CEFC China Energy Journal February 2016 Issue 10 by China Energy Fund Committee

CONTENTS

FEBRUARY 2016, Issue 10 Stricter Measures Tackle Air Pollution

PV Industry Excessive Expansion

38 46

Editorial 编者的话

Figures 数字

Opinion 观点

Xinjiang’s New Energy Generating Capacity to Double by 2020 2020 年新疆新能发电量将倍增

China’s Nuclear Power Development during the 12th Five-Year Plan “十二五”期间中国核电发展

Goldwind Tops 2015 Wind Power Installation List 金风科技位列 2015 年风电装机量榜首

Supply-side Reform in the Energy Industry 供给侧改革推进能产业发展

State Grid Plugs-in 8 Major Expressways 国家电网充电设施布局 8 大主要高速公路

Policy 政策 China Unveils Stricter Measures to Tackle Air Pollution 中国出台严格的空气污染治理法 Chinese Government Increasing New Energy Vehicle Purchases 中国政府增加新能汽车采购 China Set to Eliminate More Coal Production in 2016 2016 年中国将削减多煤炭产量

Cover Story 封面文章

Dialogue 对话 China’s PV Industry Should Be Wary of Excessive Expansion An interview with She Haifeng ( 佘海峰 ), CEO of ET Solar Group 中盛光伏佘海峰：中国光伏行业需警惕过度扩张

Beijing Set to Double Air Monitoring Stations 北京计划将空气质量监测站数量翻番

China’s 13th Five-Year Plan: From Energy Diversification to A Sustainable Future 中国“十三五”规划：从能多样化到可持续发展

Largest UHV Transmission Line

Construction of World’s Largest UHV Transmission Line Commences 世界最大特高压项目开建

CAP1400 Starts its First Overseas Battle CAP1400 开征海外市场

Technology 科技 Sinopec Wins National First-Class Award for Science and Technological Progress 中石化获国家科技进步奖特等奖

Business 商业 Falling Electricity Prices Lead to More Wasted Wind Power How Can Wind Power Industry Revive in 2016? 上网电价下调将恶化弃风现象 2016 年中国风电行业如何突围？

Major Events 主要事件

Energy Security 能

安全

Pipeline Safety in China: Four Major Issues 中国管道安全四大主要问题

2016: A Crucial Year for China’s Clean Energy Development 2016：中国清洁能发展关键年

Planet 地球 China’s Climate Action: Looking Back, and Looking Ahead to the 13th Five-Year Plan 中国应对气候变化：回顾与“十三五”展望

Optimizing Power Supply Structure and Layout during the 13th Five-Year Plan Period “十三五”期间需优化电力供给结构和布局

56 Pipeline Safety

Foresight 前瞻 China’s Coal Industry Embraces Further Reform 中国煤炭行业拥抱深度改革

Editorial

CEFC China Energy Journal

China will further a major energy mix evolution over the course of the 13th Five Year Plan (FYP). The adjustments the country will make by the 2020 – stepping stones to a more prosperous and sustainable future – will be measured and incremental. The long-term results of this energy mix transition, however, will be signiicant and farreaching. China is a major energy user. It consumes 21.5% of global energy, including nearly half of the world’s coal,1 and some 11% of the world’s oil.2 It is the world’s largest investor in renewables, and is quickly becoming a major developer of nuclear power. The affordability of its energy supply is, in turn, essential to making goods affordable for people around the world. 3

China’s 13

The energy mix shift targeted by the 13 th FYP will therefore have major and long lasting consequences for China’s economic development, environmental sustainability, and energy security.4 But the ultimate impact of the plan will be global. The policies and investments promoted by the 13th FYP will be determinative of the viability and affordability of the entire world’s energy options. The plan thus sets the pace for energy development around the world.

Five-Year Plan: From Energy Diversiication to A Sustainable Future By Dr. Patrick C. P. HO 4

2015, 2020 and Beyond

“

The policies and investments promoted by the 13th FYP will be determinative of the viability and affordability of the entire world’s energy options. The plan thus sets the pace for energy development around the world.

The adjustments that China will make in the 13 FYP aim at inducing change on a range of time scales. The policies and targets embodied in the 13th FYP seek to simultaneously address short term, mid-term, and long term futures. th

U.S. Energy Information Administration, China produces and consumes almost as much coal as the rest of the world combined, http://www.eia.gov/todayinenergy/detail.cfm?id=16271. 2 U.S. Energy Information Administration, China, http://www.eia. gov/beta/international/analysis.cfm?iso=CHN. 3 The Economist, The East is Grey, http://www.economist.com/

news/briefing/21583245-china-worlds-worst-polluter-largest-investor-green-energy-its-rise-will-have. 4 Foreign Policy, China’s Leaner and Greener 5 Year Plan, http:// foreignpolicy.com/2015/10/30/chinas-leaner-and-greener-5-yearplan/. 5

Editorial

CEFC China Energy Journal

In the near-term, China will seek to address the more signiicant causes of hazardous air pollution, as well as embark on the transitions necessary to enable mid and long term change. This means that China will continue to support the steady growth of renewable energy, as well as initiate the development of nuclear and hydropower projects, which require significant time and investment to realize. It also means that China will begin the gradual phasing out the conventional use of coal (from 66% to under 62%), while increasing its reliance on natural gas (from 5% to over 10%). 5

pursuing ambitious targets. For example, the plan seeks to achieve “a 15% share of non-fossil energy consumption in primary energy consumption by 2020.”8 China is also aiming for a 7% reduction in coal energy consumption, as percentage of total energy consumption. 9

In the mid-term – the next few decades – coal and oil will still dominate China’s energy mix, but their portion of the energy mix will begin to see significant decline. China will continue to pursue growth in natural gas use during this period, as well as the development and deployment of clean coal technologies. Nuclear and hydropower projects, many of which will have completed construction in this time span, will also be major components of the mid-term transition.6 Renewable energy will continue to grow gradually in this period. 7

Coal will remain the main energy source for the foreseeable future.11 Coal is accessible, available, and affordable for China. Until other energy sources can provide these qualities, coal will continue to dominate China’s energy mix.12 Nevertheless, China will be pursuing clean coal technology, as well as improving the distribution and concentration of its coal power plants. The implementation of these policies will help reduce some of the negative impacts of coal. 13

China’s long term goal will be to replace signiicant proportions of its fossil-fuel based energy with non-fossil fuel based resources, particularly renewables and nuclear power. Other technologies, such as those for clean coal and carbon capture, may also play a role in this time frame. An Expanded Energy Menu

The plan’s ambition, however, is still grounded in a sense of pragmatism. Especially in the near term, fossil fuels will be essential in providing dependable baseload energy – something not yet achievable with renewables. 10

Oil – which contributed to 20% of energy consumption in 2012 – will also see a reduction (to 13%), for similar reasons to coal.14 Oil will continue to present another challenge for China, however, in its dominance as a transportation fuel, and about 60% of it will have to be imported. The 13th FYP does seek to address this problem, via promotion of alternative fuels for automobiles and electric vehicles. 15 Natural gas use will be increased over the

Even in the near term, the 13 th FYP will be

Bai Jianhua, supra note 6. 6 Bai Jianhua, Optimizing Power Supply Structure and Layout during the 13th Five-Year Plan Period, CEFC Energy Journal, February 2016. 7 Xiaojie Xu, China Energy Outlook 2020, https://www.eia.gov/ conference/2014/pdf/presentations/xu.pdf. 6

Bai Jianhua, supra note 6. Xiaojie Xu, supra note 5. 10 Damien Ma, Rebalancing China’s Energy Strategy, http:// www.paulsoninstitute.org/wp-content/uploads/2015/04/PPEE_ Rebalancing-Chinas-Energy-Strategy_Ma_English.pdf. 9

course of the 13th FYP. Natural gas shares some of the advantages of coal, in that it is relatively accessible, available, and affordable. Like coal, natural gas can be used to provide baseload power, and is generally considered as a clean “bridge over” fuel for power generation. Natural gas also burns far more cleanly than coal, and like coal, it can be turned into liquid fuel to power transportation, and thus will be prominent in the 13th FYP. Non-fossil fuel based energy forms – mainly nuclear power and renewables –will continue to gain prominence in the 13 th FYP. Many of these technologies also align with China’s strategy to seek new sources of economic growth and new products for export. How these sources will be employed, however, and the extent to which they will be a part of the energy mix, will vary. However, history has shown that it generally takes a long time for a new form of energy to substitute the conventional energy sources. Decades are required for infrastructure system construction. From research and development to popular usage will involve altering traditional habits and modiication of human behavior, and which might take a generation or two to accomplish. Some pessimists even exclaimed that for a new form of energy to grow from 1% to 50% utility rate might take 100 years to achieve! China, however, has never underestimated the difficulty involved in and the patience required for developing clean energy to substitute fossil fuels. From the proposed energy mix targets in the 13th FYP, we can appreciate the determination and begin to see the start of a long journey towards that goal.16 Nuclear power will see significant increase. China is investing considerably in nuclear power. Since 2012, China has added 11 new reactors, and over 11GW of nuclear-generating capacity. The country ranked fourth globally for nuclear power generation in 2015.17 China sees nuclear power as a clean energy source that – so long as its risks are well managed – can produce significant quantities

of base-load power with near-zero emissions. Construction of new nuclear power plants in eastern coastal areas will begin at a proper time, with feasibility of building such plants in inland regions being studied. Installed nuclear power capacity will reach 58 gigawatts and those under construction will top 30 gigawatts by 2020. China also has a broad approach for renewable energy, which will eventually become a substantial, if not primary, contributor to the energy mix. Again, China’s implementation of these energy sources will depend on economics and time scales, but much progress is scheduled for the 13th Five-Year Plan period. Hydropower is already a major contributor to China’s energy mix, contributing to 8% of energy consumption in 2015. Significant opportunities for growth remain, especially in Sichuan, Yunnan and Tibet. 18 Hydropower is clean, proven and mature, and for these reasons will continue to be a central component of China’s energy mix. However, hydropower, like nuclear power, requires high investment cost, lengthy development times, and permanent environmental impact. By 2020, installed capacity of hydropower is expected to reach 350 GW. In the long term, this number will likely to level off, as hydropower resources are well developed and saturated. 19 Solar and wind will increasingly continue to make part of China’s energy mix. China has invested considerably in these technologies, and is a global leader in their development and installation.20 Wind and solar power will have installed capacities of 200 GW and 100 GW respectively by the end of the 13th FYP. 21 While very clean, renewable energy has a host of issues it must overcome. These include infrastructure, curtailment, the ability to provide base load power, variability due to weather, 7

Editorial

CEFC China Energy Journal

Problems and Solutions The world faces serious energy challenges. More than one billion people still lack access to electricity, and many more suffer from poor quality service and energy security continues to cause friction and instability among nations. Many of these countries possess potential energy assets locally but sadly their leaders disregard simplistic bridging solutions for the indigenous rural minorities, and dream of magically acquiring glamorous ultra-modern power resources using cutting edge technologies in one giant step. C h i n a ’s e x p e r i e n c e i n d e v e l o p i n g a n d constantly upgrading energy from coal and fossil fuels to renewable in a stepwise fashion should serve as a model for all energy-deprived countries. A combination of locally oriented solutions and customized strategies with distributed energy deployment has proven to work in China. By diversification of its available energy resources, China has demonstrated that accessible, available and reliable energy can be supplied to communities and serves as a bridging measure until the national grid could be constructed to cover the entire country.

and expense. The 13 th FYP, therefore, seeks not only to develop renewables, but also address their shortcomings – such as improving grid infrastructure and economics. In the long term, 8

China will continue to augment the share of renewables in its energy mix in a distributed fashion. Eventually, renewables will likely assume a substantial portion of energy consumption. 22

the central and local levels to fulill the immediate needs of its people, especially the indigenous and desperate, and not nurture dreams of a one-sizeits-all style of national energy policy based on high technologies and bought with national treasures. However, climate change, pollution, and environmental degradation – caused in large part by power generation – threaten the health of billions, as well as long term social stability.And transition from a dependency of fossil fuels to renewables through diversification of primary energy sources seems the most pertinent way to overcome the many energy hurdles that human civilization must overcome in the coming decades. Nevertheless, the future is promising. An increasing array of energy options are becoming available to address these challenges, each with unique pros and cons. A century ago, coal was in many cases the only choice for power generation. Today – with biomass, nuclear power, renewables, and micro grids, among others – the world has a more expansive menu to choose from.

The success of such a program can only be assured by a Government that is committed at both

How these options are used over the coming years and decades will be of major consequence to the future of humanity. The world will look back on the 13th Five-Year Plan as a pivotal moment in the transition towards a cleaner, brighter world. 23

Climate Nexus, China’s Climate and Energy Policy, http:// climatenexus.org/learn/international-actions/chinas-climate-and-energy-policy. 12 Damien Ma, supra note 10. 13 Xiaojie Xu, supra note 5. 14 Climate Nexus, supra note 11. 15 U.S. Energy Information Administration, supra note 2. 16 Damien Ma, supra note 10. 17 World Economic Forum, 7 factors shaping China’s energy future, http://www.weforum.org/agenda/2015/09/7-factors-chinas-energy-future.

Bai Jianhua, supra note 6. Damien Ma, supra note 10. 20 World Economic Forum, supra note 17. 21 Xiaojie Xu, supra note 5. 22 World Wildlife Foundation, China’s Future Generation, http:// assets.worldwildlife.org/publications/667/files/original/chinas_ future_generation_report_inal.pdf?1392734685&_ga=1.334202 86.1358622306.1457569913. 23 Xinhua, China’s 13th Five-Year Plan to beneit world, http:// news.xinhuanet.com/english/2015-11/03/c_134780397.htm. 19

Opinion

CEFC China Energy Journal

China’s Nuclear Power Development th during the 12 Five-Year Plan

▲ Huang Xiaoyong 黄晓勇

President, Graduate School of the Chinese Academy of Social Sciences; Director, International Energy Security Research Center.

An eficient, clean and economic energy source, nuclear power is a crucial component of global power supply. After Japan’s Fukushima nuclear accident in March 2011, however, global nuclear power saw a significant decline. Nations like Germany, Italy, and Switzerland announced that 10

they would gradually shut down all of their nuclear power plants. China – which had just begun its 12th Five-Year Plan (2011-2015) – also announced it would carry out an overarching safety inspection of its nuclear

power facilities, and suspended approval for all new nuclear power plant construction. The construction of some plants, which had been approved but had not yet commenced construction, was also suspended. Thereafter, nuclear power plant construction in China demonstrated negative growth.

Then, in 2014, some Chinese senior officials began to assert that China should step up its development of new nuclear power projects in China’s eastern coastal areas. These officials stressed, however, that any construction would have to be in line with the highest international safety 11

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CEFC China Energy Journal

standards. In February 2015, construction of the No.5 and No.6 Reactors of Hongyanhe Nuclear Power Plants in Liaoning province received approval. This was the first nuclear power construction project approved since the completion of Tianwan Nuclear Power Plant Phase II, two years before. Soon afterwards, the construction of the No.5 and No.6 reactors of Fuqing Nuclear Power Plants-Hualong One demonstration project also received approval. On December 17, 2015, the executive meeting of the State Council approved the construction of the No.3 and No.4 reactors of Fangchenggang Nuclear Power Plant Phase II, as well as the No.5 and No.6 reactors of the Tianwan Nuclear Power Plant. With this resumption in construction, China’s nuclear power construction rate reached its peak in the inal year of the 12th Five-Year Plan. In general, there were at least eight reactors initiating construction and eight reactors put into commercial operation in 2015. According to the 12th Five-Year Plan’s Program for Energy Development, released in 2013, the installed capacity of China’s nuclear power in 2010 had already reached 10.82 million kilowatts. With an expected annual increase of 29.9% during the 12 th Five-Year Plan, the installed capacity of nuclear power reactors in service was expected to tally up to 40 million kilowatts by 2015. Installed capacity of nuclear power reactors under construction was expected to be an additional 18 million kilowatts. However, statistics released by the National Energy Administration (NEA) show that the installed capacity of nuclear power reactors in service amounted to only 25.50 million kilowatts by the end of 2015. The total installed capacity of nuclear power projects approved and under construction 12

CEFC China Energy Journal

was 32.03 million kilowatts. In other words, China did not achieve the goal of installed nuclear power capacity set out in the 12th Five-Year Plan. Nevertheless, China did achieve some significant progress in its nuclear power capabilities during the 12 th Five-Year Plan. In addition to increasing installed capacity of nuclear power, the country made great strides in the domestic development of innovation and technology. After introduction and absorption of foreign technologies, China successfully developed its own third-generation nuclear reactor technology, exempliied by Hualong One, CAP1400, and its own fourth-generation nuclear technology. All three reactors resulted in unique intellectual property rights. China Leads in Third-Generation Nuclear Technology China is also bucking the global trend of sluggish development of nuclear power. China has decided to stick to its ambitions of increasing nuclear power capacity, adjusting its energy structure and promoting the export of its nuclear power technology. Nuclear power facilities and technologies, together with high-speed railway, are today considered one of the three most competitive products made in China.

“

After introduction and absorption of foreign technologies, China successfully developed its own third-generation nuclear reactor technology, exempliied by Hualong One, CAP1400, and its own fourth-generation nuclear technology. All three reactors resulted in unique intellectual property rights.

situations created by natural disasters, such as earthquakes and tsunamis, among others. In 2015, several Hualong One demonstration projects were completed, including the No. 5 and No.6 reactors of Fuqing Nuclear Power Plant, the No.3 and No.4 reactors of Fangchenggang Nuclear Power Plant, and the Pakistan Karachi nuclear project. The latter was the first overseas project utilizing Hualong One technology. Hualong One Technology has successfully tapped into overseas markets. In October 2015, China General Nuclear Power Corporation (CGN) signed an agreement with the Électricité de France (EDF) to jointly invest in British nuclear power projects. In November 2015, China National Nuclear Corporation (CNNC) signed a contract with Nucleoeléctrica Argentina SA (NASA) for building a heavy-water reactor and a framework for building a pressurized water reactor. In November 2015, Bill Gates visited China as President of Terra Power Corporation. During his visit, Gates disclosed that Terra Power had cooperated with CNNC in developing a new nuclear technology: a traveling wave reactor. This reactor

Third-generation reactor technology, which has greatly improved safety indicators, has become the global mainstream standard. With third generation reactors, core-melt probability has been reduced from 1/100,000 to 1/10,000,000 per reactor per year. The probability of a large radioactive release has reduced from 1/1,000,000 to 1/100,000,000 per nuclear reactor per year. Third generation reactors are also equipped with automatic repair functions for safety management. The nuclear reactors can be cooled down automatically without any human intervention within 72 hours. This includes 13

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CEFC China Energy Journal

nuclear reactors went online in China in 2015

uranium processing plants are being built in Hebei province and Guangdong province to secure nuclear fuel supply amid a massive plan for nuclear power projects

2 percent At present, nuclear power contributes about 2 percent of China’s electricity generation

58 gigawatts The operational nuclear power output that China may have by 2020

8 10 to

110

percent By 2030, nuclear power will account for 8 to 10 percent of China’s total energy mix

nuclear reactors are expected to be operational in China by 2030

Currently China has nuclear power generating units with a capacity of million gigawatts and another 24 units are under construction.

5 6

China is likely to add or every year from 2016 to 2030. 14

nuclear reactors

uses depleted, instead of enriched, uranium as its source of fuel. Commercial use of traveling wave reactor technology would considerably improve the eficiency of uranium resources.

reactors. It has also committed to making periodical assessments and price adjustments according to technology advances, changes in costs, and the market demand and supply situation.

Three Recent Developments for Domestic Nuclear Power

This new pricing system is a significant evolution from the preceding one, which set one price for each plant. The new pricing system will play crucial role in promoting nuclear power development and investment, as well as in encouraging enterprises to improve technology and reduce costs.

Whether or not to develop new inland nuclear power plants is still a matter of debate. According to the 12th Five-Year Plan’s Program for Energy Development, only a few sites in coastal areas have received approval for new nuclear power plants. No inland project has yet received approval, even though preparatory work for some inland sites has been completed. Most experts agree that nuclear power safety cannot be reduced solely to site selection. Instead, construction standards and safety supervision for site selection should be the same in both coastal areas and inland areas. In fact, more than half of the global nuclear power plants have been built in the inland areas. Another significant development during the 12th Five-Year Plan was the promotion of mergers and acquisition among nuclear power companies. The merger of the State Nuclear Power Technology Corporation Ltd and the China Power Investment Corporation was a major accomplishment of 2015. As a result, China now has three nuclear power giants: CGN, CNNC and the National Power Investment Corporation. The loosening of restrictions for entering into the nuclear power industry is also significant. The private sector is now permitted to participate in nuclear power construction, as long as they can meet relevant safety standards. The adoption of a new pricing system for on-grid nuclear power is another significant development. China adopted its new pricing system on January 1, 2013. The government has set the benchmark on-grid nuclear power price at RMB 0.43 (7 US cents) per kWh for newly-built

Overview and Future Trends China did not achieve its target for nuclear power construction in the 12th Five-Year Plan. This is attributable mainly to the shock of the Fukushima Nuclear Disaster. Nevertheless, China resumed new plant construction by the end of the 12th Five-Year Plan. Furthermore, China still made significant achievements, such as its domestic development of the third-generation technology. China has also carried out reforms to facilitate the development of nuclear power and completed demonstration projects of third-generation technology. As a result, China’s third-generation technology is on its way to achieving large-scale development. The global nuclear power industry has also shown a recovery trend. Japan and South Korea have restarted their agenda of nuclear power plant construction. As for China, in a report released in 2014, the installed capacity of its nuclear power plants is expected to reach 58 million kilowatts by 2020, while the installed capacity of nuclear power plants under construction is expected to reach 30 million kilowatts by 2020. The recovery of the world nuclear power development represents a huge potential market for China’s nuclear technology. This opportunity is already being pursued under the 13th Five-Five Plan (2016-2020). 15

Opinion CEFC China Energy Journal

Supply-side Reform

in the Energy Industry

▲ Zeng Ming 曾鸣

D i r e c t o r, E n e r g y - I n t e r n e t Research Center, North China Electric Power University

Opinion

CEFC China Energy Journal

Last November, the Chinese government pledged to take steps to advance “supply-side structural reform” in 2016. This pledge has resulted in heated discussion within the energy industry. Reasons for Supply-side Reform The energy sector is central to the Chinese economy. It is currently facing four serious problems. These problems highlight the importance of implementing supply-side reform. First, China has used, and continues to use, too much coal. Coal constitutes 70% of China’s primary energy consumption, and causes serious environmental pollution. China has made major efforts to reduce direct consumption of coal and increase conversion to secondary sources of energy. Nevertheless, the technology for clean utilization of coal is still immature, and unlikely to fully control emissions from coal-ired power plants in the near future. Second, while declining coal prices mean that coal-fired power is even more cost competitive, the utilization hour of coal-fired power plants has hit a new low. Both of these points indicate that China is facing an overcapacity of coal-ired power generation. Third, oil remains the major source of energy consumption in the transportation sector. New energy automobiles have not yet become prominent. Sales of automobiles, as well as of oil, are growing alongside economic development. On the other hand, the development of clean vehicles, electric in particular, is stagnant, due to both immature technology and recharge inconvenience.

CEFC China Energy Journal

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The country must incorporate consideration of production, manufacturing, transportations and consumption in its governance and leadership of the energy sector. Only in this way can the country find solutions for supply-side reform.

has not been achieved. This can be attributable in part to economic slowdown and declining energy consumption. Another problem is that people in northwest China still use coal as primary energy source for heating in winter. This results in the waste of large amounts of solar and wind power. These factors all indicate an obvious disequilibrium of demand and supply in the energy market. They also indicate slow growth in energy development and insufficient promotion of clean vehicles also continue to hinder the energy industry. Finally, the current situation is also attributable to a lack of cooperation between energy, manufacturing and automobile sectors. Ways to Advance Supply-side Reform

Lastly, areas with abundant wind, solar and hydropower resources have less demand than expected. The government has issued a series of policies to encourage renewable energy development in these areas, but an effective result 18

To resolve the current situation, China needs to undergo a complete reconsideration of its energy industry. The country must incorporate consideration of production, manufacturing,

transportations and consumption in its governance and leadership of the energy sector. Only in this way can the country ind solutions for supply-side reform. 1.Cultivating demand of renewable energies. Supply-side reform is not only about supply. It also requires consideration of demand. A comprehensive measure deals with both supply and demand of energy, and if crafted well can bring the market back to equilibrium. Fostering education on energy conservation and clean energy can, for example, also promote demand for more service-oriented, informative, energy efficient and high-quality products. It can also boost the demand for renewable energies at large. Accelerating the demand for renewable energy is also conducive to enhancing the level and quality of China’s industries. 2.Building a collaborative Energy-Internet. An Energy-Internet featuring integration, openness, equal access and collaboration can help coordinate operation of different energy systems. Thanks to Premier Li Keqiang’s ( 李克强 ) efforts to advance the concept of “Internet+” since 2015, people now know of the possibilities of combining energy development and internet technology. Information sharing and systems integration across energy industries is just one of many examples of where gains can be realized.

Comprehensive and reliable information on energy can help to better align energy supply with energy demand. 3.Improving energy market infrastructure. Successful supply-side reform utilizes market competition to achieve its goals. Certainly the government, in advocating for supply side reform, must exercise care and take into consideration national security, the economic health of the energy industry, and public service. The energy sector in China, after all, has never experienced a major restructuring and rapid transition towards a marketoriented economy. Nonetheless, the promotion of free market competition and efficient resource allocation are two major factors that will underpin the sustainable development of China’s energy industry. Competition will also bring a surge of capital inlow and new market players into China. This will beneit the energy industry as a whole. The upcoming on-grid tariff cuts for solar and wind power generators may be seen as a signal that the government is eager to deepen market competition in the energy industry. 4.Strengthening overall planning for energy development. The mismatch between energy supply and demand causes large amounts of energy to be wasted. In the long term, an improved top-level design of coordinated development will be necessary to guarantee the industry’s sustainable growth.

Supply-side structural reforms: a popular notion proposed by China’s policymakers last November as the latest remedy for economic ills caused by breakneck growth. Supply-side reform aims to increase the supply of goods and services by stimulating business through tax cuts, entrepreneurship and innovation. While stimulating the demand side tends to be short-lived, supply-side reform is expected to generate sustainable, quality growth. 19

Policy

Policy CEFC China Energy Journal

CEFC China Energy Journal

“ ▲ Chen Jining 陈吉宁

China Unveils Stricter Measures to Tackle Air Pollution

The Ministry of Environmental Protection (MEP) has unveiled stricter measures to address the severe air pollution in the Beijing-TianjinHebei region. In particular, the new measures target the increased pollution associated with the winter heating season. MEP Minister Chen Jining ( 陈吉宁 ) has announced that unified standards for issuing air pollution alerts in Beijing and five neighboring cities will be rolled out before March 15. The neighboring cities, all located in north China’s Hebei Province, include the Tianjin municipality, Baoding, Langfang, Tangshan and Cangzhou. Mr. Chen said that air pollution alerts will be 20

based on forecasted maximum levels of PM2.5, a type of particulate matter that causes hazardous smog. Mr. Chen also said that the MEP is considering updating pollutant emission fees to vary based on season. Such revisions would aim to encourage polluting enterprises to increase production in summer and decrease it in winter. Recent MEP data showed that, although nationwide air quality improved continuously in 2015, the Beijing-Tianjin-Hebei region still suffers heavy PM2.5 pollution. The average density of PM 2.5 in Beijing in

the first ten months of 2015 was cut by 21.3% compared to the same period in 2014. However, last year’s heating season, which began in midNovember, saw a year-on-year surge of 75.9% in PM2.5 density. This resulted in a year-on-year decrease of just 6.2% in Beijing’s annual average PM2.5 density. The MEP explained that this winter’s heavier pollution in the Beijing-Tianjin-Hebei region was attributable mainly to emissions caused by coalburning for heating. A strong El Nino effect also contributed to the situation. Static weather patterns caused by El Nino made it more difficult for airborne pollutants to disperse. Mr. Chen said that the government would continue its efforts to address winter smog. These efforts include sharing information, toughening supervision of polluters, cracking down on polluting vehicles and replacing coal heating with electricity or gas.

China’s air quality is mainly caused by our energy structure, coal consumption speciically, and China attaches great importance to adjusting the energy structure. China is also cutting emissions from household bulk coal. Emissions from one ton of bulk coal are equivalent to those from five to ten tons of coal burned in power plants. As living standards rise, bulk coal consumption is increasing. Emissions from bulk coal contributed a lot to the heavy smog last winter. We will experience a long period of adjusting the energy consumption structure, during which we will promote clean energy, strengthen adjustments to energy consumption and promote clean use of coal.

Policy

CEFC China Energy Journal

Chinese Government Increasing

New Energy Vehicle Purchases

China Set to Eliminate More Coal Production in 2016

At a recent meeting chaired by Premier Li Keqiang (李克强), China’s State Council announced that the government will soon increase its quota for new energy vehicle purchases. Going forward, new energy vehicles will account for more than 50% of annual new vehicle purchases of central government bodies, public institutions and some cities. The ratio was previously set at 30% in July 2015. The decision is aimed at increasing green development as the country attempts to rein in pollution. The government has been promoting electric vehicles as a way to reduce the smog that frequently blankets cities. The State Council also announced a new set of other policies designed to encourage the use of new energy vehicles. The uptake of new energy vehicles has been far below the government’s expectations. As part of efforts to achieve “revolutionary breakthroughs” in battery performance, the government will encourage cooperation between enterprises, universities and research institutions. More battery charging facilities will be built, and the sector as a whole will be receiving increased investment and subsidies. Other measures include increasing the share of new energy vehicles in public transportation systems, as well as enhancing quality. The policies come as the central government looks to improve its industries, ease environmental pressure, and foster new growth engines. 22

China has rolled out a set of measures to promote new energy vehicles beginning in 2014. Thanks to government incentives, new energy vehicles have continued to gain popularity in China. According to the China Association of Automobile Manufacturers, the number sold last year more than tripled year-on-year, to 331,100. Jia Xinguang ( 贾新光 ), a senior analyst at the China Automobile Dealers Association, said, “Companies who have developed their core competencies, testing and monitoring facilities, and technologies will benefit the most from the government’s new incentives.”

China will close more than 1,000 outdated coal mines this year, accounting for a combined production capacity of 60 million tons. The move was announced by the National Energy Administration (NEA) on February 21. The NEA also called for industry consolidation through mergers, as well as improved transmission of hydro, wind and solar power. The NEA plans to tackle the price-sapping supply glut in the coal sector by several means. First, the agency will close outdated mines, reducing production capacity by 60 million tons this year. The closures are the initial phase of a more extensive plan to shut down as much as 500 million tons of surplus production capacity within the next three to ive years. Second, the agency will work to

reduce the excess capacity of coal-fired electricity by controlling new projects. Since last year, the government has been shutting down inefficient and polluting factories, particularly in the steel-making and coal sectors. Nevertheless, Liu Shijin ( 刘世锦 ) – an economist and former deputy director of the State Council Development and Research Center – said that the Chinese government must work more resolutely and effectively. China, he said, “cannot afford to wait” in closing down the old-fashioned and unprofitable parts of its manufacturing industry. Officially arranged mergers of State-owned enterprises alone, he stressed, cannot completely resolve problems such as low efficiency and excessive capacity. 23

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CEFC China Energy Journal

Xinjiang’s New Energy Generating Capacity to Double by 2020

Beijing Set to Double Air Monitoring Stations China’s capital is set to almost double the number of its air monitoring stations. According to the Xinhua state news agency, the upgrade will help the government understand the true state of the city’s air quality. An extra 30 monitoring stations will be added to the 35 already in operation, said Zhang Dawei ( 张大伟 ), director of the Beijing Municipal Environmental Monitoring Centre. The stations will be installed in middle schools, mountainous and rural areas, as well as on mobile monitoring vehicles. Currently, the 35 existing stations monitor 24

Xinjiang Uygur Autonomous Region is located in China’s far west. Its geography offers an abundance of flat, windy expanses, as well as steady sunshine. As such, the province is becoming a prime example of the harnessing clean energy resources in China.

“The upgrade will give us more data on the city’s air quality,” said Mr. Zhang.

According to the Xinjiang Grid, by 2020, the installed generating capacity of new energy in the province is expected to nearly double, to 43 GW. The igure includes wind and solar power.

The technical selection of new monitor stations has been completed. There is, however, no timeframe for when the new stations will come online.

By the end of 2015, Xinjiang already had 16.9 GW of wind generating capacity and 5.3 GW of solar. Its total power generating capacity was 65.8 GW.

For Beijing and its surroundings, the government has set a target of reducing pollution by 40% from 2013 levels by 2020.

Xinjiang Grid bought 19.4 billion kwh of electricity generated by new energy last year – 10.3% of its total purchase. It also exported some

six categories of pollutants, including PM2.5.

of this new energy-generated power to help meet growth in local demand. Last year, the province transmitted 1.5 billion kwh of wind-generated electricity, up 19% yearon-year, to other regions. This had the effect of reducing coal burning by 521,600 tonnes. Xinjiang has transferred 53.1 billion kilowatthours of power out of the region since 2010, equivalent to coal delivery of 16.5 million tonnes. New energy accounts for 6.1 billion kilowatt-hours, about 11% of total delivery. While Xinjiang has a large number of new energy plants, it lacks sufficient infrastructure to transfer power out of the region. The regional government thus plans to add another four outbound channels, aiming to push total delivery capacity to 50 million kilowatt-hours by 2020. 25

Figures CEFC China Energy Journal

Position

Manufacturer

Home country

Goldwind

China

Vestas

Denmark

Siemens

Germany

Gamesa

Spain

Enercon

Germany

Guodian

China

Envision Energy

China

Ming Yang

China

CSIC

China

State Grid Plugs-in 8 Major Expressways

BNEF top ten turbine suppliers in 2015

Goldwind Tops 2015 Wind Powernstallation List

Main routes across the country will be equipped with rapid charging stations for electric vehicles. The State Grid Corporation of China, the nation’s largest power transmission company, has installed electric-vehicle rapid charging stations in eight major expressways across the country.

Four more Chinese makers made it into Bloomberg New Energy Finance’s (BNEF) top 10 list for onshore wind power installation. Goldwind Science and Technology Co., one of China’s wind turbine manufacturing giants, topped the list. This is the first time a Chinese manufacturer has topped BNEF’s list. According to BNEF, Goldwind’s rise is attributable to a “surging Chinese market.” BNEF’s figures show that Goldwind installed 7.8GW of commissioned capacity in 2015. Most of this capacity was installed in China, where 28.7GW of capacity was added to the grid. Despite a 2.5GW increase compared to 2014, Vestas remained second, with 7.3GW capacity coming online in 2015. Last year’s market leader GE, placed third, with 5.9GW. The results, which include only online installations, put Siemens and 26

Gamesa as tied in fourth place. Despite a strong domestic showing, Enercon placed sixth. The final four places in BNEF’s list go to Chinese manufacturers. Guodian, Ming Yang and Envision tied, while CSIC joined the list for the irst time, in tenth place. “It’s hardly surprising that five Chinese manufacturers made the top ten ranking in a year where China contributed roughly half of the global capacity,” said BNEF’s head of wind research, Amy Grace. “It is more surprising how dominant Goldwind was in its domestic market. The company commissioned more than two-and-a-half times the amount of capacity as the next largest Chinese manufacturer, Guodian,” she added.

The company said the expressways include routes from Beijing to Shanghai, Shenyang to Haikou, Qingdao to Yinchuan and from Beijing to Macao, via Hong Kong, with a charging station located every 50 kilometers. Each station is equipped with four charging posts that can simultaneously provide power to four electric vehicles. The state-owned company, headquartered in Beijing, plans to set up a nationwide charging network along highways and within cities. By 2020, it is aiming to build 10,000 rapid charging stations and 120,000 charging posts across 202 cities and 36,000 km of expressways. In a statement, the company invited both public and private investors to help it reach this goal.

The cost of a charging post with 10 chargers is approximately 5 million yuan ($767,000), not including land-use fees. The State Grid faces competition from China Tower Corp. The joint venture, created to handle the network assets of the country’s top three telecom carriers, is also building a swathe of electric-car charging stations. China – the world’s largest energy consumer – is seeking to boost its electric-vehicle market, in order to help reduce carbon dioxide emissions and air pollution. However, a lack of charging facilities has hindered the government’s development efforts. Industry experts say that the State Grid’s plan to build more charging facilities will spur demand for new-energy vehicles. They also urged the company to learn from well-established markets, such as Europe and the United States. According to government estimates, the number of new-energy vehicles on China’s roads is expected to reach 300,000 by 2020. Sales of new-energy vehicles in China rose by 144% year-on-year, to 16,100 units, in January. 27

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largest energy producer and consumer in the world. The development of the country’s energy industry will therefore have signiicant consequences for the world economy. The details of the 13th FYP for China’s energy industry will be released during two government sessions in March. However, policymakers have already begun to reveal the general picture of the plan. Xu Shaoshi (徐绍史), Director of the National Development and Reform Commission (NDRC), is in charge of formulating the nation’s economic and social development strategies. He has highlighted China’s undergoing of strategic transition and revolution in production and consumption. With regards to energy, Mr. Xu stressed that the sector must learn to improve its performance under the new circumstances of China’s economic development. “Clean” has become a key word for China’s future development. In 2015, China launched its strictest-ever environmental protection policy. The policy seeks to make China an “ecological civilization” by scaling up the renewable energy investment, increasing China’s participation in global environmental governance, and boosting the development of environmental protection industries.

2016: A Crucial Year for China’s

Clean Energy Development Wang Haixia

This year, China will embark on its 13th FiveYear Plan (FYP) – the irst Five-Year Plan to begin under President Xi Jinping’s (习近平) office. The 13th FYP – which runs from 2016 to 2020 – will dictate much of China’s economic development. The plan has global implications. China is the

Gao Hu(高虎), Deputy Director of the Renewable Energy Development Centre, Energy Research Institute, NDRC, said that the international community’s attention to issues of energy security, environmental protection and climate change is growing. As a result, there is now a consensus around the globe on the need to speed up the development of renewable energy. At a recent energy work conference, Nur Bekri ( 努尔•白克力 ), the Director of China’s Energy Administration (NEA), revealed the overall 29

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40 trillion yuan China’s estimated cumulative investment in promoting nonfossil fuels and developing low-carbon technologies between 2015 and 2030.

40 percent China generated more than 40 percent of all newly added renewable energy worldwide in the past five years, while its investment in clean energy surpassed the combined total of Europe and the United States.

1.5 trillion yuan With a significant commitment to combat climate change, China may reap 1.5 trillion yuan ($230 billion) for renewable energy and environmental projects within the next five years. 30

CEFC China Energy Journal

objectives for China’s energy development during the 13th Five-Year Plan: (1) Enhance energy supply capabilities so as to meet the needs of economic and social development and safeguard national energy security; (2) Achieve breakthroughs in technology and equipment development and innovation; (3) P r o m o t e a l o w - c a r b o n e c o n o m y by increasing the ratio of non-fossil energy consumption; (4) Achieve breakthroughs in clean utilization of fossil energy and intensive coal cleaning and processing; (5) Involve China in international cooperation on clean energy development; (6) Improve the conditions of energy utilization and quality of services; (7) Promote reforms in key areas in order to match the country’s “new normal” of economic development. By achieving the above, the government believes that by 2020, the proportion of nonfossil energy consumption in total primary energy consumption will be around 15%, and the level of carbon emission per unit of GDP will be 40 to 45% below that of 2005. As a major regulator of the environment, the NEA also pledged to formulate clear policies and plans to achieve the above objectives. In particular, the agency will strive to build a modernized energy consumption system. This system will feature clean, safe, efficient and low-carbon energy, and will begin to be implemented in 2016.

China will lift the ratio of consumption o f n o n - f o s s i l e n e rg y a m o n g t o t a l e n e rg y consumption to 13.2% this year, compared with about 12% in 2015, and reduce that of coal from 64.4% in 2015 to below 62.6% in 2016. Natural gas will account for 6.2% of energy consumption, while non-fossil fuels including nuclear and renewables will account for 35.7%, among which wind and solar power will contribute 8.6% and 3.9% respectively. China’s apparent demand for crude oil will reach 550 million tons (11 million barrels per day), and apparent demand for natural gas will hit 205 billion cubic meters. Coal consumption will be 3.96 billion tons. Electricity consumption will rise to 5.7 trillion kWh, with total energy demand reaching 4.36 billion tons of oil equivalent. Raw coal production is expected to fall 4.2% in 2016, to 3.6 billion tons. Crude oil production is expected to rise to 220 million tons, even as global prices fall to near 11-year lows. Natural gas production, including shale gas and coal-bed

methane, is expected to rise to 140 billion cubic meters. Coal used by thermal power plants in electricity generation is restricted to 315 grams per kWh generated. Renewable energy will account for 1.7 trillion kWh in 2016, with more than 20 million kW of wind and 15 million kW of photovoltaic solar capacity being added. China plans to set up CAP1400 demonstration projects for the Hualong-1 reactor. The plans also include accelerating the construction of hydropower capacity in the southwestern part of the country, as well as promoting geothermal energy and biomass development. Problems of abandoned wind and solar power will also be addressed. The country will impose reasonable controls over capacity expansion in coal, thermal power and reining sectors. It also plans to eliminate outdated industrial capacity and tackle overcapacity in the coal industry. Finally, the government plans to unlock the potential of China’s unconventional gas reserves, such as coalbed methane and shale gas.

CHINA’S USE OF NON-FOSSIL FUELS Fossil fuels

Non-fossil fuels

2011

15%

11.4%

2015

2020

Source: Energy Research Institute of National Development and Reform Commission 31

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Optimizing Power Supply Structure and Layout during the 13th Five-Year Plan Period Bai Jianhua (白建华 ) – State Grid Energy Research Institute

The Fifth Plenary Session of 18th CPC Central Committee has put forward five principles for China’s future development. These are: innovation, coordination, green, open, and shared. These principles underpin the blueprint for China’s development established in the 13th Five-Year Plan (2016-2020).

▲ Bai Jianhua 白建华

“

In particular, structural reform of the electric power industry will be a crucial component of China’s planned economic transformation during the 13th Five Year Plan.

The major focus areas of this blueprint are environmental protection and the transformation of China’s development patterns and economic structure. In particular, structural reform of the electric power industry will be a crucial component of China’s planned economic transformation during the 13th Five Year Plan. The time periods at play in the construction and operation of large-scale electricity projects – typically at least several decades – means advanced planning is necessary to achieve economically sound investment, stable electricity supply, and environmental protection. Improving the Structure of Electrical Power Industry is Inevitable The 13 th Five-Year Plan sets a target of achieving a 15% share of non-fossil energy consumption in primary energy consumption by

2020. Three tasks must be accomplished to realize this goal. 1.Increase the demand for electricity. In 2014, China’s electricity consumption was 5.5 trillion kWh, ranking first in the world. However, per capita electrical consumption was only 4,000 kWh, which was less than half the average level of developed countries. Currently, the country is suffering from an economic slowdown, which dampens growth of electricity consumption. However, consumption is likely to rise again in the future, following government policies to advance the country’s industrialization, urbanization, and overall economic development. Electricity consumption can thus be expected to reach 8 trillion kWh by 2020, with 5,700 kWh of per capita electricity consumption, 65% of developed countries’ average level. Newly added electrical consumption should be created by replacing coal with hydropower, wind and solar. 2.Optimizing electric power structure and regional layout. China’s resource endowments mean that the core of China’s energy generation is coal. In 2014, the installed capacity for coal power generation was 860 million kW, which was about 62.6% of total installed power generating capacity. Thanks to the government’s principle of “balanced development”, nearly 75% of coal-fired power plants are located in the eastern and central regions of China, which lack coal resources. Since these regions have the highest density of coal-ired power plants, they have been suffering from serious pollution of air, water and soil.

Statistics released by the Ministry of Environmental Protection in 2014 demonstrate that the 10 Chinese cities with the worst air quality are all in the eastern and central regions. Rates of SO2 emissions in Beijing, Tianjin, Hebei, Shandong and the Yangtze River Delta area are four times higher than the national average. It is, therefore, apparent why the government must tackle pollution by improving the electric power structure and its regional layout – and without harming energy demand. 3.Rectifying problems facing renewable energy. The installed capacities for wind and solar have reached 95.81 million kW and 24.28 million kW, respectively, ranking as irst and second in the world. But in reality, there is insufficient demand for renewable energy even in areas with abundant wind and solar resources, resulting in the bulk of generated electricity being discarded. The total discarded wind power in 2014 was 14.9 billion kWh, and the figure could reach 30 billion kWh for 2015. Renewable energy consumption was only less than 5% of the national’s total power consumption. This is another dilemma the government must resolve. Implications of the Electric Power Structure and Regional Layout Optimization Highlighted in 13th Five-Year Plan Six initiatives will be necessary for the implementation of electric power restructuring and regional layout optimization during the 13th FiveYear Plan period. 1.Coal-ired power development in west and 33

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north. The Energy Development Strategy Action Plan (2014-2020), published by the State Council, requires coal consumption to peak at 4.2 billion tons by 2020, at about 62% of national total primary energy consumption. The total installed capacity for coal-fire power will be limited to around 1.25 billion kW. This means that during the 13th FiveYear Plan period, only 200 million kW can be added to the installed capacity of coal-ired power. The government could achieve this objective by banning coal-fired power plant construction in Beijing, Tianjin, Hebei, the Yangtze Delta and the Pearl River Delta, but encouraging it in the Xilin Gol, Ordos, and northern Shanxi. If the latter are slated for nearly 520 million kW of installed capacity, total installed capacity for coal-fired power would reach 1.12 billion kW by 2020. 36% of this would be contributed by the eastern and central regions, a reduction of 10% from 2014.

2. Hydropower development in southwest China. th

Hydropower has been highlighted in the 13 Five-Year Plan, thanks to its cleanliness and 34

technological maturity. Sichuan, Yunnan and Tibet are rich in potential hydropower resources. The exploitable hydropower capacity in Sichuan is more than 120 million kW.

Tibet has 140 million kW of exploitable hydropower capacity, ranking irst in China. The total installed capacity for hydropower is expected to reach 350 million kW by 2020, of which 80% will be realized in Sichuan, Yunnan and Tibet. This newly generated 35

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power will likely be transmitted to the eastern and central regions. 3.Nuclear development in east coastal areas.

CEFC China Energy Journal

power. China has the potential to install 2.4 billion kW and 200 million kW of onshore and offshore wind power capacity, and 4.5 billion kW and 500 million kW of desert and roof solar power capacity, respectively. Since the technology for wind and solar power generation has become mature, the cost for wind and solar power generation will be gradually reduced with time. China can take the advantage of this occasion to install wind and solar power capacity.

The Action Plan recommends starting nuclear projects in the eastern coastal areas, using the highest international safety standard, and on a reasonable timeline. As of December 2014, China has built nuclear power plants with a total of 19.88 million kW of power generating capacity. Another 35.88 million kW are under construction. Taking into account the time it takes to build a nuclear power plant (5-8 years), the total installed capacity for nuclear power generation will reach 52 million kW by 2020, slightly lower than the target of 58 million kW set in the Action Plan. China also aims to have at less 30 million kW of install capacity under construction by 2020. 4.Wind and solar power development.

In view of the endowment of China’s wind and solar resources, by 2020, wind and solar plants will be developed mainly in the west and north of China, with some dispersed development in the eastern and central regions. In the next five years, China will install 140 million more kW of wind power capacity. Of this, 100 million kW will be contributed by the “ThreeNorth” regions (the North, the Northeast and the Northwest), while the rest will be in the eastern and central regions. 125 million kW of solar power capacity will be installed, of which 58 million kW will be from the western region while the rest will be from eastern and central regions. China is trying to install a total of 240 million kW of wind power and 150 million kW solar power capacities, respectively, by 2020. 5.Developing large-scale gas power stations and distributed gas power supply system.

Natural gas will be deployed in key regions to achieve air pollution control. These include places like Beijing, Tianjin, Hebei, the Yangtze Delta and the Pearl River Delta. Natural gas will also be used to support the growth of renewables by providing clean power when the conditions for solar and wind power aren’t favorable. The expected installed power generating capacity of natural gas will be 85 million kW by 2020, 30 million kW more than that in 2014. 6.Pumped-storage power stations development.

million kW of installed capacity for pumped-storage power stations. The preparatory work for pumped-storage power stations in Inner Mongolia and Hebei has already been completed.

20 percent of China’s electricity will come from clean energy sources by 2030, in line with the country’s pledge to the international community.

There is increasing concern for the safety and stability of electricity supply. Pumped-storage power stations may be an economic and flexible means to maintain electricity supply reliability, as they can respond quickly when needed for peak load energy supply. Construction of pumped-storage power stations is on the agenda of the 13th Five-Year Plan. In the next five years, China will develop a total of 49

$110 billion China broke records last year in the installation of wind and solar power and clean energy investment was over $110 billion, twice what the US invested.

Conclusion

China has abundant resources of wind and solar 36

China’s total installed power capacity will be around 2.7 billion kW by 2020, a 700 million kW increase over 2014. The ratio of renewable energy for total installed power generating capacity will increase from 32% in 2014 to 39% in 2020. Coal-ired power will decrease from 63% to 54% over the same period. Non-fossil energy will constitute 15.5% of primary energy consumption. 37

Dialogue

Dialogue CEFC China Energy Journal

CEFC China Energy Journal

China’s PV Industry Should

Be Wary of Excessive Expansion An interview with She Haifeng (佘海峰 ), CEO of ET Solar Group

developers. Mr. She Haifeng, the company’s CEO, has been at the forefront of this transformation. CEFC China Energy Journal sought to explore the state of the PV sector and the Q: ET Solar Group develops power stations around the world, and is also involved in clean power investment and financing. How does the company choose the appropriate locations to develop solar power stations, and how does it manage the risks of development?

▲ She Haifeng

A: PV market development depends on three main factors. First, of course, is abundance of sunshine in the area – we look for a certain minimum. Second is grid condition, which these days is arguably even more important than the first factor. Third is GDP growth and electricity consumption growth.

ET Solar Group, a Chinese solar company once specializing in PV manufacturing, has transformed itself into one of the world’s top clean power 38

A: The title of “global clean power developer” sheds light on our areas of focus: globalization, clean power, and development. Although China is the world’s largest PV market, ET Solar group is committed to expanding as an international company. In terms of clean power, ET Solar group will expand its focus include to all clean technologies – we are moving beyond PV technology. Finally, ET Solar group seeks to fully transition into development, again beyond being a manufacturing or Engineering, Procurement & Construction (EPC) company. This is all in line with the expectations of the 13th Five-Year plan, which seeks to promote the international expansion of Chinese companies, the expansion of clean energy, and the increased competitiveness of Chinese irms. Q: ET Solar Group has accelerated its overseas expansion in the recent years. Do you have any plans in line with the “One Belt, One Road” Initiative?

With regards to risk, the biggest risk for developing power stations abroad is policy stability. Other risks are based on terrain, or attributable to laws and regulations. ET Solar Group manages these risks in a variety of ways.

A: Before China proposed the Belt and Road Initiative, ET Solar Group had already carried out its international expansion. In 2015, we proposed a new strategy of cooperation between ET Solar Group, which has overseas projects, with Chinese enterprises (private and state-owned), which are equipped with low cost of capital and debt financing. Thanks to this partnership, ET Solar group will speed up its overseas investment in 2016, in accordance with the opportunities presented by the Belt and Road Initiative.

For example, to manage land related legal risks, we employ both in-house counsel and foreign lawyers in overseas markets to carefully verify property land rights.

Q: Given the problems of curtailment and tariff cuts, how does ET Solar Group guarantee the proitability of its power stations? Also, how has the company sought to realize the government policy

Cheng Sisi Over the last decade, China’s photovoltaic (PV) industry has experienced very rapid growth. In recent years, however, the continuing expansion of the PV industry during a time of shrinking market demand has resulted in some dificulties.

Q: ET Solar Power Group is a global clean power developer. In this capacity, how does ET Solar Group view its role in the 13th Five-Year plan period?

of gradually guiding investment towards distributed development in China’s middle and eastern regions? A: ET Solar Group has developed PV in areas with relatively low risk of curtailment. We will be addressing the subsidy situation, which we find does present some opportunities. As for distributed development, ET Solar Group is involved in some related projects. We have, for example, new models for rooftop solar consumers. Q: Since 2014, China’s PV industry has been recovering. With increasing growth in the PV market, more and more PV enterprises are beginning to expand production. What do you think of this phenomenon? A: The PV industry’s recovery has caused many PV enterprises to speed up production and expansion. In some cases, this behavior is irrational. In fact, the global PV market is likely to shrink in 2016. In China, the PV industry is facing many difficulties, such as declining power demand, curtailment, and tariff cuts. In general, the growth of installed capacity is likely to decline in 2016. PV enterprises and the industry as a whole must be rational about the sector’s recovery.

Business

Business CEFC China Energy Journal

CEFC China Energy Journal

Zhang Zirui

Falling Electricity Prices Lead to More Wasted Wind Power

How Can Wind Power Industry Revive in 2016?

Wind power has become the second largest electricity source in Liaoning Province. As of the end of November, 2015, wind power generating capacity in Liaoning reached 10.5 billion kWh, an increase of 12% over the same period in 2014. At the same time, abandoned wind power reached 1.42

billion kWh, almost 850 million kWh more than the same period in 2014. These trends are representative of wind power’s current situation across China. The development of wind power generation has often been accompanied by serious abandonment issues. The problem worsened significantly last year, when the government announced it was cutting benchmark on-grid tariffs for wind power generators. With the recent announcement of a new round of tariff cuts, many are wondering how wind power’s situation will develop in China over the coming years. Tariff Cuts Will Continue O n 2 4 D e c e m b e r, 2 0 1 5 , t h e N a t i o n a l Development and Reform Commission (NDRC) announced its plan to cut payments to wind and solar power operators for contributions to the power grid. The NDRC’s said the move was necessary to relect recent declines in operating costs. Therefore, over the course of three years – from 2016 through 2018 – on-grid tariffs for wind power generators will fall by RMB 0.02 to RMB 0.03. The reductions will vary among different regions, and be based on average wind speeds. The public’s view of the NDRC’s decision is that the tariffs adjustment is moderate and acceptable, especially compared to NDRC’s initial plan. Originally, the NDRC had intended to lower tariffs by RMB 0.02 to RMB 0.04 uniformly, in all regions, over the next five years. The final tariff cuts have been welcomed, since they will not signiicantly harm the balance sheets of wind farms. Rather, the cuts are seen as potentially increasing wind power’s price competitiveness against coal fired power. The message sent by the NDRC with these cuts may also encourage wind farms to improve the economy of their production schedule. Change is always painful. A year ago, NDRC

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Business CEFC China Energy Journal

Han Ling ( 韩玲 ), an expert from GF Securities, believes that the key success factors found in wind power are location and economy of scale. These factors should allow the wind power industry to adapt with ease to the new tariff cuts. The five major power-generation giants, (i.e. China Huaneng Group, China Datang Corp, China Guodian Corp, China Huadian Corp and China Power), Mr. Han pointed out, already have vast installed capacity in areas with abundant wind power resources. Wind Power Abandonment Presents a Dificult Challenge The government has two objectives with regards to the wind power industry. First is eliminating wind power curtailment; second is narrowing the price gap between wind and coal benchmark tariffs. With the new round of wind power tariffs adjustment, wind power tariffs will be gradually reduced to RMB 0.44 kWh through 2018. This will come close to the current coal tariff of RMB 0.4 kWh. In other words, the government has taken a major step towards addressing the price gap issue. Wind power curtailment, however, remains a challenge. The wind curtailment rate hit a peak of 17%, or 208 million kWh, in 2012, then gradually dropped to 8.5% in the first half of 2014. But the rate climbed up again to 15.2% in the first half of 2015, implying that 175 million kWh of wind power were wasted – an almost 100% year-on-year 42

jump in curtailment. Some experts have attributed the problem to China’s sluggish growth in energy consumption over the last two years. Others have complained that China still relies too heavily on thermal energy fuels for power generation and heating, and should be making greater efforts to transition to renewable sources. The lagging development of the power grid has also been discussed as a hindrance to the development of renewable energy.

CAP1400 Starts

its First Overseas Battle China is embarking on a massive nuclear power program and plans to export its indigenous models such as CAP1400, a type of nuclear reactor developed by SNPTC, to overseas markets. China is pushing for building the nuclear power plant in South Africa and an agreement was signed between the State Nuclear Power Technology Company (SNPTC) and Necsa. Chinese President Xi Jinping and his South African counterpart Jacob Zuma jointly witnessed the signing of the agreement. ▲

announced that it would cut tariffs for on-grid wind power by RMB 0.02, and gave developers of approved projects one year to complete their wind farms. This triggered a major rush on equipment purchases and installations, which many blamed on the NDRC. But the recent round of cuts is different. This time, experts believe the wind power industry will beneit from the cuts in the long run.

CEFC China Energy Journal

Zhu Ruizhao ( 朱瑞兆 ), from the Chinese Academy of Meteorological Sciences, believes that China lacks overall planning and coordination between energy resources, which leads to curtailment of wind and other renewable energies. Furthermore, he stressed, while construction of new wind power farms does not take much time, connecting wind farms to the power grid remains expensive and time-consuming. Professor Liu Yongqian ( 刘永前 ), from the School of Renewable Energy at North China Electric Power University, stressed the importance of planning and progressive implementation in the development of a national energy system. Professor Liu believes that reform of the wind power industry is important not only for the industry itself, but also necessary for the whole energy sector to thrive and succeed. Although wind power curtailment remains a difficult challenge, the government has shown dedication to resolving the problem. It is offering the wind power industry a wide range of solutions. These include implementing a joint transmission system for coal and wind power, developing a smart grid for wind power transmission, and launching a quota system, which would require distribution grid operators to carry a certain amount of electricity generated from wind. Time will tell if these initiatives are able to overcome the problem.

Zhu Xuerui South Africa has declared intent to open bidding internationally for its nuclear power projects this year. The South African Department of Energy has been authorized by the Cabinet to invite bids for nuclear power projects, with the scale of project investment subject to the bidding process. This is good news for China. South Africa resents a great opportunity for China to promote its domestically developed CAP1400 reactor abroad. A previously signed agreement, made in the presence of both Chinese and South African leaders, indicates that China is likely to win the bid. The Agreement on CAP1400 Project Management Cooperation was signed by the China State Nuclear Power Technology Corporation (SNPTC) and the

South Africa Nuclear Energy Corporation SOC Limited (NECSA) in December 2015. It is sensible for South Africa to develop nuclear power. According to the Department of Energy’s Integrated Resource Electricity Plan for 2010-2030, announced out in March 2011, the country will build six new nuclear power plants by 2030, providing 9.6 gigawatts of power at an estimated cost of approximately 1 trillion ZAR. The plan quickly attracted the attention of the world’s nuclear power giants, such as China, Russia, France, Japan, South Korea and the United States. China, Russia, France and the United States have already made agreements with South Africa to allow their enterprises to participate in the 43

Business

Business CEFC China Energy Journal

country’s nuclear power bidding process. China’s National Energy Administration (NEA) and the South African Department of Energy signed the China-South Africa Framework Agreement on Civil Nuclear Energy Cooperation in November 2014. According to the agreement, SNPTC promised to operate a three phase training program for 200 South African personnel.

CEFC China Energy Journal

begun preparatory activities, including running their own personnel training programs. But from the perspective of South Africa, technology, construction and operation experience, and availability of resources and funding may be far more important factors in deciding which party should be invited for cooperation.

The personnel training program began in 2015. Phase I, consisting of basic training involving 50 trainees, commenced in April 2015 and has already been successfully concluded. Phase II, consisting of professional training, commenced in January, 2016, as scheduled.

China is outperforming others countries on these factors. China has 40 years of experience in constructing nuclear power plants, and has made signiicant technological breakthroughs over that time. As one of the largest nuclear power producers and consumers in the world, China is now the world leader in the construction of new nuclear power reactors.

Countries like as Russia and France have also

China’s credentials are not perfect. There has,

admittedly, been controversy over China’s lack of a CAP1400 demonstration site. However, Zheng Mingguang ( 郑明光 ), Vice General Manager of SNPTC, and President of the Shanghai Nuclear Engineering Research and Design Institute (SNERDI), recently confirmed that construction of a demonstration project will begin no later than March 2016. Experts said after construction on the lagship CAP1400 project starts in Shidao Bay in Shandong province in the irst half of this year, foreign buyers will be more convinced about the country's capacity to deliver reactors for the global market. According to a presentation by the SNPTC, the CAP1400 design achieves significant i m p r o v e m e n t s i n s a f e t y, e c o n o m i c s a n d

environmental compatibility. The reactor, which is an extension of US AP1000 Gen III technology based on China’s own developments in nuclear power research, integrates AP1000’s advanced passive safety system design with a variety of other technological advancements. CAP1400 meets the latest international nuclear safety standards, and likely will continue to do so in the foreseeable future. SNPTC has indicated that it will establish an industrial chain for CAP1400 and that it will keep up with technology standards set out in the ASME international code. SNPTC aims to become a world-class supplier, inventor and investor of Gen III nuclear technology. It sees South Africa’s nuclear power projects as their irst step towards this future.

▼ CAP 1400 is based on the advanced AP1000 pressurized water reactor and was introduced into China by United States-based Westinghouse Electric Corp, now owned by Japan’s Toshiba Corp. Chinese equipment manufacturers have been working to localize production of all the components for the CAP 1400 to make it an independent Chinese reactor. CAP 1400 is now the standard reactors for both inland and coastal nuclear plants.

30 China has set a target of building around 30 nuclear power units in countries along the Belt and Road Initiative routes by 2030.

Major Events

CEFC China Energy Journal

as the China Electricity Council. “With the world’s highest voltage grade, largest transmission capacity, longest transmission distance and most advanced technology, the project led will demonstrate the potential of Global Energy Interconnection (GEI) development around the world.”

Southern Anhui region, the project will also be integrated with existing power grids and systems. In particular, the project will be connected to UHV systems in east and central China, so as to transmit stable electric power to the load centers in Yangtze River Delta.

Boosting Economic and Social Development in Xinjiang

At present, eastern China is saturated with coalired power plants, far beyond the carrying capacity of the local environment. The project is thus expected to help ease air pollution and help promote energy saving, thereby promoting coordinated development of energy and environment. The project is expected to transmit 66 billion kWh of electric power to east and central China, which should reduce coal consumption by 30.24 million tons. Emissions reductions are expected to be 24,000 tons of carbon dioxide, 149,000 tons of sulfur dioxide, and 157,000 tons of nitrogen oxides.

The Huaidong-Anhui South Project covers 3,324 km. It reaches from the Changji Hui Autonomous Prefecture, in Xinjiang, to Xuancheng City, in Anhui, and has a 24 million kW converter capacity.

Construction of World’s Largest

UHV Transmission Line Commences Wang Xuhui Construction of the ±1100 KV UHVDC Huaidong-Anhui South Power Transmission Project (Huaidong-Anhui South Project) began in January, in the Xinjiang Autonomous Region. The project is the second Ultra-High Voltage (UHV) power transmission line in Xinjiang, following the ±800 KV Hami-Zhenzhou Transmission Project, which was put into operation on January 27, 2014. The irst Xinjiang UHV power transmission project already accounts for 90% of the total power transmission capacity extracted from Xinjiang region, adding up to some 38.3 billion 46

The project was approved by the National Development and Reform Commission (NDRC) in December of last year, and is expected to be put into operation in 2018. Since its power transmission capacity reaches 12 million kW, the project will be the largest transmission line connecting the east and west of China. Most of all, the project will be of crucial importance to boosting local economic development, preventing air pollution and promoting innovation in the Xinjiang region, said Shu Yinbiao (舒印彪), General Manager of the SGCC.

kWh. Compared to traditional lines, UHV can help transmit power from remote energy sources to load centers with less power lost during transmission. The Chinese government has declared UHV development an objective in the 13th Five-Year Plan period. Accordingly, UHV development is expected to accelerate, and the Huaidong-Anhui project is a prime example of this trend. “The Huaidong-Anhui South Project is ambitious,” said Liu Zhenya ( 刘振亚 ), Chairman of the State Grid Corporation of China (SGCC), the world’s largest electric utility company, as well

The Huaidong-Anhui South Project, which is worth RMB 40.7 billion in investment, is expected to contribute RMB 28.5 billion to the power transmission and conversion equipment manufacturing industry, resulting in the creation of 28,000 jobs. It is also expected that the national income of the country will rise by about RMB 13 billion, and may bring a total of RMB 2.4 billion of tax income to the government. Safeguarding Power Supply to East China In addition to meeting the energy needs of the

Laying a Solid Foundation for GEI Development SGCC has successfully put the three AC and four DC UHV projects into operation since 2009. Another four AC and six DC UHV projects are also under construction. The total length of these 17 UHV projects will exceed 28,000 km, provide more than 290 million kW of converter capacity, and transmit more than 430 billion kWh of electric power. Mr. Shu believes that Chinese UHV development will help to realize the development of GEI and, at the same time, contribute to the “One Belt, One Road” initiative. “The mass exploitation and utilization of fossil fuel energy has created a series of problems, such as energy shortages, pollution and climate change,” said Mr. Liu. The primary way to solve these problems, concluded Mr. Liu, is to accelerate the development of clean energy. GEI will be essential to implementing this solution around the world. 47

Technology

Technology CEFC China Energy Journal

CEFC China Energy Journal

Wu Li

Sinopec Wins National First-Class Award for Science and Technological Progress

O n J a n u a r y 8 t h , S i n o p e c ’s h i g h l y efficient, environmentally friendly Aromatic Hydrocarbon Manufacturing Technology was granted the National First-Class Award for Science and Technological Progress. The award marks a milestone for China, as it is the first developing country to master the technology. Aromatic hydrocarbons are an important industrial material. They are used widely as an industrial feedstock and as a solvent, and their application can frequently be found in the production of synthetic materials, medicine, pesticides, and construction materials. There are also numerous applications for national defense. Paraxylene, for example, is an aromatic hydrocarbon with high public demand. To date, 65% of textile materials and 80% of beverage packages are made with paraxylene. Over the past 15 years, China has had an annual growth rate of 20% in paraxylene consumption. Chemical fiber made from paraxylene can be used as a substitute for cotton. In 2014, approximately 20 million tons of paraxylene were consumed, mostly for the production of chemical fiber. This supply of chemical fiber helped to vacate land which otherwise would have been used for growing cotton, accounting to over 230 million mu (or 15.3 million hectares) of land. The vacated land, in turn, can be used to grow crops, thus helping to achieve the government’s target of 1.8 billion mu (120 million hectares) of arable land – an amount considered a “red line” minimum for food security. China’s self-suficiency rate for paraxylene,

however, is only 50%. China relies heavily on overseas’ aromatic hydrocarbon manufacturing technology. The workflow of aromatic hydrocarbon production is complicated, and only two companies in the world, from the United States and France, have mastered the process. In short, there is a significant technical barrier for other countries, especially developing countries, to acquire aromatic hydrocarbon manufacturing technology. China first began producing aromatic hydrocarbons in the 1970’s. 40 years later, thanks to ongoing research and development, Sinopec launched its aromatic hydrocarbon m a n u f a c t u r i n g t e c h n o l o g y. S i n o p e c ’s technology achieves high utilization of raw materials, low energy consumption and low solid waste discharge. The indigenous technology has been widely praised. The breakthrough is indicative of the Chinese petrochemical industry’s increasing ability to compete with international standards and lead in technological innovation. Sinopec’s aromatic hydrocarbon manufacturing technology uses 28% less energy for production compared to existing aromatic hydrocarbon manufacturing technology. The benefits of the breakthrough in aromatic hydrocarbon manufacturing may also trickle down to other production sectors, such as those for absorbents, catalysts and other chemical equipment. This, in turn, will help stimulate job creation, boost technology export, and support the implementation of the “One Belt One Road” initiative. Furthermore, since China plays a pivotal role in the world textile industry, the breakthrough helps to guarantee raw material supply for the textile industry, as well as attain China’s goal of ensuring national food security. 49

Energy Security

CEFC China Energy Journal

Pipeline Safety in China:

Four Major Issues

livelihoods of hundreds of millions of people. The safe operation of pipelines is thus vital for China. Nevertheless, the country faces several challenges in ensuring and promoting pipeline safety. The State-owned Assets Supervision and Administration Commission of the State Council (SASAC) has been tasked to oversee the China’s overall pipeline safety and inspection. According to SASAC’s research, there are four major problems for oil and gas pipeline protection in China. These issues must be addressed in a timely manner.

▲ Liu Yuan 刘源

Deputy Director-General, Division of General Affairs, State-owned Assets Supervision and Administration Commission of the State Council.

China has approximately 120,000 kilometers of oil and gas pipelines. These pipelines are China’s energy arteries. They underpin the country’s economic development and benefit the 50

placed on pipeline companies are levied by the local authority where companies are registered, rather than being shared among all local governments. As a result, local governments that cannot draw benefits from pipeline construction may at times lack any incentive to guarantee pipeline safety. Furthermore, the compensation given by the government to landowners for easements to allow oil and gas pipeline development is often too low. Landowners will thus tend to continue their farming or land development activities, which often pose a threat to pipeline safety. Third, the current pipeline management arrangement is not prepared to deal with upcoming challenges in pipeline safety. China currently has no unified department to handle pipeline-

related services, including design, construction, operation and protection. Instead, regulation of these services is dispersed, and the responsibility for them is spread across different sectors. Lacking communications among the sectors thus presents an area of risk for pipeline safety. Fourth, the increasing number of buildings above buried oil and gas pipeline, together with shortening pipeline safety distances, may trigger a potential crisis for pipeline safety. New urban development focuses on building new infrastructure to accommodate citizens and provide places for social interaction. In many cases, this requires relocating either buildings or pipelines. While this solution might be effective in some cases, it will not always be feasible or cost-effective.

First, SASAC has found that rural areas lack administrative support for pipeline construction. As a result, pipeline construction is failing to meet the pace of growth in these areas. Limited development space in these areas also hinders the construction of pipelines and their protection facilities. For example, a 10 kilometers pipeline section in Hexi Corridor, Gansu Province, navigates around complex of buildings and factories, other pipelines and plumbing, and city infrastructure, as well as railways, high-voltage wires, and a variety of other cables. All of these complicate both the construction and safe operation of oil and gas pipelines, and present a risk of interference. The increasing pace of urbanization in this area also means that pipeline construction struggles to keep up with development. Second, pipelines that cross provincial boundaries occasionally trigger conlicts of interest between local governments and people. Taxes 51

Planet

Planet CEFC China Energy Journal

CEFC China Energy Journal

China’s Climate Action: Looking Back, and Looking Ahead th to the 13 Five-Year Plan Geoffrey Henderson and Paul Joffe

Next month, China will release its 13th Five-Year Plan, a new economic, social and environmental blueprint for the country’s development through 2020. After years of astronomical growth, China’s economic expansion has begun to slow. But instead of doubling down on the fossil fuel-intensive

strategy that helped produce the country’s runaway growth, China’s leaders have stated that the old growth model has run its course, and that the country will build toward a more environmentally and economically sustainable model of development. Recent signs show that the country is already beginning to shift in this direction, and the new Five-Year Plan provides the opportunity to

Planet

Planet CEFC China Energy Journal

CEFC China Energy Journal

build on that progress. 3 Key Trends of China’s Climate Action China has strong reasons for doing this, including a rising concern about climate change impacts, dangerous air pollution and energy security, along with the economic beneits of clean energy. China has made signiicant strides in decoupling energy use and emissions from economic growth— as of 2014 China was on track to exceed its 2015 energy and carbon intensity reduction targets. Three key trends have emerged: Rebalancing the Economy: China’s leaders clearly intend to shift the impetus of the economy away from investment in heavy industry and

toward consumer spending, services (such as retail businesses), innovation, and more innovative and efficient manufacturing. Under China’s 12th FiveYear Plan, services moved from 43 percent of the economy in 2010 to 51 percent last year, replacing manufacturing (which went from 47 percent to 41 percent of the economy) as the largest contributor to China’s GDP. Services continue to grow at a faster pace than manufacturing. Limiting Coal: After years of steep growth in coal consumption, regional coal and carbon limits and new-coal-plant bans have been followed by a leveling off of coal use in 2014 and reduced output in heavy industries like steel (down 2 percent last year) and cement (down 6 percent). A continued shift away from these energy-intensive industries would weaken a major driver of air pollution and greenhouse gas emissions. Non-Fossil Energy: China is the world leader

Climate Action in China Over the Last Five Years China has taken comprehensive measures to reduce carbon emissions in the past few years, including efforts to increase energy efficiency in industrial production, transportation, building construction and other ields.

2011

Sets carbon intensity and nonfossil energy targets in 12th Five Year Plan

2014

Commits to peak carbo emissions around 2030 or earlier

2012

2014

Becomes world largest investor in renewable energy

Coal use plateaus for irst time

2013

Bans new coal plants in three key economic regions

2015

Overtakes Germany as No 1 in solar capacity

By 2014

12 provinces set coal limiting targets

2015

Pledge 3 billion US Dollar for climate action in developing countries

in renewable energy, breaking records last year for installation of wind (32 gigawatts last year, 129 total) and solar power capacity (18 gigawatts last year, 43 total), and clean energy investment ($111 billion, nearly double U.S. investment). Moreover, China-U.S. cooperation on climate has become an important driver of domestic, bilateral and global action. As part of last year’s breakthrough international agreement to address climate change, China committed to peak its carbon emissions around 2030 (with the intention to peak earlier), to derive around a fifth of its energy use from non-fossil sources by 2030, and to reduce the carbon intensity (carbon emitted per unit of GDP) of its economy by 60 to 65 percent from 2005 levels by the same date. These pledges complement the progress China is already making and set the stage for new action. China’s New Five-Year Plan China’s 13th Five-Year Plan will be an important foundation for this new action. The 12 th FiveYear Plan outlined high-level policies and set development and environment-related targets, such as those for reductions in energy intensity and carbon intensity and an increase in the share of energy used from non-fossil sources. The new plan will likely define similarly broad goals and a framework for boosting further progress. Early signs indicate that strengthening the shift to a sustainable development path will be a key focus. In a communique issued last fall outlining the broad contours of the plan, China’s leaders stressed the importance of innovation and the role of consumption in growth. They also emphasized environmentally sustainable development and called for greater accountability for environmental damage. Further signs of alignment in this direction

continue to emerge. Recently, China’s National Energy Administration stated that it would constrain the construction of new coal-fired power plants, particularly in regions with excess capacity. Authorities have halted approvals for new production capacity and called for eliminating unneeded capacity in coal mining and steel production. Several ministries called on the inancial sector to withhold inance from industrial producers that fail to comply with environmental targets and policies. Further, China’s State Council recently issued a new urbanization roadmap calling for resource and energy conservation and environmental protection. And finally, for China to achieve its climate targets set out ahead of COP21 in Paris, it will need to pursue stronger action in both the short and long term. The 13th Five-Year Plan and its implementation will provide early signs of how it’s going to do this. Don’t Expect the Five-Year Plan to Have All the Details The plan will inform decision-making at all levels—the central government, ministries and agencies, provincial and local governments, and state-owned enterprises. However, the main document is broad and high level. Finer details— in particular those concerning climate and energy—will continue to be elaborated in 2016 and afterward, as specific sector and provincial targets and plans are established and responsibilities for implementation are allocated amongst the ministries. China has made considerable progress in recent years. Signs are good—and expectations are high— that the 13th Five-Year Plan and follow-on sectoral plans will expand the country’s environmental protection efforts and launch a new wave of climate action. 55

Foresight

Foresight CEFC China Energy Journal

CEFC China Energy Journal

Wu Xiaojuan

China’s Coal Industry Embraces Further Reform

The China National Coal Association (CNCA) has warned that nearly 80% of coal enterprises in China are facing serious losses. 40% are failing to pay wages on time, let alone pensions and medical care. The sector, as a whole, is facing high inancial risk and soaring debt. Accordingly, the State Council and the National Development and Reform Commission (NDRC) have announced that the government will focus on supply side reform of the coal sector during the 13th Five-Year Plan period. A number of inefficient and unprofitable “zombie enterprises” are set to be eliminated, and mergers and acquisitions within the coal industry will be accelerated. Nearly half of coal enterprises are expected to be squeezed out of the market. Eliminating Backward Production and Accelerating Transformation The first decade of this millennium was the golden age of the coal industry in China. Coal prices soared from RMB 200 per ton in 2002 to RMB 1070 per ton in July 2008. Although there was signiicant drop in coal prices during the global financial crisis in 2008, prices rose again in 2011. That year, the Bohai-Rim Steam-Coal Price (BSP), the key coal-price benchmark in China, reached a high of RMB 853 per ton. Indeed, it was not uncommon to have coal trade at more than RMB 1000 per ton during this time.

“

Over the next three to ive years, the country will shut down 500 million tons of capacity, as well as consolidate another 500 million tons into the hands of fewer, more eficient operators. The government promises to uncompromisingly eliminate “zombie enterprises” and renovate enterprises with “absolute excess capacity.”

Against this backdrop, companies from a wide range of sectors – including tobacco, real estate and equipment manufacturing – took advantage of soaring coal prices and invested in the coal industry.

emission reduction requirements have foreshadowed the increasingly difficult situation of the coal industry.

Since then, however, the slow growth of international economy and the new round of

“Coal is now as cheap as potatoes,” said Wang Xianzheng ( 王显政 ), head of the CNCA. 57

Foresight

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CEFC China Energy Journal

75%

72%

69%

66%

63%

60%

Coal’s Share of Primary Energy

Coal Consumption

Billion Tons

China’s Coal Consumption and Share in Primary Energy

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Coal consumption

“The amount of coal reserves has exceeded 300 million tons for 46 consecutive months. Profits for large coal enterprises have dropped by about 62% on a year-on-year basis. Great deals of the coal enterprises nationwide have suffered losses in business.” State-owned coal enterprises gained RMB 30 billion in 2014, but lost 22.3 billion in 2015. Six Provinces – Heilongjiang, Jilin, Liaoning, Hebei, Shandong and Anhui – had to contend with coal industry losses. In the first three quarters of 2015, the total amount of accounts receivable for coal enterprises was RMB 386.8 billion – a historical record high. Many enterprises will soon begin to run out of liquidity. The Chinese government has been working hard to rehabilitate the coal industry. The State Council recently issued a guideline to address the situation. Under the guideline, no new coal mines 58

Coal’s Share in Primary Energy

will be approved in the coming three years. Over the next three to five years, the country will shut down 500 million tons of capacity, as well as consolidate another 500 million tons into the hands of fewer, more eficient operators. The government promises to uncompromisingly eliminate “zombie enterprises” and renovate enterprises with “absolute excess capacity.” “Addressing the difficulties of China’s coal industry is a daunting challenge” said Lian Weiliang (连维良), Deputy Director of NDRC. “The key to success is to rebalance the demand and supply of coal by promoting supply side reform, cracking down on illegal and unsafe production, and eliminating backward production.” According to the State Administration of Work Safety (SAWS), the total number of coal mines in China now stands at 9,624, with a total capacity of 5.7 billion tons per year. More than 1,300 coal mines were closed last year. This year, small coal mines with a scale of annual production of less than

In the past 3 years, China eliminated over 200 million tons of coal mining capacity China’s coal consumption was down by 3.7 percent last year In the past 10 years, China has invested 1.56 trillion yuan ($240 billion) in developing clean coal. In the next 5 years, it is expected to invest another 3 trillion yuan in environmentally friendly coal. Coal consumption accounted for 64

percent of the primadown 4.5 percentage points from the

ry energy use in 2015, share in 2012, as the government pushes for cleaner and greener growth despite the slowing economy China’s coal consumption will be limited to 62 percent of energy use by 2020 There are currently still more than 7,000 less than 300

thousand tons

coal mines

of with

per year capacity in China. To-

gether, these comprise a total capacity of 570 year.

million tons

Shanxi Province plans to cut its coal production by 258

lion tonnes

per

mil-

by 2020

Guizhou will close 510 coal mines in the next 3 to 5 years to decrease coal production capacity by 70 million tonnes In Inner Mongolia, almost half of the province’s coal enterprises have been forced to shut down due to severe business environment 59

Foresight CEFC China Energy Journal

In the next ive years, the number of coal mining enterprises in China will be reduced to 3,000 or less by 2020. In other words,

more than half

of coal enterprises will be closed.

300,000 tons which have had major accidents will be gradually closed, as well will those mines that are operating illegally. Jiang Zhimin ( 姜智敏 ), Deputy Director of CNCA, added that during the 13th Five-Year Plan period, the number of coal mining enterprises across the country will be reduced to 3,000 or less by 2020. In other words, more than half of coal enterprises will be phased out of the market. Accelerating Mergers and Acquisitions Meanwhile, the government will invent a withdrawal mechanism which would encourage mergers and acquisitions (M&A) between coal companies. This will also help to realize integrated coal-power operation. According to Mr. Lian, there are currently still more than 7,000 coal mines of with less than 300 thousand tons per year capacity in China. Together, these comprise a total capacity of 570 million tons per year. These enterprises are the main targets for reorganization. In the first 11 months of 2015, 49 cases of mergers took place in coal industry, a 58% of increase from the previous year, according to statistics from CNCA. 60

In Inner Mongolia, almost half of the province’s coal enterprises have been forced to shut down due to severe business environment. Some small and private companies have shown interest in being taken over, but many hesitated as they did not know whether the government would help them pay off their loans and debts. Another dimension of coal industry’s M&A is vertical integration. For instance, China Shenhua Energy Company Limited, a coal-based integrated energy company, has entered into agreements to acquire 100% stakes in Guohua Xuzhou Power Generation Company Limited and Ningxia Guohua Ningdong Power Generation Company Limited, as well as 51% stake in Shenhua Guohua Zhoushan Power Generation Company Limited. Shenhua’s acquisitions of the three electricity suppliers may help the company integrate the resources of both electricity and coal companies, thereby reduce generating costs and increasing power-plant proits. Mr. Lian believes that the M&A trend will help eliminate the weakest companies in the industry and add stability to coal prices. Zuo Qianming (左前明), from the CNCA Consultative Center, held the same view, and explained that large enterprises will have much more resistance to coal price volatility. He suggested that coal enterprises could take advantage of abandoned mine lands and existing facilities, refurbishing them into clean energy centers.