effi化ient，Sustainable 中能源未来聚焦创新、高效、可持续

How Should Chinese Oil Enterprises Tackle Low Oil Prices? 中油企如何应对油挑战？

China to Launch 15GW of Photovoltaic Poverty Alleviation Projects in the 13th FYP 十五时期光伏扶贫工程总规模 15G上

One Belt, One Road Initiative Does More than Resolve Overcapacity 中是否想通过一带一路来解决产能过剩 ?

CSG to Build 46 Million Kilowatts of West-to-East Power Transmission Capacity during 2016-2020 南方电网拟于 2016-2020 期间建成 4600 万千瓦西电东送输电规模

Policy

策

China Calls for Full Implementation of Ultra-Low Emissions before 2020 中呼吁 2020 之前燃煤电厂全面超排

Ultra-Low Emissions before 2020

Figures 数字

Cover Story 封面文章

Dialogue 对话 Developing Coalmine Safety During the 13th Five-Year Plan Period 赵铁锤：科学谋划促十五煤矿安全发展 China to Accelerate Marketization of New Energy Vehicles 中速新能源汽车市场

Strategic Oil Reserves

Business 商业 China to Lower Benchmark Price of Wind and Photovoltaic Power 中调陆风电光伏网电

China Completes Construction of Eight Strategic Oil Reserves 中建成八大石油战略储备基地

Major Events

Planet 地球 Scattered Coal: An Obstacle to Clean Utilization of Coal 散煤成煤炭清洁利用障碍

Foresight 前瞻 CASS Predicts Oil Prices Will Remain Low in the Next Five to Ten Years 社科院称未来 5-10 油仍将处于

CNPC Integrates Oil Pipelines to Accelerate Mixed Ownership Reform 中石油整管道业速混所有制改革

Energy Security 能源安全

主要

China’s Energy Transformation in the 12th Five-Year Plan Period 十五期间中能源转型进行时

Construction of China’s Third-Largest Hydro Project Begins 中第大水电站开工

Global Energy Trends: A Review of 2015 and an Outlook for 2016 全球能源趋势：2015 回顾及 2016 展望

China Realizes Universal Power Access 中实现全面通电

Oil Prices Will Remain Low

Editorial

CEFC China Energy Journal

Ho Chi Ping Patrick In March of this year, China will begin implementing its 13th Five-Year Plan, the country’s development blueprint for the period of 2016 to 2020. The new Five-Year Plan (FYP) will advocate for deep reform, which will have a profound and lasting impact on China’s future development. The FYP will map out China’s continuing transformation from a high-scale, high-speed, lowcost labor economy to one prioritizing quality, efficiency, and innovation. The ultimate objective of this transformation is to realize a “moderately prosperous society” in China – a society with better living standards for all its citizens. The scope and ambition of the 13th FYP means that there is hardly any area of society that does not fall under its purview. But while it is one of many areas of focus, perhaps none is more important than energy. China’s future energy development will be the keystone of its sustainable development. Energy will underpin China’s strategy for economic growth, innovation, and higher standards of living. Energy, in other words, will be the primary driver of China’s transforming economy. China’s Unique Energy Landscape

The 13

Five-Year Plan: A Roadmap for China’s Energy Future 4

China’s physical and cultural circumstances are unique. China has the world’s largest population, but lacks resources, both human and natural.1 For example, while China has 18% of the world’s population, 2 it has only 10% of the world’s arable land, and only one-third of the world’s average in per-capita freshwater availability. 3 In terms of energy, China is rich in coal, but lacking in traditional petroleum and natural gas reserves.4 These constraints significantly limit the development options available to the country. 5

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CEFC China Energy Journal

Historically, increases in productivity and standards of living increase have also increased consumption. 5 Given China’s population and lack of resources, however, such a trend would be impossible to sustain. China cannot follow the development path of the core OECD nations, which has been driven by high-rates of consumption. China’s circumstances simply do not permit this kind of development. It is questionable, in fact, whether such a strategy has been beneficial even for OECD countries. Consumption based economies have proven to be unsustainable, resulting in environmental degradation, socially destabilizing inequality, and spiritual discontent. Historically, the greed for resources brought about by highconsumption economies has fueled colonialism and military interventionism. More recently, we have seen an oloading of pollution and emissions onto the developing world, which suffers to meet the wants and fancies of the developed world. 6 China, therefore, has to adopt its own strategy for long-term growth. Fortunately, an economic strategy of sustainable growth finds a ready-made foundation in China’s cultural and philosophical tradition. 7 Chinese culture has long promoted conservation and modest living, stressing collective

People.cn, Population and the Sustainable Development of Resources, http://en.people.cn/92824/92845/92873/6442359. html. 2 World Bank, Population, total, http://data.worldbank.org/indicator/SP.POP.TOTL/countries/1W-CN?display=graph. 3 Christina Larson, How Resource Scarcity Constrains China, http://www.bloomberg.com/bw/articles/2013-10-07/how-resource-scarcity-constrains-china. 4 U.S. Energy Information Administration, China, https://www. eia.gov/beta/international/analysis.cfm?iso=CHN. 5 People.cn, supra note 1. 6 United Kingdom House of Commons Energy and Climate 6

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well-being over individual greed, and lifestyles based on need, not want or desire which knows no limit. This model, in fact, makes increasing sense in a world that is straining to maintain an ecosphere conducive to human survival. The energy policy of the developed world has been a simple one: a relentless search for more energy and still more energy. Unfortunately, this strategy has been as ineffective as it has been simple. China has opted for a more nuanced and careful approach, electing for the way of conservation, frugality, and eiciency. The strategy crafted by the Chinese leadership unites modern pragmatism with the wisdom inherent to China’s ancient values. The 13th Five-Year Plan thereby embodies a visionary development path tailored to the needs of the country. Energy in the 13th FYP: Three Areas of Focus The energy strategy of the 13 th Five-Year Plan can be organized into three general areas of focus. These are: (1) energy conservation, (2) selfsuiciency, and (3) sustainability.

conservation and imposing a ceiling on energy consumption. 8 Primary energy consumption will be capped at 4.8 billion tonnes of standard coal equivalent. 9 The FYP states clearly defined goals and deadlines for achieving these priorities, addressing both industry and consumers. Energy efficiency in buildings and infrastructure, wasted energy capacity, subsidies, and smart grids are all examples of issues that will fall under this aspect of the FYP’s energy strategy. The second area of focus relates to selfsufficiency and energy imports.10 The FYP states China’s goal of achieving 85% energy selfsufficiency by 2020,11 a policy that will also help to strengthen the country’s energy security. China’s eforts to develop nuclear power, renewable energy, clean coal, and non-traditional natural gas and oil all fall under this aspect of the strategy. China’s power grid infrastructure projects will also be crucial, as they will help deliver domestically developed energy throughout the country. The third area of focus relates to sustainability. Consumption of coal is kept at under 62% of the primary energy mix,13 and 15% of which represents the total non-fossil components. 14 This covers a variety of issues and fields, including renewable

energy, green industry (recycling, pollution control, and remediation), sustainable transport, conservation, and governance (urban planning, and industry regulation and supervision). FYP goals include increasing the market share of electric vehicles and infrastructure projects for high-speed rail. Realizing the “China Dream” In the final year of the 11 th FYP, China surpassed Japan to become the world’s second largest economy.15 Since then, China has continued to progress at a breathtaking pace, accomplishing in a matter of decades what the developed world did in centuries. These accomplishments have been possible thanks to a development strategy that has relected China’s unique culture and circumstances. The 13th FYP marks the next chapter of China’s rise, and represents the nation’s dedication towards realizing the China Dream.

The path charted by the 13th Five-Year Plan will be a sustainable and responsible one, underpinned by Chinese characteristics, and fueled by China’s energy.

china/china-story/. 12 Xinhua, China’s Five-Year Plan offers model of sustainable, balanced development, http://news.xinhuanet.com/english/2015-11/09/c_134797917.htm. 13 South China Morning Post, China aims to reduce coal reliance in next ive-year plan, http://www.scmp.com/business/commodities/article/1694984/china-aims-reduce-coal-reliance-next-fiveyear-plan. 14 U.S. Energy Information Administration, supra note 4. 15 Cao Li, Besides Achievements, Nine Challenges for Next Five Years, http://www.chinausfocus.com/political-social-development/besides-achievements-nine-challenges-for-next-fiveyears/.

The first area of focus relates to energy

Change Committee, Consumption-Based Emissions Reporting, http://www.publications.parliament.uk/pa/cm201012/cmselect/ cmenergy/1646/1646.pdf. 7 “Daoism, as the indigenous religion of China, is profoundly ecological in its theoretical disposition.” James Miller, Daoism and Ecology, http://fore.yale.edu/religion/daoism/.See also Chen Xia, Daoism and Environment Protection, http://www.crvp.org/ conf/istanbul/abstracts/chen%20xia.htm.“Daoism has evolved a system of concepts and practices uniquely relevant to the relationship between man and nature. Daoism contains, in its creeds, tenets, and practices, many ideas compatible with the concept of environment protection.”

China Business Review, Understanding China’s 13th Five Year Plan, http://www.chinabusinessreview.com/understandingchinas-13th-five-year-plan/; South China Morning, Post, Great economic leap forward: China prepares for shift to market- and consumer-based economy, http://www.scmp.com/news/china/ policies-politics/article/1866744/chinas-five-year-plan-expected-centre-sustainable. 9 Xinhua Finance, China Focus: China unveils action plan on energy dev. strategy by 2020, http://en.xininance.com/html/Policy/2014/7810.shtml. 10 China Daily, China to deepen energy reform, http://www.chinadailyasia.com/nation/2015-11/11/content_15343425.html. 11 Sino Gas & Energy, China Story, http://sinogasenergy.com/

Opinion

CEFC China Energy Journal

China’s Energy Future:

Innovative, Eicient，Sustainable

▲ Li Ye 李冶

Chief Economist, National Energy Administration

T h e g l o b a l e n e rg y s u p p l y a n d d e m a n d structure is changing drastically. Three features stand-out in this transforming global energy landscape.

contribution to the global energy supply. From 2012 to 2014, renewable energy contributed to more than 48% of newly installed power generating capacity.

First, the global energy structure is gradually transitioning to a low-carbon future. In developed countries, particularly member states of the Organization for Economic Cooperation and Development (OECD), natural gas already outweighs coal as the major energy source in the primary energy consumption mix. Meanwhile, non-fossil fuels stand to increase their

S e c o n d , t h e g l o b a l e n e rg y s t r u c t u r e i s transforming from a unipolar to a multipolar landscape. For example, the North American energy revolution is expected to break the traditional trade pattern of crude oil. New energy supply channels in the Middle East, Central Asia, Russia, Africa and America are also being established. Energy consumption is also increasingly shifting from the

West to the East.

own energy.

Third, the world is seeing increasingly intelligent production and utilization of energy. Internet technology and energy technology are merging, creating a favorable environment for the industrialization of energy technology. Products like distributed energy, smart grids, and new energy vehicles are taking root in the market. Many industrial parks, towns, and even private residences are increasingly equipped with distributed energy supply systems. A new lifestyle is appearing, in that people can produce and meet their needs with their

China is now the world’s largest energy producer and consumer. Its energy sector is, however, experiencing a transition, as China’s economy is set to slow in the coming years. E n e rg y c o n s u m p t i o n g r o w t h i s a l r e a d y slowing. In the irst decade of this century, China recorded an average annual growth rate of 9.4% in energy consumption. This rate began to fall in recent years. The average rate for 2011 to 2014 was 4.3%. 9

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CEFC China Energy Journal

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With increasing commitment to protecting the natural environment and addressing the challenges of climate change, China’s energy structure will be further optimized to help realize the sustainable development of both the energy sector and the country.

The energy consumption mix has also begun to change. In 2014, coal represented 66% of primary energy consumption, already 3.4% lower than in 2000. Natural gas, on the other hand, accounted for 5.7% of China’s primary energy consumption in 2014, 3.6% higher than in 2010. This igure, nevertheless, still lags behind that of developed countries. There is a clear trend towards replacing conventional energy sources with cleaner, more efficient and low-carbon ones. With increasing commitment to protecting the natural environment and addressing the challenges of climate change, China’s energy structure will be further optimized to help realize the sustainable development of both the energy sector and the country. China’s future energy development featured prominently in the 6th meeting of the Leading Group for Financial and Economic Affairs, which was held in June 2015 and presided over by President Xi Jinping (习近 ). Members proposed a strategy of “Four Revolutions and 10

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One Cooperation”, which will seek to promote a revolution in energy consumption, supply, technology and infrastructure, as well as strengthen international cooperation.

How Should Chinese Oil Enterprises

Tackle Low Oil Prices?

Meanwhile, at the 5th Plenary Session of the 18th Central Committee of the Communist Party of China, Chinese leaders adopted the following principles to guide the future development of the country: (i) innovation, (ii) coordination, (iii) green, and (iv) open and sharing. for China’s oil and gas sector, particularly for upstream industries. The harmful efect of the drop in oil and gas prices for the industry is made evident by recent performance indicators.

In terms of energy, leaders promised an “energy revolution” that would replace fossil fuels, with cleaner, safer resources, including wind, solar, biomass, water, geothermal and nuclear energy. Leaders also promised to continue exploration of domestic deposits of natural, shale and coal-bed gas. On the other hand, energy-intense industries – such as power, steel, chemical and building materials industries – will be subject to increasing regulations for carbon emissions control. Finally, the meeting also confirmed the need to reform the energy sector. An efective and competitive market mechanism for energy will be an essential component of the 13th Five-Year Plan. The Chinese government has also given strategic priority to resource conservation and environmental protection. Pursuing these priorities means developing green, low-carbon and recycling industries, which will also play a role in rejuvenating the country’s economy. China has established signiicant targets for developing clean and low carbon energy, as well as for innovation in energy technology. Going forward, it is likely that the proitability of China’s energy enterprises will be impacted by slowing growth and market reform of the energy sector. Nevertheless, energy enterprises will remain key industries, and will be crucial to the country’s energy security. Eventually, the energy sector will embark upon a path of more sustainable growth.

▲ Zeng Xingqiu 曾兴球

Vice Chairman of the Board, E n e r g y R e s e a r c h C e n t e r, China Investment Association

China is steadily increasing its reliance on crude oil and gas imports. Given this trend, plummeting oil and gas prices are, to a large degree, welcome. Downstream industries, in particular – such as oil refineries and petrochemical companies – benefit significantly from the new prices. Lower raw materials costs allow downstream industries to optimize their balance sheets. However, low oil prices also present challenges

For example, in the first half of 2015, profits of three Chinese energy giants, CNPC, Sinopec and CNOOC, dropped 62%, 22% and 56.1%, respectively, compared with the same period of the preceding year. The situation was more severe in the second half of 2015, when the three companies suffered great losses in third-quarter revenue of their main businesses. Some planned investment in oil and gas exploration and development has also been shelved, with 40% of drilling teams remaining idle. Related service industries also sufered losses, and many failed to obtain contracts in this diicult period. Given this situation, energy enterprises specializing in oil and gas exploration, extraction and production, should consider implementing six steps to improve their productivity and competitiveness in an era of low oil prices. First, enterprises must seek industrial reform, while making sure to avoid complications that might be brought about by such reform. In particular, industries must transition: (a) from extensive development to intensive development, (b) from a focus on volume of oil and gas to cash low, (c) from large scale production to quality production, 11

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and (d) from a focus on asset management to an emphasis on capital management. Second, reforms must be grounded in the principle of sustainable development and other requirements highlighted in the 13th Five-Year Plan. For example, enterprises need to develop and strengthen their strategic business areas, and eliminate their backward production capacity. Oil and gas exploration projects with low return and high risk should be interrupted. Capital should be utilized for either investing in more profitable projects or seeking market expansion. Third, enterprises must improve their risk control and management. Enterprises should review their previous investments, and make corrections accordingly. Under the low oil price environment, enterprises should also be careful to screen their overseas investments, and follow-up on and evaluate these projects on a timely basis.

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Fourth, enterprises should engage the international market, and pursue international cooperation. The “One Belt, One Road” (OBOR) Initiative, which promotes joint development, will help oil and gas enterprises seize expansion opportunities and explore new modes of cooperation abroad. At the same time, enterprises should also be aware of global dynamics, and exercise care in their investments abroad. Fifth, enterprises must promote technology development and innovation. Enterprises should acquire a technological capacity that allows them to compete in the global market. This includes seeking the development of leapfrog, cutting-edge technology. Lastly, enterprises must be active in crude oil trading and finance. The market must be seen as more than a trading platform. Enterprises should combine trade and resource development to secure

“

In order to enhance competitiveness in the global market, the oil refinery industry must advance its reform and restructuring. The industry must improve its product quality and, more importantly, reorient towards a green, environmentally friendly and low-carbon development path.

energy supply in the long term. China produces, annually, more than 200 million tons of crude oil, and more than 12 million cubic meters of natural gas. With such vast energy reserves, China has become seriously exposed to the risk of international oil price shock. As such, it is essential that the industry and government work cohesively to launch China’s irst crude oil future, in order to leverage market risk. The low oil price period is good news in that it pressures China to pursue the construction of its oil and gas storage. China’s oil refineries should also adjust their positioning and strategy during the 13th Five-Year Plan period. 12

Chinese reineries should familiarize themselves with global market trends. While performance is sluggish in Latin America and Africa, oil refining booming in the Middle East, India and the US. As a result, Chinese reiners are now facing shrinking reined oil exports. In order to enhance competitiveness in the global market, the oil reinery industry must advance its reform and restructuring. The industry must improve its product quality and, more importantly, reorient towards a green, environmentally friendly and low-carbon development path. Overcapacity has resulted in operating difficulties for some downstream petrochemical enterprises. Plunging oil prices, together with shrinking demand growth for petrochemical products since 2014, have caused the petrochemical industry to suffer the most serious profit margin compression in recent years. To tackle with this problem, the industry should stimulate domestic market demand. It can do this by focusing on downstream sectors such as light industry, real estate, and transportation. It can, again, also seek to access overseas markets, utilizing the opportunities and resources provided by the OBOR initiative. In all cases, the industry should pursue product innovation while strengthening management. The latter must become more cost effective and competitive on the global market. Finally, upstream and downstream enterprises should seize the opportunities presented by the 13th Five-Year Plan (FYP). Marketization, innovation, energy saving, emissions reductions, production efficiency, production capacity, and investment performance are all focus areas of the FYP that should be considered in seeking to realize the longterm, sustainable growth for the oil and gas sector. 13

Opinion

CEFC China Energy Journal

O ne Belt, One Road Initiative Does

More than Resolve Overcapacity

Overcapacity is an issue that has received a lot of attention in China. In a market economy, an appropriate amount of oversupply is necessary for market competition mechanisms to work. In turn, such mechanisms eventually balance supply and demand, while also boosting innovation.

▲ Xie Shujiang 解树江

Editor-in-Chief, China Energy News

It is not surprising for a market economy to suffer from overcapacity. For example, many developed countries and regions, such as Europe, the U.S. and Japan, have taken two to three decades to rein in steel overcapacity. Thanks in part to the international financial crisis, international markets are bearish. Domestic demand is growing slowly in all countries. This poses a threat of overcapacity for China’s manufacturing industries, particularly those with high energy consumption and emissions, such as the steel, cement, electrolytic aluminum, and photovoltaic industries. For example, the rate of capacity utilization in steel, cement, electrolytic aluminum, sheet glass and watercraft industries is currently about 70–75%. This is signiicantly lower than the international average of 80%. The Chinese government’s One Belt, One Road Initiative (OBOR) aims to resolve China’s overcapacity by transferring its excess supply

to other countries. It is, however, not the only solution to the problem. In fact, by resolving overcapacity internally, China can realize industrial optimization and restructuring, which will benefit its industries in the long term. For example, the Chinese government could enforce a set of long lasting investment regulations and policies. This would help to curb unnecessary capacity expansion and eliminate backward production capacity in overproducing industries. The bearing capacity of the ecological environment is also increasingly prominent in the eyes of the government. The issue features strongly in the 13th Five-Year Plan (2016-2020). In addition to eliminating backward production capacity, the government has committed to reviewing and updating its standards for energy consumption, emissions and waste. The government will also seek further enforcement of relevant legislation. Enterprises that disobey the government’s instructions and regulations will be subject to punitive pricing action. On the other hand, the government is seeking to eliminate overcapacity that has signiicantly detrimental efects on the environment, and is therefore willing to provide incentives for qualifying industries. The government, relying on carrot and stick, will be more active in managing industrial overproduction. More importantly, by effectively re-allocating resources and capacity to regions and industries which already have comparative advantages over others, the government can assist industries in exploring domestic market potential. This will help industries achieve a long term sustainable development path. The OBOR, on its own, does not resolve overcapacity issues. But it does play a role in resolving the problem. The OBOR can be a golden

opportunity for other countries to acquire excess capacity from China, and develop it for their own good. There are four ways China and underproducing countries can achieve mutual beneits via cooperation. First, China’s government should encourage domestic enterprises to increase their participation in international trade. Second, domestic enterprises should seek cooperative projects and bid on overseas contracts. Bids could include large scale industrial c o n s t r u c t i o n , e n e rg y a n d c o m m u n i c a t i o n s development, and mineral resources exploitation. This will support the export of products, services, and domestic technologies and equipment (supported by Chinese intellectual property rights). Third, the government should introduce an investment and finance service platform, helping enterprises ind opportunities to expand overseas. Fourth, the government should set up overseas economic and trade cooperation zones, as springboards for Chinese enterprises to expand internationally. The steel, cement, electrolytic aluminum, sheet glass and watercraft industries, in particular, can be expected to play a constructive role in realizing global resource and supply chain integration. Their high-end technologies, equipment and scale advantages will feature prominently in this role. China is accelerating its cooperation on capacity and equipment manufacturing with its international counterparts. In 2014, the manufacturing industry’s export value reportedly reached 2.1 trillion yuan ($338 billion), accounting for about 17% of China’s total. The export of large-sized compete sets of equipment was about US$110 billion. 15

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Cooperation between China and foreign countries is developing quickly. For example, China and Kazakhstan have stepped up capacity cooperation. The two countries have convened five meetings, signed 28 cooperative agreements (worth US$23 billion), and planned 48 projects (totalling US$30.3 billion in value). These projects cover areas such as mining, chemical production, engineering and building material production. The partnership between China and Kazakhstan is a perfect example of the OBOR’s innovative model of bilateral cooperation. Another example is provided by enterprises from Hebei Province, which are forging ahead with 13 projects in South Africa and Serbia. The projects cover the areas of steel, cement, glass and photovoltaics. Since last year, China’s National Development and Reform Commission (NDRC) has launched capacity cooperation with 12 countries. In the irst half of 2015, China recorded non-inancial overseas direct investment (ODI) of RMB 343.2 billion, or USD $56 billion, up 29.2% from a year earlier. These examples all demonstrate the “mutual beneit and win-win cooperation” advocated by the OBOR. Capacity and equipment manufacturing cooperation have proven beneficial for all parties involved. Beyond resolving China’s overcapacity issues, the OBOR presents a huge opportunity for countries and businesses around the world. The OBOR aims to promote practical cooperation in all ields. Ultimately, it aims to build a community of shared interest, destiny and responsibility, featuring mutual trust, economic integration and cultural inclusiveness. China is extending an invitation to the global community to work together and produce beneits shared by all. This, it is hoped, will help to realize global peace and development. 16

Policy

CEFC China Energy Journal

China Calls for Full Implementation

of Ultra-Low Emissions before 2020

Kong Jueting Heavy smog is smothering China and adversely afecting people’s daily lives. On several occasions since November of 2015, weather observatories issued a yellow alert – the second highest in a four-tier warning system 16 – for smog in cities and provinces in China’s north. Worse, in Beijing, observatories issued the first red alert for severe smog on December 4, 2015. Smog worsens in winter because of coal burned for heating purposes. The State Council responded to the situation just after the plaguing smog dispersed. In the recently held executive meeting of the State Council, members called for the implementation of an ultralow emissions and energy-savings transformation for coal-ired power plants. Ultr a- low e missions (ULE) mea n s t h at emissions from coal-fired power plants must be maintained at levels comparable to a national standard. Practically speaking, such levels are comparable to those of natural gas-fired power plants.

China has a four-level, color-coded weather warning system. Red, which represents the most serious conditions, is followed by orange, yellow and blue. 18

Chai Fahe (柴发 ),Vice-President of the Chinese Research Academy of Environmental Sciences, says that the decision to implement ULE power generation reflects China’s determination to curb smog. Mr. Chai believes that if coal-fired power plants follow government guidance, they will be able to reach international standards of pollution abatement. In order to meet China’s vision of green development, said Mr. Chai, coal-ired power plants must speed up their transformation and upgrading. More Stringent Requirements on Implementing Ultra-Low Emissions Meeting ULE requirements will, however, be difficult, warns Liu Bingjiang (刘炳江), Director of the Department of Pollution Emission Control, Ministry of Environmental Protection. In May of 2014, the National Development and Reform Commission (NDRC), Ministry of Environmental Protection (MEP) and National Energy Administration (NEA) jointly released their Action Plan for the Transformation and Upgrading of Coal Power Energy Conservation and Emission Reduction (2014-2020). According to the Action Plan, the nationwide average net coal consumption rate of newly built coal-fired power plants should be less than 300g

of standard coal equivalent per kilowatt hour (“g/ kwh”). By 2020, upon upgrading, the average net coal consumption rate of coal-fired power plants in service will have to be less than 310g/kwh. The average net coal consumption rate for units operating at 0.6 million kilowatts or higher (except for air cooling units) will have to be less than 300g/ kwh. In China’s east, limits will be even more stringent. Public coal-fired power plants operating at 0.3 million kilowatts or higher, private coal-ired power plants operating at 0.1 million kilowatts or higher and other eligible coal-fired power plants, upon upgrading, must reach the emissions standards of natural gas-ired plants.

According to Mr. Liu, the government has proposed more stringent requirements for both the scale and deadline of implementing ULE. The government will also expand the area that must fall under the standards of China’s east. It will also move the upgrading deadline to an earlier date. In China’s east, coal-fired power plants at 0.1 million kilowatts or higher must implement ULE upgrading by the end of 2017. For China’s central regions, the deadline will be end of 2018. Policy Incentives for Implementing Ultra-Low Emissions By official estimates, the implementation of ULE technology will reduce coal consumption by 100 million tons, carbon dioxide emissions by 180 million tons, and emissions of primary power generation pollutants by 60%. Seeking to effectuate these reductions, the central government is considering other policies to stimulate ULE upgrading. The State Council will reward provinces and cities with demonstrated achievements in energy savings and emissions reductions, with incentives from the special fund for air pollution prevention and control. The State Council may also provide financial services, such as preferential credit assistance and bond services. Regional and local authorities could also award financial incentives to coal-fired power plants if they reach ULE standards and pass a performance audit. Another incentive is electricity pricing subsidies, which may help spur the power sector’s motivation to meet government standards. The government is also demanding that all coalfired power plants work within the limit of coal consumption set out in the 13th Five-Year Plan (2016-2020). 19

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Beijing to Eliminate Coal Use by 2020

China Sets Lower Limit of Domestic Petrol Price at $40 Per Barrel On January 13, the National Development and Reform Commission (NDRC), China’s price regulator, set the lower limit of its domestic petroleum price at US$40 per barrel. The NDRC also lowered the domestic gasoline and diesel price by 140 Yuan and 135 Yuan per barrel respectively. This cut is equivalent to a 0.1 Yuan cut for a Number 90 gasoline and 0.11 Yuan cut for a Number 0 diesel. It will be the first price adjustment in 2016. The NDRC suspended price adjustments of domestic reined oil products twice in December 15.

petroleum prices at $130 per barrel, a number that few expect will be reached in coming years.

The lowering is long overdue. International oil prices, such as for Brent crude benchmark, have fallen to a 12-year low of $32 per barrel. The $40 limit means, however, that China will not lower prices even if international oil prices fall below it. The NDRC also set the upper limit of domestic

The NDRC considered various factors in setting the new limits: domestic production costs, the long-term trend of international oil prices and China’s energy policy. The NDRC said that it hopes to implement further market-oriented oil pricing reforms in the future.

In addition to leveraging the international oil price downturn, petroleum price limits were also set to assist the country’s energy security. “A fuel price set too low would deepen China’s dependency on the external oil market, which has already reached 60%. China must improve air quality and shift toward more use of new energy sources,” the NDRC said in a statement.

The Ministry of Environmental Protection will boost its eforts to cut air pollution in northern China in 2016. In particular, the Ministry will focus on addressing winter smog caused by the burning of coal. The Ministry’s announcement was made at its annual meeting, which was held on January 11, in Beijing. Chen Jining (陈宁), Minister of Environmental Protection, said that burning coal for winter heating has been listed as one of the primary causes of air pollution. The increased severity of hazardous smog in northern China has been taken as a sign that the government should do more to reduce the coal consumption and improve air quality. The capital and other places in northern China experienced severe bouts of smog in November and December 2015. 40 cities in north China issued alerts for air pollution. Beijing, along with the cities of Baoding, Handan, Langfang and Xingtai in the neighboring province of Hebei, issued red alerts, the most serious of the country’s four-tier warning system.

Monitoring data from those incidents showed substances directly related to coal burning, including sulfate and black charcoal. The latter two are major components of PM 2.5, airborne particles smaller than 2.5 microns in diameter, which can penetrate deep into the lungs. Beijing has declared that it will wipe out coal use in its most rural areas by 2020. Accordingly, the city government will replace coal-fired heating stoves with those powered by electricity or gas in 400 villages this year. The campaign will be expanded to the districts of Chaoyang, Haidian, Fengtai and Shijingshan by 2017, said a municipal rural development official. Beijing’s downtown districts of Dongcheng and Xicheng have already eliminated coal burning in 2015, oicials said. M r. C h e n p l e d g e d t h a t t h e M i n i s t r y o f Environmental Protection will do everything possible to prevent environmental problems from becoming a stumbling block for the country during the 13th Five-Year Plan period (2016-2020). 21

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China to Launch 15GW of Photovoltaic Poverty Alleviation Projects in the 13th FYP More than 80 million people in rural China still live in poverty. The government seeks to lift 10 million out of poverty annually, an efort necessary to achieve the country’s 2020 poverty alleviation target. 10 targeted poverty alleviation projects are currently being organized to help meet this target. The projects include vocational training, microcredit, and a photovoltaics project. 2016 marks the beginning of the 13th Five-Year Plan Period, and is the irst year of targeted poverty alleviation projects. The Chinese government plans to launch a 15GW photovoltaic poverty alleviation project in the 13th Five-Year Plan period (20162020). The project will seek to achieve 3GW annually, accounting for 20% of national newlybuilt installed generation capacity or 10% of the national PV cell output. 22

CSG to Build 46 Million Kilowatts of West-to-East Power Transmission Capacity during 2016-2020

The photovoltaic poverty alleviation project will be implemented in counties which have more than 1,100 hours of sunshine per year. Each of the 2 million poor households will receive assistance worth 3,000 yuan annually. The project will be implemented over the course of ive years.

China Southern Power Grid Co., Ltd (CSG), one of China’s two national power grid operators, transmitted a total of 189.1 billion kilowatts of power from the west of China to the east in 2015. This is a 10% increase from the preceding year, and marks a new high for the fourth consecutive year.

The government will also construct 5GW of distributed PV power stations. It expects that 1.66 million household will be equipped with rooftop distributed PV generation systems.

CSG’s upcoming project aims to transmit electric power from resources rich regions such as Guizhou, Yunnan, Guangxi, Sichuan, Gansu, Inner Mongolia, Shanxi to regions lacking powering resources, including Guangdong, Jiangsu, Zhejiang, Shanghai and Jingjinji (Beijing-Tianjin-Hebei) areas.

In China’s central regions, including areas such as South Central Shanxi, the government will build a demonstration base for large photovoltaic power plants directed at poverty alleviation. Each groundbased PV power plant is expected to produce 10GW per year.

A total of 38.2 billion yuan has been spent on the West-to-East power transmission project during the 12th Five-Year Plan period (2011-2015). The newly-added power transmission capacity reaches

11.4 million kilowatts a year, up 45% from the 11th Five-Year Plan period (2006-2010). So far, eight AC and eight DC 500KV overhead power transmission lines have been built for the company’s West-to-East power transmission project. These provide a maximum capacity of 35 GW per annum and cumulative electricity of 714 billion kWh. During the 13th Five-Year Plan period (20162020), 2 West-to-East DC power transmission lines will be constructed to increase power transmission capacity by 11 million kilowatts. By 2020, there will be 19 West-to-East transmission lines, including 9 AC lines and 11 DC lines. These will add up to a total capacity of 46 million kilowatts, 26% higher than that in the 12th Five-Year Plan period. 23

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energy development over the past ive years.”

China’s Energy

Mr. Nur also praised the NEA, which he claimed had helped to achieve the country’s impressive results. This praise has been conirmed by the NEA’s governing authority, the National Development and Reform Commission (NDRC). Xu Shaoshi (徐绍史), Director of the NDRC, said that the NEA and national energy system have successfully fulfilled the program set forth in the 12th Five-Year Plan (2011-2015). This, explained Mr. Xu, laid a solid foundation for implementation of the 13th Five-Year Plan (2016-2020). According to Mr. Xu, China has made three significant achievements in energy.

Transformation in the 12th Five-Year Plan Period Wang Haixia

First, China has pursued energy development in an innovative way. Over the past ive years, China has increased efficient investment in the energy sector, and promoted new energy consumption vigorously. This has resulted in huge breakthroughs in international energy cooperation. Second, China committed itself to adjusting its energy structure. It has promoted clean utilization of coal and pursued development of non-fossil fuels. China has also made remarkable progress in replacing coal with oil and gas, and replacing fossil fuels with non-fossil fuels. China’s energy industry has experienced dramatic changes in the past five years. These changes occurred throughout the country, from southwest China’s oil and gas fields, to southeast China’s offshore wind farms, to distributed energy solutions in China’s rural areas. China’s energy revolution is well under way. Low-carbon development has become both a national priority and a part of everyday life. Oficials’ Annual Review Nur Bekri (努尔·白克力), Head of the National Energy Administration (NEA), praised 24

Chinese leadership in his remarks at the National Energy Work Conference, held at the end of 2015. Mr. Nur noted that, since the 18th CPC National Congress in 2012, top Chinese officials, including President Xi Jinping (习近 ) and Premier Li Keqiang (李克强), personally promoted China’s energy development. By presiding over a number of meetings, issuing important instructions and releasing a series of supporting policies, Mr. Nur explained, Chinese leaders have established the direction of China’s energy development. The result of this commitment, Mr. Nur said, was made evident by the “great achievements in

Third, China has made extraordinary breakthroughs in reforming the energy system, highlighting goals and problems, and promoting rapid energy development. These have resulted in a rapid reformation of China’s energy system. Energy Structure Adjustment Over the past five years, China widened the breadth of its energy supply sources, and achieved rapid growth in clean energy development, energy savings and environmental protection. This progress is highlighted by the fulillment of the goals set out in the 12th Five-Year Plan. During the period of 2011-2014, GDP per unit of energy consumption was reduced by 13.4%. In 2015, GDP per unit of energy consumption was further decreased by 5.9% year-on-year. The target of reducing 16% GDP per unit of energy consumption has thus been achieved in advance. Primary energy consumption of the non-fossil fuels was set to a goal of 11.4% in the 12th FiveYear Plan. In 2014, the consumption ratio of nonfossil fuels had already reached 11.1%. From January to September of 2015, the installed capacity of renewable energy rose sharply; the installed capacity of wind power increased by 28.3% year-

Energy Production and Consumption in 2015 The annual energy supply is generally stable with the basic balance of supply and demand.

35.8

billion tons of standard coal

▼ down by 0.5% year-on-year

The Total Energy Production in 2015

billion tons of standard coal

▼down by 0.9% year-on-year The Total Energy Consumption in 2015 25

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This data also underscores the rapid development of clean energy during the 12th Five-Year Plan period. The installed capacity of hydropower, nuclear power, wind power, solar power increased by 1.4 times, 2.6 times, 4 times, and 168 times respectively during the five-year period. The increases amounted to an overall increase of 2.6% to the consumption ratio of nonfossil fuels. In 2015, China’s hydropower and wind power development maintained rapid growth. From January to November, the installed capacity of hydropower increased more than 13 million kilowatts, equivalent to 6.4%. Wind power increased by over 20 million kilowatts, which was equivalent to 26.8%. Both installed capacity of hydropower and wind power has exceeded the goal set in the 12th Five-Year Plan. In particular, the installed capacity of wind power reached 110 million kilowatts, equivalent to an increase of more than 10% over the goals of the 12th Five-Year Plan. Photovoltaic enterprises have focused on quality, technology and marketing. In 2015, the top ten photovoltaic enterprises achieved gross margin of over 15%. China’s installed capacity of photovoltaics (PV) has increased geometrically in recent years, especially 2015, the last year of the 12th Five-Year Plan. During the first three quarters of 2015, the newly installed capacity of PV increased by 10.10 million kilowatts, adding up to 35 million kilowatts of cumulative installed capacity. This successfully fulilled the goal set out in the 12th Five-Year Plan. The installed capacity of PV is expected to reach 40 million kilowatts by the end of 2015. China is then expected to surpass Germany as the world’s largest PV market. 26

China also made significant achievements in energy conservation and environmental protection during the 12th Five-Year Plan period. For example, average coal consumption of over 6000 kilowatts for thermal power generating units have decreased 17 grams, and average emissions of sulfur dioxide, oxynitride, and soot have decreased by 33%, 35% and 39% respectively. China has carried out extensive international cooperation in thermal, hydro, and nuclear power, as well as renewable energy, power grids and coal. Four major oil and gas import channels have been set up: China–Russia, China–Central Asia, China– Myanmar, and a maritime channel. China’s scientiic and technological innovation capacity has also markedly improved. Technology with independent intellectual property rights has been developed, including “Hualong One”, the third generation nuclear power technology CAP1400, and fourth generation safe nuclear power technology with high-temperature, gas-cooled reactors. China has also taken the lead in the construction of large dams, and has designed 800,000-kilowatt hydraulic generator sets. China has also made signiicant breakthroughs in reforming gas and oil industry. Reform of the oil and gas upstream industry has sought to give companies more access to oil and gas exploitation, including mining rights. There has also been reform of the midstream industry, particularly of pipeline networks, which used to be monopolized by pipeline companies. More companies have also been encouraged to participate in the reform of the downstream industry. This includes setting up improved natural gas spot and future markets, as well as improving natural gas pricing mechanisms.

The Energy Sector Boost the Economic Growth during China’s 12th Five-Year Plan Energy Consumption has increased by 3.6%

3.26

▼

trillion Yuan

Investment Spurred in the Jan-Nov Period 2015

18.2

Energy Consumption per unit GDP

Energy Saving and Environmental Protection China has made remarkable achievements in eco-environment protection in 2015

▼17

▼33

Coal Fired for Power Generation

▼35

SO2

▼ 39

Fume

NOx

The Renewable Energies Achieved the target in 12th Five-Year Plan Hydropower

320

million kw

The Renewable Energies Accounted for 32.7% of the Primary Energy Consumption

32.7

Wind Power

PV Reform of the electric system was re-initiated in 2015. Recommendations on Deepening Electric System Reform was released by the government in

National GDP has increased by 7.8%

▼

on-year, and installed capacity of solar power has increased by 61.4% year-on-year.

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million kw

120

million kw 27

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Oil & Natural Gas Oil and natural gas production saw a slight growth in 2015

210

Crude Oil Production

million tons

3.75

136

Natural Gas Production

billion cubic meters

Oil

billion tons

Coal Production in 2015

Natural Gas

The net imports were 330 million tons, up by 8.1% year-on-year

Energy Structure Transformation

1.47

The consumption ratio of non-fossil fuels among the primary energy consumption achieved the target set by 12th Five-Year Plan, and coal consumption ratio has continued to decline.

555

64.40％

62％

up by 7.5% year-on-year

12％

2015

25.5

million kw

2015

12th Five-Year Plan

15％

2014 2014

The Social Electricity Consumption in 2015

Nuclear Power The installed capacity in operation failed to achieve the target in 12th Five-Year Plan after resumption.

million kw

11.20％

million kWh

up by 0.5% year-on-year

The Newly Installed Capacity in 2015

20.1

The Consumption Ratio of Non-fossil Fuels 28

The net imports were 60 billion cubic meters, up by 6.0% year-on-year

66.10％

billion tons

Coal Production in 2016

billion kw

The net imports hit 700 million tons of standard coal

3.7

Power Both the newly installed capacity and the social electricity consumption failed to reach the target set by the 12th FiveYear Plan, due largely to the sluggish economic growth.

Energy Imports and Exports in 2015 Total

▼

Coal Remained the dominant energy in China despite the declining production in 2015

2020

Coal Consumption Ratio

In 2015, the nuclear units both under construction and got approval hit 32.03 million kw, ranking first in the world. China launched the construction of “ Hualong One” pilot nuclear power project. 29

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March. On November 30, six supportive documents were also published. These measures were aimed at breaking the monopoly in the electricity market. Practices for purchases and sales have been changed. The market will now play a more decisive and direct role in the allocation of resources. During the 12th Five-Year Plan period, installed electricity capacity increased by 100 million kilowatts. This strongly supported economic and social development. By the end of last November, the total installed capacity of over6000-kilowatt power stations exceeded 1.4 billion kilowatts, a 9.7% increase compared with the preceding year. Demand for electricity has, however, decreased. In 2015, the growth rate of electricity demand was less than 1%, which was the lowest since 1978. This is a signiicant diference from the average growth rate of 10% from 1995 to 2014. The industry is, therefore, facing a major challenge in dealing with electricity surplus, such as the reasonable and rational construction of power facilities and development of electricity plans. Electricity now covers every populous area in China. Compared to 2014, there are now 1.8 times more people with access to natural gas. Mr. Nur predicts that the proportion of coal in overall energy consumption will continue to decrease, and natural gas and non-fossil energy will continue growing rapidly in the 13th Five-Year Plan.

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also exceeded 700 tons, while utilization is less than 70%. The problem will become serious if production capacity continues to expand. The second challenge will be the efficiency of the entire energy system, which needs to be improved. Peak load capacity of the energy system is not high enough, and most peak load power plants are thermal power plants. Renewable energy is not yet strong enough to be connected to the grid, while the construction of natural gas storage facilities lags behind. The third challenge is the development of renewable energy, which faces a bottleneck. The three northern regions of China are facing wind power and solar power curtailment, with wind curtailment at 30% in some areas. Because the scale of hydro, wind and solar power plants will be expanded during the 13th Five-Year Plan, the curtailment issue will likely be exacerbated. Although emissions can be cut down and energy can be saved by using natural gas and electricity instead of coal and oil, even this transformation is expected to be diicult. There are complications in transporting natural gas and electricity, including high costs and potential technical problems.

Five Challenges in Energy Development

There are, furthermore, significant problems imposed by the constraints of environmental resources. Water, in particular, has been a major constraint on energy development. Air pollution and climate change are more severe problems, which require China to adjust its energy structure and increase its clean energy supply.

China’s energy development will face many challenges and contradictions during the 13th FiveYear Plan. Mr. Nur believes the irst challenge will be the surplus of traditional energy. China will have a coal and electricity surplus for a considerable period. China’s capacity to process crude oil has

2015 marks the end of the 12th Five-Year Plan and ushers in the 13th Five-Year Plan. Major energy events will have critical influence on China’s economy. What will remain constant, however, is China’s focus on achieving green and low-carbon energy development.

Global Energy Trends: A Review of 2015 and an Outlook for 2016

Li Junfeng (李俊峰 ) The global energy industry experienced some major events in 2015, which exerted a substantial influence on the industry’s global landscape and prospects. The energy trend in China and beyond can be encapsulated by two words: revolution and transition.

for an energy revolution in China. This revolution constituted the most significant trend of 2015. Through a series of reform policies and action plans, China has sought to increase the role of the market in its energy sector. The government has also adjusted natural gas prices, and reduced the price of electricity generated from both coal and renewable energy sources. These measures have important global ramiications.

2015 Review In 2014, President Xi Jinping ( 习近

) called

In concert with such a revolution, a group of world-renown entrepreneurs, including Bill Gates 31

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and Ma Yun, jointly launched the Breakthrough Energy Coalition. The coalition sets up special funds for clean energy technology, so as to promote a transition to low-carbon energy. Indian Prime Minister Narendra Modi and French President Francois Hollande have also established the Global Solar Power Union. Launched under the banner of the UN’s “Sustainable Energy for All” initiative, the partnership seeks to address energy poverty and climate change through solar power. The energy revolution has also seen both political and scientiic contributions. In June 2015, leaders of G7 countries agreed to phase out the use of fossil fuels for electricity generation by the end of this century. This commitment was echoed by President Xi during his state visit to the United States in July of 2015. Meanwhile, China pledged to carry out demonstration projects and experiments in zero-carbon energy development. All these actions paved the way for the global climate change negotiations. On December 12, 2015, the historic, legally-binding, universal agreement for addressing climate change was adopted at the United Nations climate conference in Paris. On the bases of equity, and common but diferentiated responsibility and capability, the Paris agreement seeks to limit global average temperature increases to beneath 2 degrees Celsius above preindustrial levels, or 1.5 degrees at best. To achieve such ambitious targets, the world needs to initiate a wide range of plans and actions to restrain carbon emissions. The following goals are necessary to meet the agreement: (1) reach global greenhouse gas emissions peak as soon as possible, (2) balance human caused carbon dioxide emissions with the planet’s natural absorption capacity by the second half of this century, (3) realize zero carbon emissions by the end of this century. The energy revolution and transition will thus 32

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require a global phase out of coal consumption. In July 2015, Germany announced it would gradually eliminate its lignite-fired coal power plants. Subsequently, Britain announced that it would shut down all coal-fired power plants by 2025. One month later, the country shut down its last coal mine, ending the 200 year history of the nation’s coal industry. In the United States, President Barack Obama issued his Clean Power Plan (CPP), which will come into effect in 2016. And according to the CPP, the US power sector will reduce carbon emissions by nearly a third from 2005 levels by 2030. By that date, carbon emissions emitted from thermal power plants, the nation’s largest source of emissions, will not exceed 500 grams per kilowatt hour. In implementing the CPP, there are four possible choices for coal-fired power plants: (1) waiting to be shut down, (2) promote renewable energy, (3) utilize a market for carbon permits, and (4) develop a carbon capture and storage system. Experts believe that the generating capacity from coal-ired power plants will account for only 15% of the total generating capacity in the U.S. by 2030. As a direct result of such trends, Alpha Natural Resources, America’s second largest coal producer, announced bankruptcy in the irst quarter of 2015. China, the world’s largest coal producer, has continuously sought to reduce its coal production, consumption, imports, and exports since 2014. The proportion of coal consumption within primary energy consumption has decreased 1.7% from 2014 to 2015. The energy revolution and transition, together with the global economic downturn, has resulted in the continuous slashing of prices for traditional energy commodities. The falling prices, of oil, natural gas, and coal, have not however, stimulated consumption and spending. Rather, there has been a shift in the energy market from the supply side to

the demand side. In particular, international oil prices dropped to 35 dollars per barrel from 100 dollars per barrel at the beginning of 2014. Coal prices in China plunged by more than 50% compared with 2012 levels, while natural gas prices in Asia declined by 60%. These falling prices, however, have yet to yield any effective improvement to the overcapacity status quo. The combined effects of lifting economic sanctions on Iran and OPEC’s reluctance to reduce production have only exacerbated the oil surplus. For global oil giants, the only countermeasure is to speed up energy transformation. For example, Shell Group recently completed a merger and acquisition of British Gas, which greatly narrowed the gap with ExxonMobil, the world’s largest oil company. Total, one of the world’s four major petrochemical enterprises, has become a pioneer in the process of energy transformation, especially in the global solar power sector. Nevertheless, the development of non-fossil fuels still faces severe challenges. In the last year, there have been signiicant developments in world nuclear power development. China announced plans for the construction of four new nuclear power plants. In the United States, a new nuclear power plant was put into operation for the irst time in recent 30 years. Japan has also begun restarting its nuclear power plants after four and a half years’ suspension. In particular, it’s noteworthy that China and France have, hand-in-hand, opened up the nuclear market in Britain, just as China and Canada did in Argentina. Although these prominent project mark progress, the overall nuclear power market situation remains sluggish. B y c o n t r a s t , r e n e w a b l e e n e rg i e s h a v e experienced ups and downs. In China, the lack of adequate subsidies for solar and wind power did

not result in bleak industry development. On the contrary, in 2015, the installed capacity of wind power exceeded 30 gigawatts, with the cumulative installed capacity over 140 GW. For photovoltaic power, installed capacity was about 15 GW, reaching an overall total of 45 GW. In other words, both wind power and photovoltaic power overfulilled the targets set by the 12th Five-Year Plan (2011-2015). On December 24, China’s National Development and Reform Commission announced it would slash the price of electricity generated from wind power and photovoltaic power, so as to promote and support the long-term development of renewable energy. The United States approved a similar policy. Before adjourning at the close of 2015, the United States Congress passed an extension of renewable energy subsidies to 2020. This served to reassure US investors’ confidence in government policy. These policies have both promoted the scaledevelopment and marketization of the renewable energy industry, domestically and globally. 2016 Forecast

2016 has the makings of a remarkable year for energy. It will not only be the first year of China’s 13th Five-Year Plan (2016-2020), but also that of the United States’ Clean Power Plan. Both China and the US are hoping to use innovation to spur the momentum of the energy revolution and 33

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transition. In October 2015, the American government released its New Strategy for American Innovation, co-authored up by the National Economic Council (NEC) and the Office of Science and Technology Policy (STPO). The Strategy highlights six key issues and eleven key fields. Based on previous innovation strategies in 2009 and 2011, it aims at consolidating America’s leading role in the global economy and rejuvenating the American economy. On the Chinese side, the government is advocating and encouraging an entrepreneurial and innovative spirit. The draft of the 13th

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Five-Year Plan (2016-2020) thus highlights an innovative, coordinated, green, open, and inclusive development path. The term “New Economics of Supply” has become a key phrase in the energy sector, second only to “New Normal” in popularity. Accordingly, one can expect that, in 2016, priority will be given to innovation. The percentage of low-coal energy is set to increase in global energy consumption, as will newly added energy supply sources, particularly low-carbon, non-fossil ones. Economic transformation will also offer new motivations for China’s energy transition. Since

2013, China’s energy sector has experienced slowing or even negative growth, which to some extent has eased tensions between supply and demand. Similarly, declining coal production and consumption has helped not only to reduce pollution, but has also been conducive to the development of non-fossil fuels. Although total energy consumption only increased by less than 2% in 2015, nuclear, wind and photovoltaic power growth rates all exceeded 20%. Markets for nonfossil fuels, together with supporting policies, will continue to be optimized in 2016. Non-fossil fuels are expected to account for 15% or more of primary energy consumption by 2020.

reasons include the industry’s rigid operation and management system, as well as high production and service costs.

2016 will be a crucial year for the global promotion of the energy revolution, and likely the irst year to see signiicant reductions in worldwide coal consumption. For instance, Britain and Germany will accelerate their plans to reduce the production and consumption of coal, the United States will implement its CPP, and China will focus on curbing smog. Presently, China is the world's largest coal producing and consuming country. Faced with deteriorating air pollution, reducing coal consumption is of great importance not only for people’s health, but also for achieving peak global greenhouse gas emissions at an earlier date.

Overall, the global energy transformation brings both opportunities and challenges to China’s energy revolution in the oil and natural gas sectors.

Undoubtedly, introducing reforms for the oil and gas industry will be another daunting task for 2016. However, during the Paris conference, global oil giants jointly stated they would pursue active transformation of their enterprises, and strive to keep the global average temperature from rising more than 2 degrees Celsius above pre-industrial levels. The Chinese oil sector has made great c o n t r i b u t i o n s t o t h e c o u n t r y ’s e c o n o m i c development and reform. However, in terms of industry transformation and transition itself, the oil sector lags far behind the others. Some 34

In 2015, growth in natural gas consumption was far below expectations, despite a drastic sale price depreciation. Consequently, China lost its opportunity to establish a low-price market. In 2016, we should take advantage of the marketization of the natural gas industry, giving more weight to natural gas and allowing it to account for 10% or more of primary energy consumption by 2020. This will help to speed up the whole energy transition process.

Last but not the least, 2016 will also witness the implementation of China’s power system reform. It’s estimated that through power reform, the country could improve national system efficiency (resulting in declining consumption costs) and access some environmental benefits (resulting in significant reductions in major pollutants and carbon emissions). Furthermore, successful reform could contribute to the completion of China’s energy transition, by encouraging the development of green energies and the growth of electric power. China’s energy revolution will hopefully usher in a new, green, low-carbon, safe, and efficient energy system. Such a system would help the country to meet the goal of establishing a wellof society and modern country by 2050. China, as the world’s largest energy consumer, will certainly continue to make signiicant contributions towards the goals set by the Paris Agreement, including reaching an earlier peak of global greenhouse gas emissions, achieving a global carbon balance by the second half of this century, and phasing out fossil fuels by the end of this century. 35

Dialogue CEFC China Energy Journal

Developing Coalmine Safety During the 13th Five-Year Plan Period An Interview with Zhao Tiechui, President of the China Association of Work Safety. Wu Xiaojuan

â&#x2013;² Mr. Zhao Tiechui

Dialogue

Dialogue CEFC China Energy Journal

What should China do to improve coalmine safety during the 13th Five-Year Plan period? China Energy Journal interviewed Mr. Zhao Tiechui (赵铁锤), the President of the China Association of Work Safety, to ind answers for this question. Q: Coalmine safety is improving throughout China. How do you evaluate the improvements accomplished in recent years? A: First of all, awareness of the importance of safety has greatly increased. At no other time, in fact, has China paid as much attention to coalmine safety as it is doing today. The CCP Central Committee and the State Council have attached great importance to coalmine production safety, and have incorporated workplace safety as a key concept in the country’s overall strategy of social modernization. General Secretary Xi Jinping 习近 , Premier Li Keqiang 李克强 and other central leaders have all repeatedly emphasized the concept. The State Administration of Work Safety has also regularly revised and promulgated rules and regulations to enhance coalmine production safety. Second, laws, coalmine safety policies and regulations have been gradually perfected. China is relying on the rule of law to establish effective governance of coalmine safety. Through unremitting eforts to perfect related laws and regulations, China has formulated a comprehensive system of laws for coalmine production safety. This system provides a legal safeguard as well as a point of reference for coalmine management and operation. Third, coalmine safety capabilities have been enhanced significantly. Since the 11th Five-Year Plan (2006-2010), China has been implementing a series of national coalmine safety measures, and has achieved remarkable results. The country has optimized its coal production industrial structure, 38

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replacing tens of thousands of small, unsafe coalmines with advanced, large-scale, modern collieries. Progress has been significant, and fast. The percentage of coalmines with an annual output of less than 300 thousand tons decreased from 45% in 2005 to only 12% in 2014. The optimization of coal sourcing has done much to efectively advance the safe and healthy development of the coal industry. The government has also implemented a series of advanced safety policies, including both preventive and responsive safety measures. The latter are used to improve the handling of major coalmine disasters. Q: What, if any, challenges remain in achieving international standards for coalmine production safety?

“

Progress has been significant, and fast. The percentage of coalmines with an annual output of less than 300 thousand tons decreased from 45% in 2005 to only 12% in 2014. The optimization of coal sourcing has done much to efectively advance the safe and healthy development of the coal industry.

A: Despite the obvious progress that has been made in improving coalmine production safety, we have to recognize that the overall situation is still grim. The histories of other developed countries tell us that it requires considerable time to transform from an accident-prone production to a safe one. The transition took 70 years in the United Kingdom, 60 years in the United States, and 26 years in Japan. Although overall production safety is improving and the number of accidents and deaths has fallen, when compared to developed countries, China is still lagging far behind. China’s mortality index for coalmines producing over one million tons remains much higher than that of developed coal-production countries. Furthermore, while the total amount of coalmine accidents has been declining by around 20% per year for several years, this sharp rate will be increasingly diicult to sustain going forward. China should therefore be open to, and actively learn from, foreign experience. We must remain

cognizant of the fact that the country still needs to work on reducing accidents. Advancing the development of coalmine safety will require continuing supervision and long-term planning. Advancing coalmine safety also requires recognition of a changing economic context. China’s economy has entered a new stage of economic development, featuring new growth patterns and economic drivers. This will bring opportunities as well as challenges. Under the new economic circumstances, strategic industries and modern service industries

will be accelerating their development. Other sectors, including coal, will face increasing operational difficulties, such as those related to inadequate safety investment and slow renewal of equipment, among others. Facing this situation, we should be mindful that safety will be an essential element to the coal sector’s long-term development. It will be important to continue expanding investment in safety and supervising the implementation of safety policies. China’s imbalanced development of productivity also poses a serious threat to coalmine security capacity. China has numerous world-class, hightech coalmines. It also has many mines that still rely on traditional excavation methods. For these mines, China has yet to formulate a strong foundation of safety. Overall, the foundation for coalmine safety remains weak. The imbalance of productivity within the coal industry also means that achieving further improvements in coalmine safety in the 13th FiveYear Plan will be diicult. There are a few reasons for this. First, the remaining small coalmines have poor safety standards. In particular, coalmines with annual production of less than 90 thousand tons have extremely bad safety conditions, as well as very limited capacity to manage potential disasters. Second, with coal exploration taking place at increasing depths, preventing and controlling disasters becomes increasingly complicated. Third, the system of old state-owned mines is complex, and still requires a great number of workers to operate. The transformation of the coal industry during the 13th Five-Year Plan period will be crucial, and full of both opportunities and challenges. We should assume that improving coalmine safety will be a long-term endeavor, and be mindful that there is still much work to be done. 39

Dialogue

Dialogue CEFC China Energy Journal

CEFC China Energy Journal

China to Accelerate Marketization of New Energy Vehicles

An interview with Ouyang Minggao, leader of 863 Program expert panel on energy-eicient and new energy vehicles.

▲ Ouyang Minggao

Cheng Yujie The year 2014 marked the beginning of boom in China’s automobile market, and it is expected to grow by leaps and bounds in the years ahead. By 40

virtue of the favorable policies, new energy vehicles in China enjoys such a flourishing development that the production and sales of the country has exceeded America, becoming the biggest new energy automobile market in the world. But how

can we maintain the good momentum of the current prosperity? Ouyang Minggao 欧阳明高 , leader of 863 Program expert panel on energy-efficient and new energy vehicles as well as Executive Vice President of China Electric Vehicle (EV) 100 41

Dialogue

Dialogue CEFC China Energy Journal

Members, answered the question in the interview with a comprehensive analysis from three aspects: technology, policy and market. Q: The alternative technologies on electric car battery is increasing, among all of these, which one are you bullish on? New technologies like graphene as an example, what do you think of its application prospect in the market? A: It depends. Endurance is the foremost challenge for electric vehicles, therefore, the predominant factor in technology alternativeness lies in the high energy density battery. The maximum charge capability of electric vehicle battery group has reached 140 watt hour/kg, with single cells capable of 180 watt hour/kg as minimum, and 200 watt hour/kg at best. Lithium ion or LiFePO4 batteries can be lower a bit. We intends to continue developing lithium ion batteries, aiming at realizing 200 watt hour/kg for battery groups and 300 watt hour/kg for single cells by 2020. Given that customers always pursue safety irst principle, so far we still take LiFePO4 as the main source for batteries. Technology will definitely be more diversified in the future, among which graphene is the hottest one for the present. However, as far as I’m concerned, at least for now, the graphene-based battery technology is too theoretical to be put into practice. Although numbers of essays have been published regarding the possibility of graphene as the battery material, most of them still stay in the entry level which is far from enough to make it really available in the market. And breakthroughs in graphene technology don’t mean breakthroughs in graphene-based batteries neither. By far, graphene is mainly used as the electrodes for battery to improve conductivity as well as charge-discharge rate. The earliest application of graphene lies in making consumer batteries. Be that 42

CEFC China Energy Journal

as it may, I believe that as technology develops, graphene application will have a promising future.

as open up battery charging and car manufacturing, lift traic controls over electric cars etc.

Q: People have high expectations on electric cars in China. How much is the gap you perceive there being between Chinese electric car technology and other countries? Has the gap been substantially narrowed?

Second, we should encourage innovationdriven transition. For now, China’s new energy car market is dominated by Chinese companies temporarily, and the entry of foreign companies will come latter. When that happens, the only way for Chinese companies to survive the competition rest with their innovation capability, especially in battery technology, rather than government subsidies. During the projects solicitation of the “13th Five-Year Plan”, Chinese companies are proactively participating into innovation projects application. New business models like Didi Express and Didi Bus have triggered the innovation wave of the existing taxi and bus businesses. As for policy innovation, China started a new study on “How to Improve Subsidy System of Electric Cars and Zero Emission Policy”, by reference to credit trade system rules in California.

A: Technologically, the core technology for China consists in power battery. Currently, China, Japan and South Korea jointly lead the world battery manufacturing industry, even Germany, a major car producer in the world, makes use of batteries made in these three countries. I dare say the China’s hi-tech private enterprises have the strongest innovation capacity in the world. As for the gaps between China and abroad, for example, plug-in hybrid cars in China consume more fuel when unplugged due to relatively weak traditional car technology. In other words, China does lag behind in traditional car technology, while in terms of new energy car technology, it is in lead. Q: Combining current situation, what direction do you suppose China’s new energy cars will be heading to? A: I think we should consider the question from three perspectives: market, technology and policy. Deputy General Manager Ma Kai once put forward the “Guiding Principle for the Development of New Energy Cars”—“Led by Market, Driven by Innovation, Making Major Breakthroughs, and Achieving Coordinated Growth”, hereto, I’d like to interpret them as follows: First, undoubtedly government serves as the primary driving force for the electric car promotion in early phases, but the mode must transit to marketdriven for further sustainable development. Actually, the policies today are encouraging this transition, such

Third, we could deem this guiding principle as a upgrading strategy in electric cars technology derived from the “13th Five-Year Plan”, targeting producing electric cars that features lighter and more intellectual in the future, whereby power battery is the key to inish the upgrade. Last but not the least, yet we still have major deficiency in attaining coordinated growth. Limitations on battery capability and sound infrastructure, lack of positive interactions among technology, policy and market, and even some cases of subsidy frauds, all elaborate the necessity of industry improvement. After the release of incentive policies this year, we might expect a better marketization situation with bigger innovation investment passion and better market interaction mode. Personally, I hope next year would be a year for technology advancement, so that we can maintain the robust momentum and ensure the sound and fast growth in electric car industry at a higher level.

Related Figures China’s output of new energy vehicles quadrupled to 379,000 , while the number sold more than tripled yearon-year to 331,100 in 2015, according to the Ministry of Industry and Information Technology. New energy cars accounted for less than 2 percent of China’s total vehicle sales of a record 24.6 million units sold last year. This remarkable growth momentum has given rise to conidence that China, the world’s largest car market, may also become the world’s greenest one . To end the dependence on subsidies, Chinese government has announced its plan to cut subsidies by 20 per-

cent

between 2017 and 2018

from 2016 levels, and by 40

percent

between 2019 and

2020. 43

Business

Business CEFC China Energy Journal

CEFC China Energy Journal

has a regional focus, aiming to support power stations in the central and western regions. It is hoped that this will help limit abandonment of wind power in these areas, as well as help set limits for power consumption. Responding to a situation of decreasing project costs and return rates for project financing, the Notice states that for onshore wind power, the benchmark feed-in tarif will be as follows: ● A reduction of 0.02 yuan and 0.03 yuan for Resource Zone I, II and III in year 2016 and 2018 respectively. ● A reduction of 0.01 yuan and 0.02 yuan for Resource Zone IV in year 2016 and 2018 respectively. For photovoltaic power, the benchmark feed-in tarif will consist of: ● A reduction of 0.10 yuan and 0.07 yuan for Resource Zone I and II, respectively, in the year 2016.

China to Lower Benchmark Price

● A reduction of 0.02 yuan for Resource Zone III.

of Wind and Photovoltaic Power Zhong Yinyan To promote the green development of the energy industry, China has reduced the benchmark feed-in tariff price for onshore wind and photovoltaic electricity. The change was recently announced by the National Development and Reform Commission (NDRC), in a Notice on Improving Benchmarking Price Policy for Onshore Wind and Photovoltaic Power. 44

The price adjustment was based on the o b j e c t i v e s o f t h e A c t i o n P l a n f o r E n e rg y Development Strategies (2014-2020). The stated goals of the Action Plan include: (i) promoting rational investment in renewable energy, (ii) promoting the sound and orderly development of renewable energy industries – particularly onshore wind and photovoltaic power, (iii) balancing the development of renewable energy in various

regions, and (iv) improve subsidy efficiency for renewable energy feed-in tarifs. According to industry insiders, the new policy aims to (i) reduce electricity prices, (ii) increase the renewable energy utilization rate, (iii) reform subsidies and pricing mechanisms, (iv) enhance the competitiveness of renewable energy, and (v) promote a new fair feed-in tariff. The policy also

Additionally, under certain conditions, distributed photovoltaic power projects (such as rooftop solar) may be switched to the full-rate feedin model. The energy generated under full-rate feedin projects will be purchased by power enterprises at prices equal to the benchmark feed-in tariff of local photovoltaic power plants. Most insiders from the renewable energy sector said that the tariff reduction is within their expectations. Although the amount was higher than expected, it has not gone beyond acceptable limits. Renewable energy can only be competitive when 45

Business

Business CEFC China Energy Journal

CEFC China Energy Journal

there is fair and steady feed-in tarif.

afect the development of the whole industry.

There are, however, still three challenging issues that must be addressed. One is default subsidies, the other is wind power abandonment, and the third is limiting power consumption. These three issues, insiders say, deserve more attention, as they will

Government authorities are gradually improving the situation of wind and photovoltaic power abandonment. The adjusted benchmark feed-in tarif will also provide strong support to the sound development of the renewable energy industry.

Links China Tops World in PV Installation Capacity China has built the world’s largest solar photovoltaic (PV) energy capacity, official data showed. The country’s PV installation capacity amounted to 43.18 gigawatt by the end of last year, up over 50 percent from a year ago, the National Energy Administration (NEA) said. The increase accounted for a quarter of the world’s added capacity in 2015. Of the total installation capacity, 86 percent was from PV power plants and 14 percent was

from distributed systems. The surging PV installation can be attributed to government eforts to boost clean energy and adjust an energy mix dominated by coal. China is aiming to lift the proportion of non-fossil fuels in energy consumption to 20 percent by 2030 from the present 11 percent. However, the NEA warned that some PV installations were abandoned in the country’s northwestern parts, especially Gansu and Xinjiang.

China’s New Wind Power Capacity Hits Record High China’s newly installed wind power capacity reached a record high in 2015 amid increasing eforts from the government to boost clean energy. The new wind power capacity jumped to 32.97 gigawatts last year, more than 60 percent higher than 2014, the National Energy Administration (NEA) said. Wind power generated 186.3 terawatt hour of electricity in 2015, or 3.3 percent of the country’s total electric energy production, data showed. Promoting non-fossil energy including wind 46

power, China is in the middle of an energy revolution to power its economy in a cleaner and sustainable manner. The government aims to lift the proportion of non-fossil fuels in energy consumption to 20 percent by 2030 from present around 11 percent. China’s energy mix is currently dominated by coal. However, the NEA warned of the suspension of wind farms in Inner Mongolia, Xinjiang and Jilin. The phenomenon occurs in the early stage of wind power capacity construction due to the mismatching of new installation and local power grid. 47

Business

Business CEFC China Energy Journal

CEFC China Energy Journal

CNPC Integrates Oil Pipelines to Accelerate Mixed Ownership Reform

Wu Li China National Petroleum Corporation (CNPC) has announced its plan to restructure its pipeline assets. The West-East Gas Pipelines (#1, 2, 3) will be integrated into China Petroleum Pipeline Engineering Cooperation (CPPE), with an associated asset value of about CNY 281.4 billion. CNPC will also undergo a share swap valued at CNY 25 billion, in an attempt to attract additional state-owned and private capital. This will leave CNPC with only about 72% of the rights to its assets, implementing a reform towards mixed ownership. Pipeline Assets May Be Spun off in the Long Run Analysts believe that CNPCâ&#x20AC;&#x2122;s restructuring of its pipeline assets is similar in ways to Sinopecâ&#x20AC;&#x2122;s earlier selling of its retail business shares. It is 48

possible that the pipeline assets might still become independent or split of, appearing on the market in the future. Currently, the pipeline assets of West-East Gas Pipelines #1, 2, 3 are separately run and managed by three companies: East Pipeline, Union Pipeline and Northwest United, according to their respective regions and lines. Ownership and shares are dispersed. CNPC has decided to integrate all pipeline assets and let CPPE operate all West-East Gas Pipelines.

Prior to the restructuring of assets, CNPC held 100% equity interests of East Pipeline, 50% of Union Pipeline and 52% of Northwest United. By June 30th, the total shareholder equity valuation of the three companies was about CNY 281.367 billion. After the restructuring, CNPC will hold 72.26% equity interests of CPPE. Other shareholders, such as New China Life Insurance, ICBC, Agricultural Bank of China, Baoshan Iron & Steel Co., Ltd., will hold the remaining 27.74% stake. The registered

capital of CPPE will also increase from CNY 50 million to CNY 80 billion. Beyond the introduction of other shareholders through the trading of shares, CNPC has also acquired equity interests in pipelines belonging to Taikang Asset and Guolian Fund. CNPC acquired 13.19% equity interests of Union Pipeline from Taikang Asset for CNY 16.351 billion, and 1.67% of Union Pipeline and 9.6% of Northwest United from Guolian Fund for CNY 8.692 billion. 49

Major Events

Major Events CEFC China Energy Journal

CEFC China Energy Journal

estimated annual power output of 39.07 TWh. Wudongde Hydro Project Improves Local Development

Construction of China’s Third-Largest Hydro Project Begins Kong Jueting Construction work has commenced on the major parts of the Wudongde hydropower project, located in southwestern China. The project is expected to be China’s third-largest dam, and the world’s seventh largest dam, including those currently under construction. The irst phase of the project is expected to be commissioned by 2020. China Three Gorges Corporation (CTG), the builder and operator of the project, said the successful commissioning of the project will help China achieve its 2020 clean energy goals. The project received the green light from the State Council earlier this month. The Wudongde Hydro project follows the construction and operation of the Xiluodu and Xiangjiaba Hydropower Stations. Located between Donghui county of Sichuan province and Luquan 50

county of Yunnan province, the project will become yet another milestone for hydropower development in the downstream of the Jinsha River. Project Speciications The primary functions of the project are power generation, lood control, and sediment trapping. The main structures of project include the retaining dam, lood discharge structures, and water intake and power generation facilities. The dam in a double-curvature arch type, with a maximum height of 240m. According to the preliminary design, the Wudongde Hydropower Project has a normal storage level of 950m, and a total reservoir capacity of 4.0 billion cubic meters. Underground power houses will be located on both banks. Each will house 5 generating units, with a proposed total installed capacity of 8700 MW, and

Lu Chun ( 卢纯 ), Chairman of CTG, said that with a total investment of about 100 billion yuan ($15.4billion), the Wudongde hydropower plant will drive investment in related industries, such as equipment manufacturing and heavy machinery. “The project will help to stabilize economic growth during the 13th Five-Year Plan period (2016-2020), and will be a key power source for the massive west-to-east electricity transmission project,” said Mr. Lu. Situated in relatively underdeveloped economic areas, the Wudongde dam is expected to help improve local development. During construction, the project will create about 70,000 jobs per year for locals. During operating, it is expected to bring 1.35 billion yuan in revenue annually for local government. Wudongde Hydro Project is Effective and Green The Wudongde Dam is expected to generate about 39 billion kilowatt-hours of electricity every year. Upon completion, the project will help reduce coal consumption by 12.2 million tons, cut carbon dioxide emissions by 30.5 million tons, and sulfur dioxide emissions by 104,000 tons per year. Hu Angang (胡鞍钢), Director of National Conditions Institute, Tsinghua University, believes that the Wedongde Hydropower Station will prove both effective and green. He expects the project to effectively expand investment demand, thus boosting the development of associated industries. Given China’s target of vigorously developing nonfossil fuels, the dam will also help spur China’s low-carbon and green development.

According to Lu Chun, construction of the Wudongde Hydropower project is of profound significance to China. The project will (1) help stabilize economic growth, (2) optimize China’s energy structure, (3) reduce pollution, (4) improve quality of life, especially for people working and living in Western China, and (5) consolidate China’s leading role in the global hydropower industry. Mr. Lu is confident that the project will help to realize China’s target of achieving a “moderately prosperous society.” Hydropower’s Crucial Role in Combating Climate Change Besides the Wudonghe Dam, there are three other cascade hydropower plants along the downstream of Jinsha River. These are the Xiluodu, Xiangjiaba, and Baihetan dams. The latter is expected to receive approval from the State Council next year. Developed and constructed by CTG, the total installed capacity of the four dams will reach 46.46 million kilowatts, doubling the installed capacity of Three Gorges Hydropower Station. China, already the world’s largest hydropower market, is expected to develop more hydropower plants during the next ive years. The country plans to increase its share of non-fossil fuels in its energy mix to around 15% by 2020. Zhang Boting (张博庭), deputy secretary general of the China Hydropower Engineering Society, explained that China will need more hydropower in order to cut its carbon footprint. Hydropower, said Mr. Zhang, is a reliable power source and will help meet increasing demand for energy. Currently, the hydropower capacity in China already has exceeds that of Brazil, the United States and Canada combined, and accounts for about 27.4% of the global hydropower generation. 51

Major Events

Major Events CEFC China Energy Journal

CEFC China Energy Journal

The company spent 2.1 billion yuan (324 million US dollars) and more than 5,000 workers were involved in the operation.

“Now, at nights in our pasturing area, we can watch TV while drinking tea or eating, instead of going to sleep early as in the past,” he added.

Two thirds of households are connected to the national grid while the rest use photovoltaic devices.

Since 2013, Huanghe (the Yellow River) Hydropower Development Co. Ltd has built 261 photovoltaic stations and distributed more than 40,000 household photovoltaic devices in the area, helping 185,000 people to get connected, said Wei Xiangui, deputy general manager of the company.

“This means Qinghai has provided power to its whole population and China has fulfilled its goal of providing electricity to all its people set out in the 12th Five-Year Plan (2011-2015),” said Tan Rongyao, a senior official of the National Energy Administration (NEA). NEW LIFE, NEW HOPE “Now we have electricity, we no longer need to burn cow dung for heat or use oil lamps for lighting,” said Hudong, a herder from Gomang village.

China has realized universal power access when connecting the last remote group of 39,800 people were connected to the national grid.

China Realizes

Universal Power Access China has realized universal power access when the last remote group of 39,800 people became able to light their homes with electricity. The light came in the last few days in Gomang and Changjiang villages in the northwestern Qinghai province, the last group in the country 52

without power. The 9,614 households are at an average altitude of more than 4,000 meters in the remote hinterland of the Qinghai-Tibet Plateau, said Shi Xueqian, Communist Party Chief of Qinghai Electric Power Company under the State Grid.

Burning cow dung won’t get them through the long, bitter winter, so Hudong and other villagers had to cut forest trees and bring them from 30 km away. His 16-year-old granddaughter, a junior middle school student, can read books in more light, he said. He bought a TV set several years ago, but it was just ornament before. Now, they can finally watch TV. The grid access brings new life and hope for local people. Cering said he planned to buy a refrigerator and an electric machine to produce ghee to sell. “We have been looking forward to having electricity for many years,” said Jamyang, a herder. His village began to have power via a photovoltaic station in November.

UNIVERSAL POWER ACCESS At the end of 2012, China had 2.73 million people without electricity, mainly in Xinjiang, Sichuan, Tibet, Qinghai, Gansu and Inner Mongolia regions or provinces. Qinghai had about 470,000 people of them. After two years, 2.73 million had dropped to 237,800 and all of them were in Sichuan and Qinghai. In March, Chinese Premier Li Keqiang vowed to provide electricity to these last few before the end of the year. In June, Sichuan province completed its task and 39,800 people in Qinghai became the last without power. From 2013 to 2015, Qinghai spent 5.1 billion yuan on expanding power access. During the same period, the country invested 24.8 billion yuan (3.8 billion US dollars) in extending power grids and building renewable energy facilities. The country will upgrade rural grids to improve their operation stability and supply capabilities to meet demands, according to the NEA. Source: Global Times.com.cn 53

Energy Security

CEFC China Energy Journal

Zhoushan, Zhenhai, Huangdao and Dalian, were finished in 2008.At these reserves, oil injection began in the first half of 2009. Second phase projects in Dushanzi and Lanzhou were completed in the first quarter of 2012. Those in Tianjin and Huangdao were, respectively, put into operation in November 2001 and June 2014. The main structures in Huizhou have completed construction and are ready for operation. The reserves in Jinzhou, Zhoushan and Zhanjiang, on the other hand, came across some difficulties in construction. The Qingdao reserve began oil injection in June 2015. Since then, it has accumulated 2 million tons of oil.

China Completes Construction of Eight Strategic Oil Reserves Qu Peiran China has completed construction of eight strategic oil reserves. According to the National Bureau of Statistics (NBS), construction of the reserves was completed in mid-2015. The total storage capacity of the reserves is 26.8 million cubic meters. Seven of the reserves are above-ground oil bases. They are located in Zhoushan (5 million cubic meters of storage capacity), Zhenhai (5.2 million), Dalian (3 million), Huangdao (3.2 million), Dushanzi (3 million), Lanzhou (3 million) and Tianjin (3.2 million). The Huangdao reserve is an underground reserve, with a designed storage capacity of 3 million cubic meters. 54

The total oil reserves of these eight reserves, along with existing private oil reserves, are 26.1 million tons. This number was revealed in a statement issued in December 2015 by the Ministry of Finance’s Department of Economic Construction. The statement was also the first time the Tianjin Reserve was classified as a national strategic oil reserve. China began constructing its strategic reserves in 2003. According to the National Development and Reform Commission (NDRC), the government planned to build a storage capacity of 70 million cubic meters in 15 years. This 15-year project period was divided into three phases. Projects in first phase, which included

The NBS first disclosed the construction progress of the strategic reserves on November 20, 2014. Its statement detailed the first construction phase, which included the projects in Zhoushan, Zhenhai, Dalian and Huangdao. These projects provide a total capacity of 16.4 million cubic meters, or total storage of 12.43 million tons. A year later, the number of China’s strategic reserves, as well as its storage capacity, has doubled. China has now achieved three quarters of its goal of 44.4 million cubic meters of storage capacity. Counting the oil reserves in Duzishan, Lanzhou, and Tianjin, as well as other reserves, the country will achieve approximately 70 to 80% of designed storage capacity. According to the Xinhua News Agency, total crude oil reserves as of June 2015 were 58.93 million tons. This number tallies both strategic oil reserves (26.1 million tons) and commercial crude oil reserves (32.83 million tons),and is equivalent to about 70 days of net import and 43 days of crude oil processing quantity. To date, the strategic oil reserve constructed in the irst two phases amount to 18-19 million tons. Oil stored in private reservoirs accounts for 27-31% of the country’s total oil reserve.

Professor Huang Xiaoyong ( 黄晓勇 ), the Dean of the Graduate School of the Chinese Academy of Social Sciences, and Director of the International Energy Security Research Center, revealed that China’s annual oil consumption recently exceeded 500 million tons. Accordingly, some large oilields, such as the Daqing Oilfield, Shengli Oilfield and Huabei Oilfield, are bowing to pressure to increasing their oil output. China has also recorded an oil import dependency of nearly 60%, and this figure is expected to climb in the future. Much of China’s oil imports travel by sea, which poses security risks and challenges for the country. Accordingly, Professor Huang advised the Chinese government to develop a strategic oil system, to help ensure a stable supply of oil and, thereby, the nation’s energy security. China has been very active in the international crude oil market. At the G20 Summit in 2014, President Xi Jinping ( 习近 ) promised to release igures on oil reserves in a more comprehensive and timely manner. On November 20, 2014,the NBS revealed its irst oicial estimate of China’s strategic petroleum reserves. The bureau is taking steps to improve transparency for energy development. Mr. Zhou Dadi (周大地), Vice Chairman of China Energy Research Society, is optimistic about future transparency in China’s oil market. Mr. Zhou believes that increased transparency will be beneicial for both China and the world. China is not yet a member of the International Energy Agency (IEA), the organization where the world’s major energy importers regularly discuss new developments and strategic coordination in energy markets. However, a close connection is being developed between China and the IEA. This will help further the development of transparency in China’s crude oil markets, a beneicial development for many around the world. 55

Planet

Planet CEFC China Energy Journal

Scattered Coal: An Obstacle to Clean Utilization of Coal

Bie Fan Despite the term’s wide use in government papers and notices, there are varying deinitions of “scattered coal” in China. Generally, scattered coal refers to coal consumed by ordinary households for heating or cooking purposes, as well as coal used in small industry furnaces. Research indicates that scattered coal accounts for 20-25% of coal burned in China, or 600-700 million tons of coal use, per annum. Although the problem is not well-known in the general public, according to Liu Weiming (刘未鸣), Executive Director and Secretary General of the China Economic and Social Council (CESC), “Scattered coal has become a major obstacle in the implementation of clean and efective use of coal in China.” In response to this problem, the National Development and Reform Commission (NDRC), together with seven other government agencies, released a “Notice on Strengthening Management of Commercial Coal Quality”. The notice, which was released on November 9, 2015, emphasized the need to increase regulation of scattered coal in key regions of the country. 56

CEFC China Energy Journal

The notice did not, however, provide any practical measures. Therefore, some critics remain dissatisied. Scattered Coal: An “Obstinate Tumor” The situation of scattered coal is quite complicated. According to Mr. Liu, the widespread use of scattered coal poses a grave threat to the environment, especially due to the low-altitude nature of its emissions. In order to eliminate scattered coal use, some local governments, such as Hebei province, have subsidized households to use clean coal. Unfortunately, such subsidies have generally failed to change people’s use of scattered coal, which is cheaper than using alternative energy sources. Industry insiders have recommended that the government subsidize coal producers and retailers directly, but this suggestion has been criticized by other experts as “idealistic.” Cost is a major factor. To date, the cost of replacing scattered coal with electricity, gas or biofuel is 2 to 3 times higher than using scattered coal. A mandatory shift to other resources would impose great financial burdens on ordinary households. Furthermore, even compared to scattered coal, biofuels and natural gas will not necessarily guarantee a safer or more stable energy supply. Unless more satisfactory solutions are found, it is unlikely that scattered coal will be replaced. The difficulty and lack of monitoring for scattered coal also makes it difficult for the government to supervise and regulate its use. Government and Market Join Hands for Solutions The Ministry of Environmental Protection’s

North China Supervision Center recently conducted a survey on scattered coal. According to the survey, if scattered coal makes up 11% of coal consumption in China, smoke, dust, sulfur dioxide and oxynitride released by scattered coal combustion will account for 23.2%, 15.2% and 4.4% of total emissions respectively. China has made some progress in the clean and effective utilization of coal in power plants. Such progress has not been replicated with scattered coal. It is still unknown how to make scattered coal use more environmentally friendly. Mr. Liu had four recommendations for government supervision of scattered coal: First, formulate a nationwide blueprint and time table for clean utilization of scattered coal. Central and local government authorities should coordinate and cooperate on this task. Second, clarify the role of government and of market forces in the scattered coal market. Any government policy should be implemented progressively, so as not to avoid negative consequences for the market. Third, establish a sound subsidy scheme for encouraging more reined use of scattered coal. Fourth, immediately adopt some vigorous regulations to prevent import of low quality coal. Studies by the Chinese Academy for Environmental Planning have also indicated that technology deployment in rural areas may help to promote clean utilization of scattered coal. Efforts to upgrade such infrastructure are, however, likely to be complicated, timeconsuming, and expensive. 57

Foresight

Foresight CEFC China Energy Journal

CEFC China Energy Journal

economic situation for the upcoming year. The Yellow Book predicts that global oil prices will remain at an average price of 50 to 65 US Dollars per barrel in the next two years, and continue to remain at low prices in the next five to ten years. Because China is a net importer of oil, the Yellow Book recommends that the country continue to pursue alternative energy. The Yellow Book also recommends increasing the consumption tax for oil, and using the revenue to lower taxes for low and middle classes, or ofset the cost of reforms.

CASS Predicts

Oil Prices Will Remain Low in the Next Five to Ten Years Zhong Yinyan

The Chinese Academy of Social Sciences (CASS) recently released the Yellow Book of World Economy 2016, its prediction analysis of the world 58

The Yellow Book estimates that in domestic markets the accumulated reduction in price is 670 yuan per ton for petrol, and 715 yuan per ton for diesel. The reportâ&#x20AC;&#x2122;s long-term prediction is that the cycle of rising oil prices will cease, and that prices will begin to luctuate at a much lower range. Even in the case of short-term rebounds in oil prices due to geopolitics and conlict, the fundamental market structure is expected to remain one of low oil prices. Oil prices are expected to hover in a range of 50 to 65 USD per barrel over the next two years, and to remain at low prices in the next five to ten years. In other words, oil prices have settled into a new normal. Although a change in the oil price slump is unlikely, China cannot step back from regulating energy consumption or from efforts to develop alternative energy. The country remains a net importer of oil. The Yellow Book therefore suggests that government reduce subsidies related to energy consumption, as well as increase the consumption tax on oil, which would then be used to subsidize low and middle class income groups, or offset the cost of reforms. Industry insiders also say that, to some extent, an appropriate increase of the consumption tax for oil helps to control air pollution and promote energy saving and emission reduction. This benefit is welcome at a time of frequent smog issues, increasing vehicle ownership, and increasingly high development costs for the 59

Foresight CEFC China Energy Journal

energy industry. There have, in fact, already been eforts to raise the oil consumption tax at the national level. At the beginning of 2015, the State Administration of Taxation and the Ministry of Finance jointly released a Notice on Continuing Increases to the Reined Oil Consumption Taxes. The notice stated that from January 13, 2015, the consumption tax on gasoline, naphtha, solvent oil, and lubricating oil would be increased to 1.52 yuan per litre. The tax on diesel, jet fuel, and heating oil would be increased to 1.2 yuan per litre. This was the third increase on the consumption tax since November 2014. At this point, the tax rate has been raised to approximately 45% on reined oil product. For each yuan of consumption of oil, a tax of 0.45 yuan is included. Experts are urging for increased transparency on the adjustment mechanism and expenditure of tax increases. So far, information on income and expenditure of consumption taxes has never been released. Consumers, these experts say, will be more willing to pay the tax if they are made to understand the situation. Other international organizations also predict that global oil price will remain low. Credit Suisse has explained that low oil prices are forcing the global oil market to search for a new equilibrium of demand and supply. Based on their core forecast, a partial rebound of oil price would result in some reduction in the rate of supply increase in 2017. Goldman Sachs states that oil prices still face the risk of further decline. This is mainly due to saturation of the global crude oil inventory, which disheartens investors. Goldman Sachs estimates that oil prices may not stop declining until they reach 20 USD per barrel. The firm’s analysts say that once the situation of oversupply exceeds the upper limit of inventory, the market will respond, bringing the 60

risk of declining oil prices in the next few months. If oil production cannot be promptly reduced in a situation of oversupply, the worst case scenario is that oil prices will fall to 20 USD. This price is, however, a rather pessimistic forecast. The baseline forecast of Goldman Sachs is not such a low level. Rather, it estimates that the oil prices will gradually rise to 50 USD per barrel, which means an increase of 43% over current price levels. In terms of the global economic outlook, another important factor to consider in evaluating declining prices is lack of demand. The recovery of the global economy was weaker than expected in 2015, excluding the steady recovery of the US economy, based in part on the shale gas revolution. The European debt crisis has placed the European economy into deep recession, while China’s economy has entered a new normal. All these factors lead to reduced demand in the global oil market. Expectation of the Federal Reserve’s interest rate increase has further puzzled the refined oil market. The US Dollar has been strong against other currencies. This has reduced the attractiveness of oil investment, which is priced in US Dollars. This has placed more pressure on oil prices. The situation in Syria also creates uncertainty and continued tension can be expected in the Middle East. These factors may help to support oil prices. It is also expect that OPEC outputs will remain uncut, and that Brent crude futures will remain low. With regards to the United States, despite a positive overall trend for economic recovery, uncertainties remain. The top priority for the US government will be to reinforce recovery measures. However, potential military action will likely interfere with its economic recovery strategy.