Also by EU-China Energy Cooperation Platform Project

2020

EU China Energy Magazine Spring Double Issue

EU-China Energy Magazine Summer Issue

中欧能源杂志夏季刊

EU-China Energy Magazine Autumn Issue

中欧能源杂志秋季刊

EU-China Energy Magazine 2020 Christmas Double Issue

中欧能源杂志2020圣诞节双期刊

2021

EU-China Energy Magazine 2021 Spring Double Issue

中欧能源杂志2021春季双期刊

EU-China Energy Magazine 2021 Summer Issue

中欧能源杂志2021夏季刊

EU China Energy Magazine 2021 Autumn Issue

中欧能源杂志2021秋季刊

EU China Energy Magazine 2021 Christmas Double Issue

中欧能源杂志2021圣诞节双刊

2022

EU China Energy Magazine 2022 February Issue

中欧能源杂志2022年2月刊

EU China Energy Magazine 2022 March Issue

中欧能源杂志2022年3月刊

EU China Energy Magazine 2022 April Issue

中欧能源杂志2022年4月刊

EU China Energy Magazine 2022 May Issue

中欧能源杂志2022年5月刊

EU China Energy Magazine 2022 June Issue

中欧能源杂志2022年6月刊

EU China Energy Magazine 2022 Summer Double Issue

中欧能源杂志2022年夏季雙刊

EU China Energy Magazine 2022 September Issue

中欧能源杂志2022年9月刊

EU China Energy Magazine 2022 October Issue

中欧能源杂志2022年10月刊

Digest of the Handbook on Electricity Markets - China Edition

Digest of the Handbook on Electricity Markets - International Edition

电力市场手册 （精华版）- 中国发行

电力市场手册 （精华版）- 国际发行

EU China Energy Magazine 2022 November Issue

中欧能源杂志2022年11月刊

EU China Energy Magazine 2022 Christmas Double Issue

中欧能源杂志2022年12月刊

2023

EU China Energy Magazine 2023 February Issue

中欧能源杂志2023年2月刊

EU China Energy Magazine 2023 March Issue

中欧能源杂志2023年3月刊

EU China Energy Magazine 2023 April Issue

Joint Statement Report Series

Electricity Markets and Systems in the EU and China: Towards Better Integration of Clean Energy Sources

中欧能源系统整合间歇性可再生能源 - 政策考量

Supporting the Construction of Renewable Generation in EU and China: Policy Considerations

中欧电力市场和电力系统 - 更好地整合清洁能源资源

支持中欧可再生能源发电建设: 政策考量

ENTSO-E Grid Planning Modelling Showcase for China

ENTSO-E 电网规划模型中国演示

Accelerating the Incubation and Commercialisation of Innovative Energy Solutions in the EU and China

加速中欧创新能源解决方案的孵化及商业化

Comparative Study on Policies for Products’ Energy Efficiency in EU and China

中欧产品能效政策比较研究

欧盟和中国的能源建模报告

Integration of Variable Renewables in the Energy System of the EU and China: Policy Considerations

Table of Contents

Also By EU-China Energy Cooperation Platform Project

Letter from the Team Leader

1.  How new business models are boosting momentum on CCUS

2.  Why China’s renewables push fuels coal power investment

3.  Pairing up PV and heat pumps in China

4.  ESG of EV batteries

5.  Energy transition’s new industrial landscape

6.  News in Brief

7.  Featured Publication

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Also By EU-China Energy Cooperation Platform Project

Letter from the Team Leader

Dear All,

As we continue to explore the complex dynamics shaping the global energy landscape, I am delighted to introduce the April 2023 issue of the EU-China Energy Magazine, which features a diverse range of original and curated articles that have been chosen to shed light on the latest developments in the energy sector.

In this issue, we begin with an analysis of how breaking up the CCUS value chain can stimulate new business models, which are boosting the momentum for CCUS technology deployment around the world. Given that CCUS is an effective solution that can save our planet from pressing climate change challenges, it is crucial that facilitating polices are in place to keep up with the evolving sector.

The second article takes a closer look at China’s renewables push and how it relates to coal power investment. Despite the country’s ambitious renewable energy targets, more coal power is still planned. This article analyses the factors contributing to this paradox and the impact it has on the country’s energy transition.

Next, we feature an article contributed to ECECP by Anders Hove at the Oxford Institute for Energy Studies, which explores China’s Whole County PV program and its synergies with rural clean heating. The program offers a unique opportunity to combine the clean energy impact of heat pumps and PV to offer increased energy efficiency and reduce emissions.

The magazine also offers an account of the ESG considerations in the EV battery industry, discussing how the upcoming European new rules on EV batteries will impact on auto makers and their battery suppliers and recyclers, as they will be required to disclose information about the sustainability of their mineral supply chains.

Our coverage of clean industries continues with an examination of the evolving landscape of clean technology manufacturing investment and the global competition for subsidies, and what challenges the EU will face when meeting the ambitious targets set by Net Zero Industry Act.

Importantly, don’t forget to follow the latest key news developments and reports picked out by our editors.

Just a little advance information: on 20 June 2023, ECECP and the Center of Science and Technology & Industrialisation Development, Ministry of Housing and Urban-Rural Development will co-host the first EU-China symposium on ‘Achieving carbon neutrality in building sectors: policies, solutions and opportunities’ during the 20th China International Exposition of Housing Industry & Products and Equipment of Building Industrialisation. Save the date!

Last but not least, I would like to say a big thank you to our demanding editors, Daisy Chi and Helen Farrell for once again delivering a very informative issue. We hope you enjoy reading it!

Flora Kan

ECECP Team Leader

1.  How new business models are boosting momentum on CCUS

2022 was a strong year for carbon capture, utilisation, and storage (CCUS). More than 140 new projects were announced, increasing planned storage capacity by 80%, and capture capacity by 30%. CCUS projects were announced in seven additional countries, in central and southern Europe, the Middle East, and Southeast Asia, bringing the total number of countries with plans to develop CCUS to 45.

Around 15 final investment decisions were taken across applications in industry, power, fuel transformation and direct air capture since the beginning of 2022, up from eight in 2021. This signals an increasing confidence in the industry, driven in part by CCUS-specific policy incentives in the United States, Canada, and the United Kingdom; by strengthened climate pledges; and by rising carbon prices in compliance and voluntary carbon markets.

These details and more on operating and planned large-scale CCUS projects around the world can be found in the CCUS projects database, which the IEA has released for the first time. Alongside the CCUS handbooks released in 2022, the database is intended to be a tool that governments and companies can use to continue to drive growth on CCUS.

The storage gap is closing as plans for CCUS hubs multiply

Along the CCUS value chain, the most significant growth is observed in the development of CO2 transport and storage infrastructure, particularly in North America, Europe, China, the Middle East, and Australia. In 2022 over 210 Mt of new CO2 dedicated storage capacity was announced, up from 100 Mt CO2 in 2021, and 70 Mt CO2 in 2020. Similar capacities for connecting infrastructure, including collection terminals, pipelines and shipping, also entered into planning. This means that planned storage capacity currently outweighs planned capture capacity by 2030, but a continued and sustained push is nonetheless needed to ensure enough storage sites are developed and capacity is available to meet mid-century climate targets.

Governments and companies are increasingly recognising that deploying CCUS to meet decarbonisation goals hinges on the timely roll-out of CO2 management infrastructure and governments around the world have committed over USD 6 billion in the development of CO2 transport and storage infrastructure since 2021, including in the United States, the European Union, and Australia. Funding is supporting important milestones in infrastructure development: this month, CO2 captured in Belgium was transported to Denmark for injection in a depleted oil field in the North Sea.

This growth signals an important shift in the CO2 management sector. With a few exceptions, most CCUS projects to date have operated on the same business model: they are ‘full-chain’ projects where CO2 is transported from one capture facility to one injection site, typically involving a single operator. While this was a natural model for first-of-a-kind projects, full-chain projects suffer from high investment, cross-chain risks and liabilities born by a single developer. Breaking up the CCUS value chain can help mitigate these hurdles as CCUS scales up. We are now seeing this happen, with part-chain projects focused on capture, transport or dedicated storage developing in connection to emerging shared infrastructure within CCUS hubs. In total, over 140 CCUS hubs are in development, more than three times as many as in 2021.

Breaking up the CCUS value chain is allowing new players to emerge

Historically, oil and gas companies have been leaders in CCUS development. They operate five of the eight dedicated CO2 storage projects in operation and most of the existing CO2 pipelines. Together, Exxon Mobil, Occidental, Petrobras, and Chevron are involved in over half of current operational capture capacity. Oil and gas companies remain heavily involved in CCUS projects, and CCUS is likely to be an important component to support the transition of producing economies. This and other considerations will be explored this year in the upcoming IEA publication on the Oil and Gas Industry and COP28, which will help to frame the discussions at COP28 by providing guidance about the role of oil and gas producers in a net zero pathway.

Alongside oil and gas companies, new specialised players are emerging as the CCUS value chain is being broken into its constituent components. These include existing companies expanding their portfolio to CO2 management, such as gas infrastructure developers who are increasingly involved in building and operating CO2 pipelines as part of their portfolio, sometimes retrofitting existing gas assets. Liquefied natural gas carriers and shipping companies are expanding into CO2 shipping. Chemical companies have leveraged their technical know-how to develop proprietary capture technologies, both to reduce emissions from their own facilities and to provide capture solutions to third parties. Engineering companies have also developed proprietary capture solutions, with modular capture skids for third-party emitters.

New companies specialising in one part of the chain are also emerging. Carbon Clean, Svante, ION clean energy, and Entropy Inc. are all examples, with proprietary capture solutions offering capture-as-a-service to emitters, either as developers, owners and operators of the unit or through technology licensing. Companies such as Storegga, Summit Carbon Solutions and Horisont Energi are also developing CO2 transport and storage infrastructure solutions. This increasingly specialised corporate landscape can bolster innovation and boost cost reductions in parts of the chain, as well as enable easier access to decarbonisation solutions for emitters.

CCUS hubs provide stronger incentives to capture emissions

The CCUS hub model spreads infrastructure costs between emitters, and generates economies of scale to reach emitters that are smaller-scale or further away from identified CO2 storage sites. In Europe, the 5th list of energy Projects of Common Interest includes CO2 networks and terminals connecting Poland and France to storage in the North and Baltic seas. In the United States, Summit Carbon Solutions proposes to build a 3 200 km CO2 pipeline spanning five states to connect more than 30 small-scale bioethanol plants with a capture capacity averaging 0.3 Mt CO2 per year.

The development of CCUS hubs can also send a positive signal to operators of emitting facilities seeking to reduce their emissions: should they invest in CO2 capture, the required CO2 management infrastructure will be available. In the United Kingdom, the number of capture projects in development has more than tripled since the announcement of the GBP 1 billion Carbon Capture and Storage Infrastructure Fund in 2020. The Northern Lights transport and storage project in Norway is considering a third expansion phase to meet the demand from emitters who have expressed interest in connecting, which is currently over six times greater than planned capacity of the first two phases.

Governments need to keep up with CCUS business model changes

To ensure that policy makers can keep up with an evolving CO2 management sector and support the growth required to meet decarbonisation goals, policies should proactively leverage opportunities and tackle challenges that may arise from new CCUS business models:

●  Governments have a key role in network planning, co-ordinating hub development, and accelerating lead times for storage permitting. CCUS hubs can involve higher counterparty risks related to the cancellation, unavailability or failure of part of the chain. Efforts to mitigate these risks are already underway in Canada, the United States, and the United Kingdom.

●  There is a need to develop comprehensive legal and regulatory frameworks with considerations specific to CCUS hubs, including third-party access to storage, multi-modal transboundary transport and regulatory obligations under the London Protocol. This is true for emerging frameworks around the world, as well as existing regulation, which must be fit for purpose. For example, the European TEN-E regulation on energy networks was revised in 2022, but still does not fully support all modes of CO2 transport.

●  International collaboration is instrumental in exporting these models to other regions exploring CCUS, such as Southeast Asia and the Middle East, as first-of-a-kind hubs are firing up in Europe and North America.

By Mathilde Fajardy, Carl Greenfield, Rachael Moore

Republished from IEA under CC BY 4.0 licence

2.  Why China’s renewables push fuels coal power investment

Power from renewable energy bases is combined with substantial coal power and transmitted via long-distance lines that lack the capacity for flexible dispatch between regions.

Shichengzi photovoltaic power station in Hami, Xinjiang. Quite a lot of China’s wind and solar expansion through its new energy bases is in the country’s western regions, which are less populated, less economically developed, and have less demand for power. (Image: Zhao Ge / Alamy)

The expansion of renewables in China has maintained an impressive pace over the last 10 to 15 years. In 2005, the introduction of the Renewable Energy Law established feed-in-tariffs (FiTs) to encourage renewables development. Since then, annual growth of wind and solar power in China has accounted for half, if not more, of the global total. For some time after 2010, China saw annual wind power capacity expansion of 20–35 gigawatts (GW), while solar grew even faster, with 30–50 GW added annually. In the five years from 2015, the two combined added 50–60 GW annually.

Despite the impact of Covid-19, strong renewables growth has continued since 2020, with over 100 GW of wind and solar added annually. In 2022, 150 GW of new renewable capacity, including hydro, wind, solar and bio power, was added, according to figures released by the National Energy Administration (NEA) in February. Wind and solar accounted for 125 gigawatts of the total new capacity and for 13% of all generated electricity. Globally the proportion is 10%.

According to the NEA figures, renewables generation in 2022 avoided about 2.26 billion tonnes of carbon dioxide emissions. Using the benchmark for coal power generation of 300 grams of coal per kilowatt hour, this would mean a kilowatt hour of renewables generation reduces carbon emissions by 837 grams. But we believe the reduction in emissions from renewables has been overestimated, particularly considering the operational and investment impacts of China’s ‘new energy bases’ – large-scale renewable energy development projects, primarily located in the country’s remote western regions. These bases are spurring additional investment in coal power, with the renewable and fossil sources of power bundled together for transmission to eastern provinces. Furthermore, there are issues with how such installations are integrated into the grid.

Renewables and coal, advancing side by side

The extent to which renewable energy substitutes for traditional electricity generation and so reduces greenhouse gas emissions is a topic of deliberation by academics, policymakers and the electricity industry.

Emissions vary according to the characteristics of the power system, but the main variable is the form of power that is ‘crowded out’ by new wind or solar.

Around the world, systems designed to minimise costs typically use an ‘economic dispatch’ approach that ranks generation facilities by marginal cost, prioritising the cheapest. So, when new renewable energy generation comes online it competes with existing facilities and squeezes out any generation that’s more expensive – along with the associated emissions.

If, as can be the case in Scandinavia, the most expensive facility is hydropower, the emissions reductions may be practically zero. But if the most expensive generation is gas-fired power, the reductions in carbon dioxide per kilowatt hour will be somewhere between 400g and 600g. This would have been the case in most of western Europe during 2022, as gas prices were so high.

What about in China or India where coal accounts for 50% and above of all generation? If a coal-fired plant is outcompeted by new renewable generation, the reduction in emissions can be even higher, at around 700–1,000g per kilowatt hour depending on the energy efficiency of coal conversion. The above NEA figures assume 100% substitution for coal, which represents the biggest impact under ideal circumstances. However, the economic dispatch approach is not currently used in China.

In China, a significant part of new generation capacity is not connected to the local grid so does not substitute for existing generation. Quite a lot of China’s wind and solar expansion through its new energy bases is in the country’s western regions, which are less populated, less economically developed, and have less demand for power. Renewable generation is bundled with new or existing coal power and sent via dedicated ultra-high-voltage (UHV) transmission lines to eastern coastal provinces. Provisions for renewable energy development in the 14th Five Year Plan, China’s policy blueprint for 2021–25, required that renewables account for no less than 50% of the ‘hydro, wind, solar and coal’ mix. And as there are some hydropower-only transmission lines that provide 100% renewable electricity, even a coal power contribution of 70% through other lines may be able to meet that average requirement. Those arrangements meant investment in renewables triggered a net expansion in coal power; in other words, without that wind and solar investment, the associated coal power construction and generation would not have happened. The two are complementary. Records for existing transmission lines (for 2021, 2020 and 2019) confirm this: wind and solar accounts for 20–40% of power sent by most cross-regional transmission lines. A new line planned to run from Hami in Xinjiang to Chongqing will come with 10 GW of renewable generation and 4–6 GW of coal power.

Does renewable energy generation in the west of China reduce investment in and operation of coal power assets in the east? It certainly doesn’t reduce investment. Electricity systems use an ‘N-1 Criterion’ to ensure safe operation. This means the system should be able to maintain normal operation if any one part fails, so eastern regions must ensure they can meet local power demand if an entire transmission line goes down. They do this in part by using coal power to act as backup in case of emergency. Given that coal power facilities have a lifespan of 35–40 years, compared to around 20 years for wind and solar, there is a risk that investment in coal power to meet N-1 and backup requirements will lock in long-term emissions.

And in actual operations, the substitution of coal by renewables is nowhere near a 1:1 ratio. Instead, 70% of coal power produced in western China and 30% of wind and solar is used to substitute for fossil-fuel generation in the east of the country. Most often this means one coal power facility substitutes for another. Even if the incoming facility is more efficient and so embodies less carbon, those benefits are undercut by significant long-distance transmission losses, local units in the east running less efficiently because they must adapt to inflexible imports of power, and local transmission losses.

So increased renewables capacity does not necessarily replace fossil fuel generation as might be expected. We did some calculations for the long-distance transmission line between Hami in Xinjiang and Zhengzhou in Henan, which has been in operation for some years. The line is 2,200 kilometres long, is rated for 8 GW, and sees transmission losses of 7.2%. Associated generation capacity includes 8 GW of wind, 1.25 GW of solar and 6.6 GW of coal power, for a total of 15.85 GW. We found that the emissions reductions from the policy of requiring renewables to account for no less than 50% of the hydro, wind, solar and coal mix were cut by 360g of CO2 per kilowatt hour, compared to the ideal case. In actual practice, further addition of coal power (the percentage is commonly 70% or even higher) reduced the emission reduction effects by almost 100g. Transmission efficiencies cut reductions further, by over 50g. Even ignoring further contraction in efficiency at the destination, actual emissions reductions are around 356g per kilowatt hour – about 40% of a straight coal-to-renewables substitution, and approximately equivalent to a coal-to-gas switch.

Source: Draworld Environment Research Center (Beijing)

In terms of climate and emissions, renewables are more like natural gas.

Moreover, this leads to extra coal power investment that risks locking in emissions for longer. Of course, someone may argue that the extra coal power is temporary and will be withdrawn when emissions need to peak and start to fall. The capacity will therefore not necessarily mean the proportional coal consumption and carbon emissions. In theory, this is possible. Yet it is more likely that coal power will continue to be used as currently, if not more so. China’s electricity system still lacks a mechanism for competition based on short-term marginal cost – in other words, it does not use the economic dispatch method – and the increasing percentage of renewables hooked up to transmission lines also means lower utilisation rates, due to intermittency of renewables. Keeping current transmission prices will further delay investment pay-back for the transmission lines. But if prices are raised, the electricity delivered will become less competitive or prices paid to the generators in western regions will decrease. Whatever happens will be in conflict with the political and economic interests of various powerful stakeholders.

How much of China’s renewable energy is bundled with coal?

Figures are incomplete, but there are over 20 projects that are similar to the Hami–Zhengzhou transmission line. One third are dedicated hydropower lines in the south-west of the country. About 50% of the generating capacity for the other lines is coal power. That allows us to estimate that 35–40% of the wind and solar power capacity built in the last five years has been bundled like this with coal power.

If wind and solar power fail to have the expected impact on emissions, there will be obvious consequences for global power generation data and our understanding of renewable energy development. The Intergovernmental Panel on Climate Change’s Sixth Assessment Report identified wind and solar power as the most promising of the cost-effective mitigation options, with a particularly important role to play up to 2030, as other options are either impractical, hard to scale up, or too expensive. According to International Energy Agency calculations, the solar power sector is already on course to be aligned with a 1.5C global warming scenario as of 2030, if already-announced solar power plans are included. Figures compiled by Bloomberg found that 85% of power generation capacity added in 2021 came from renewables, primarily solar and wind. MCC, a Berlin-based energy and climate think tank, included this on its 2022 climate good news advent calendar. But all these are based on the assumption that renewable energy would replace fossil fuels and so reduce emissions sufficiently.

Despite China’s accelerating growth in renewable energy, the increase in the proportion of renewables in the power mix has not been so prominent. Meanwhile, coal consumption and emissions continue to grow, perhaps even rapidly. A major factor in this is coal–renewables complementarity. Non-official calculations for 2021 show that China’s greenhouse gas emissions were up 5.9% on 2019. In 2022, generation from renewables grew significantly, by almost 2%. That year saw pricing distortions reduce generation from coal power and a resulting two-week power rationing in Sichuan. The fall in coal power generation ‘exaggerated’ renewable generation in percentage terms. Preliminary figures for 2022 indicate that coal consumption went up 3% or more compared to 2021, to a new high. Emissions, meanwhile, may have gone up by more than 1.5% despite the impact of strict Covid lockdowns.

Why are renewables bundled with coal?

The bundling of wind and solar power with coal makes no economic sense. Existing long distance transmission lines have no interconnection function along the way that would allow for flexible dispatch of power between regions. In terms of balancing supply and demand, the most stable, practical and cost-effective approach is to generate, distribute and consume power more locally. For example, connecting the Northwest China Grid and the North China Grid would require a connection of only 500kV or lower, stretching no more than a few hundred kilometres at most. That means shorter, lower-capacity requirement and cheaper transmission lines than in the new energy base approach, which takes no account of local need. So why the long-distance inflexible transmission model? It may be down to political-economic issues, in particular how central and local governments interact and share fiscal revenue.

The Baihetan to Jiangsu ultra high voltage transmission line is a key part of China’s ‘west–east power transmission’ strategy (Image: Alamy)

Recently, signs have emerged of changes to this approach to expand renewables. The long-distance transmission model does not take account of changes in supply and demand across the generation and consumption ends, making it harder to make operational adjustments and ensure energy security. Given the rapidly changing international environment, this is definitely a weak point in China’s energy and power security. In November 2022, a grid executive speaking at the annual meeting of the China Electricity Council said it would: ‘insist on the localised balance (prioritising local resources and infrastructure), and help maintain regional balance when necessary, work to resolve a lack of capacity to help respond to peak emergency demand, and ensure safety.’ At the National Energy Administration press conference mentioned earlier, the role of ‘Chinese-style’ distributed solar was highlighted. However, we do not think that distributed or centralised generation is the issue at hand. It is the need for a single market, flexible grid integration, and developing wind and solar while taking into account the nature of those power sources.

China’s new energy bases are not inherently problematic, as they offer a valuable resource in the form of cheap and abundant renewable energy. However, to maximise the benefits of this resource, these bases should be built without accompanying coal power generation and without the installation of high-cost and inefficient transmission lines that do not account for dynamic demand. Instead, these bases should be recalibrated to facilitate normal grid connections or re-purposed for the production of e-fuels, such as hydrogen, ammonia, or methane. This approach would help address the emissions issue associated with the current approach while also enhancing competitiveness. Given recent dynamics mentioned above, we find cause for optimism.

A similar situation, with renewables capacity not leading to emissions reductions, could be found outside China when economic dispatch principles are not applied, for example in Southeast Asia, Central and Western Asia, and India. Analysis of specific cases is needed to come up with practical solutions.

Electricity system reforms and climate security must go hand in hand

We have wind and solar power generation which is generally cheaper than traditional sources of power. This is necessary for quick and affordable decarbonisation of the power sector, but it is not sufficient. In most developing nations, flexibility improvements associated with the integration of renewables to the grid (rapid stop-starts, quicker ramp rates, minimum output level) and operational reforms (more granular economic dispatch), and market coordination mechanisms (for example, bigger, faster and shorter market segments) need to evolve in parallel.

In China, significant electricity curtailment (wastage) issues were seen when the grid started to integrate wind and solar power. This was due to a lack of flexibility in the grid and the system operation, which meant the additional capacity could not always be used. This has been resolved by a regulatory focus on curtailment rates. Yet, despite the huge additional generation of new renewables achieved, emissions reductions are not always fully realised due to system-level factors that impede their translation into tangible environmental benefits.

While we are cautiously optimistic, we need to make it clear that electricity reforms and climate security must go hand in hand. United, both will succeed; split, both will fail.

By Zhang Shuwei

This article was originally published on China Dialogue under the Creative Commons BY NC ND licence.

3.  Pairing up PV and heat pumps in China

China’s Whole County PV program offers a unique opportunity to combine the clean energy impact of heat pumps and PV to offer increased energy efficiency and reduce emissions, writes Anders Hove, Senior Research Fellow at the Oxford Institute for Energy Studies.

Too often, heat pumps and photovoltaic power (PV) are treated as two entirely separate fields: PV is energy production, and heat pumps are building energy efficiency. We treat them as different policy areas, assign them to different ministries, offer different incentives, and set separate targets.

Today, however, it is important that we start to think more about how to combine new energy technologies, as part of China’s policies calling for integration of supply, grid and load.

There are various grid integration issues associated with centralised, utility-scale PV, which receive extensive attention in the media and from policy makers. In China, where the wholesale power market and transmission system is fairly inflexible, the centralised PV power stations require investment in transmission. As China seeks to overcome the variability of renewable power generation, it is building new coal generation facilities alongside its clean energy bases, locking in future carbon emissions.

However, in recent years, distributed energy has started to take off, especially in rural areas. Distributed energy works better when there is local electricity demand, otherwise it just creates the same integration issues faced by other solar and risks curtailment of excess generation. Household electricity load is fairly small and is usually unable to absorb peak solar power generation around midday. However, under the right conditions, heat pumps can help increase consumption of locally produced solar power. At the same time, the use of heat pumps negates the need for the main fossil-fuel-based heating alternative. It is well known that burning of fossil fuels creates greenhouse gas emissions, has a negative impact on local air quality, and leads to issues with indoor air quality.

The Whole County PV program is a relatively new distributed solar program that has so far not caught media attention. In a new paper published by the Oxford Institute for Energy Studies, I suggest expanding the scheme to cover heat pumps, and so find an outlet for the huge amounts of distributed solar that will be generated under this program. Such a move could help resolve some of the barriers that have bedevilled both heat pumps and distributed PV.

The Whole County PV program

The Whole County PV pilot program was initiated by the National Energy Administration in June 2021. By September 2021, the NEA had published a list of 676 participating counties and other administrative units (such as new development districts)—representing roughly half of China’s counties.

The counties participating in the program are not all rural, but they are more rural than average, reflecting the goals of the program. Together, they represent 24% of the country’s population. The program calls for participating counties to add PV to 20% of residential rooftops, along with other targets for commercial, industrial, and government rooftops. The primary innovation contained in the program is to enable counties to conduct a single auction to cover all the rooftops, which can substantially reduce the soft costs (expenses that are not directly connected to construction, such as engineering, finance, marketing and legal fees) — especially for smaller systems that might not otherwise be profitable.

Combining PV with heat pumps

That same innovation could also be used to encourage installation of heat pumps. Heat pumps face many of the same barriers as distributed solar: low awareness, high capital cost, low returns, and small individual project size.

If a house already has solar, it makes sense to use the cheap electricity to power a heat pump, so improving the economics of the combined system. Electricity in China is relatively inexpensive, but heat pumps still offer a better payback for households or villages that can generate their own electricity, compared to feeding PV power back into the grid at midday.

This is all very well in the heat of summer, but how do the numbers look when thinking about winter? Does it still make sense to combine heating with solar PV, given that heating is needed at night in the winter? Surprisingly, the answer is a qualified ‘yes’. First, China experiences much sunnier winters than most other countries. In Shandong, a household solar panel might produce 76% as much electricity over the whole winter compared to summer—comparable to Phoenix, Arizona. Contrast that with London or Munich, where wintertime PV output will average only 20%-25% of summer levels.

Of course, without storage, heat pumps still won’t cover the electricity load at night., PV can meet 25% and 32% of the total household electricity load over the year in China’s ‘Cold’ climate zone and its ‘Hot Summer Cold Winter’ climate zone, respectively. Adding two hours of storage—possibly in a unit that serves an entire village community rather than installing units in each individual household, for safety reasons—would enable PV to meet 42% and 56% of the household load in these regions.

Adding heat pumps can also increase the amount of PV-generated electricity that the household can absorb, from well below 10% without heat pumps to 20%-30%, depending on the climate zone. With storage added, self-consumption can reach more than 40%.

Most importantly, the economics of adding heat pumps to existing solar households is economically compelling, despite their high initial capital costs. In most of central and eastern China, adding heat pumps to existing PV households offers paybacks of between three and six years, versus a new resistance heating or gas boiler. The best payback is evident in a comparison with gas heating. However, even when compared to adding a new clean coal stove, payback periods are attractive in several parts of central and eastern China. The addition of storage, however, substantially lengthens payback periods, even assuming fairly wide time-of-use pricing ranges.

Figure 1: Payback period for Air Source Heat Pumps versus resistance heating, gas heating and coal heating by province

Source: OIES, 2023.

Figure 2: Payback period of PV and Air Source Heat Pumps versus gas and coal, with and without energy storage in Shandong

Source: OIES, 2023.

Overcoming multiple barriers

The low-carbon energy transition affects all parts of society, and in recent decades China has given increased attention and investment to rural areas, aiming both to improve the quality of life through reducing indoor air emissions, and to benefit rural households economically by promoting clean energy. But rural areas face specific barriers, especially when it comes to adopting heat pumps.

The most obvious barrier is public awareness. In urban China, the building of heating systems is largely a matter for building owners and local heating enterprises, while rural residents tend to view building energy efficiency and clean heating as a government responsibility. In rural China, there is low awareness of the potential cost savings from adopting clean heating. Rather, there is widespread acceptance of fossil fuel heating as a historic practice in rural areas, and little awareness or concern about indoor air quality.

Capital costs are a second barrier, given near universal consumer resistance to spending more upfront on efficient devices that save money over time. As in other countries, Chinese consumers’ unwillingness to upgrade building energy systems is connected to a lack of understanding of the factors driving home energy costs, inaccurate estimates of potential savings, and a tendency to base energy decisions on perceptions rather than actual savings. The Whole County PV program could help alleviate this concern by pooling program capital costs with commercial and industrial customers, which may be better able to finance such investments through energy services companies or commercial loans.

Administrative capacity and coordination represents a third barrier. Historically, energy efficiency and clean energy policies in rural areas have suffered from unclear responsibilities, fragmentation among different government bodies, as well as contradictory incentives that lead to poor enforcement and lack of motivation at the local level. Often, policies apply mainly to new buildings, while long-term enforcement and monitoring is lacking. Again, the design of the Whole County PV program could at least help resolve some of these coordination issues.

An opportunity to scale up heat pump adoption

Our research shows that there is significant potential for building on the success of the Whole County PV program. With a combined population that matches the entire population of the US, the participating counties could contribute a huge amount of solar generation in the coming years, even if many counties could fall short of the initial targets. It will be important to look at the Whole County PV program as a model for policies in China and elsewhere as a way to address the economic and other barriers to distributed energy and energy efficiency. Small customers or energy users otherwise see little reason to invest time and energy—let alone money—in changing how they power, heat, or cool their homes.

A move now to scale up heat pump adoption in China could be very important not only to reduce emissions in its own right, but to boost installation of low-cost heat pumps in the developing world, where cooling demand is likely to grow incredibly rapidly in coming years as the planet warms. In China, policy makers mainly focus on clean heating, but demand for cooling is also contributing to power shortages, as demonstrated during the Sichuan outages in 2022. Pairing PV and heat pumps makes sense, because while the main benefit is still cleaner heating, PV paired with cooling also helps with the summertime load peaks.

Given the clear benefits offered by pairing heat pumps with PV, it is important to track the progress of the Whole County PV program closely, and build upon its innovative policy design by being open to incorporating other technologies on the demand side.

By Anders Hove

Senior research fellow at the Oxford Institute for Energy Studies (OIES)

The author is the former project director of the GIZ-implemented Sino-German Energy Transition project. A portion of the research described here was completed as part of the project. The full analysis will be available on the website of the China Energy Programme of the Oxford Institute for Energy Studies.

4.  ESG of EV batteries

Mineral supply chain now firmly in the cross-hairs

New European rules for electric vehicle (EV) batteries are on their way. What will they mean for auto manufacturers and their suppliers around the world?

On Dec 9 2022, the European Council and Parliament provisionally agreed the new EU Batteries Regulation. This will replace the current Batteries Directive. Formal approval is expected later this year.

Due diligence is the key new feature of the updated rules. Companies placing batteries on the EU market, including EV batteries, will need to undertake due diligence on the sourcing, processing and trading of four key raw materials: cobalt, natural graphite, lithium and nickel.

Prevention and mitigation are key elements of the new requirements. Battery manufacturers will need to identify and address actual or potential risks in order to prevent or mitigate adverse impacts of the mineral supply chain in relation to a list of specific categories. Risk categories to be assessed include air pollution, water use, soil protection and biodiversity (environmental) as well as health & safety, labour rights, human rights and community life (social).

Importantly, verification is also required. An approved independent body will need to check that due diligence procedures have been followed. Battery manufacturers must also, on an annual basis, publicly report as widely as possible the steps they taken to comply with the due diligence requirements – including any findings of significant adverse impacts in any of the risk categories listed in the Regulation, and how these impacts have been addressed.

EV auto manufacturers will, in turn, need to check that the batteries they use – all of which are currently supplied by third parties – are compliant with the Regulation. As these new rules would apply 24 months after the Regulation comes into force, they may need to start doing so as soon as 2025.

No matter where those manufacturers are based, their supply chain is likely to touch on certain key geographies. A large portion of the named mineral supply currently derives from sources with significant ESG issues. The Democratic Republic of Congo is a major supplier of cobalt, for instance. Indonesia is a key supplier of nickel.

Meanwhile, China dominates the refining and processing of each mineral, as well as the recycling of EV batteries in general. Indeed, as of 2021, more than 80% of global EV battery recycling capacity was located in China.

This geographic concentration further complicates the challenge of meeting the new requirements. Nonetheless, we think the pressure for companies to make the shift towards more sustainable battery supply chains is strong. We note that civil society was vocal during the consultation period for the Regulation. We therefore think consumer, as well as investor, pressure will drive companies to act.

The impacts of the new requirements will be felt all along the value chain. Those companies who have not already done so will need to undertake detailed assessments of their EV battery supply chains going all the way back to mineral extraction. Battery makers and auto manufacturers who have already done such an assessment, and have responsible sourcing in place, could benefit.

The rules are also likely to have an impact on the battery recycling industry, as the due diligence requirements also apply to recycled versions of the named minerals. One potential consequence is that battery recycling capacity could shift from China to Europe. Indeed, as battery cell production increasingly shifts location to the EU, the incentive to build out European recycling infrastructure to handle the waste from these production plants (as well as the recovered raw materials from end-of-life batteries) will rise.

One final point is that the EU is far from the only jurisdiction taking an interest in EV battery supply chains. For example, COP15 last December saw the launch of the Sustainable Critical Minerals Alliance, with founding members Canada, Australia, France, Germany, Japan, the UK and the US. The aim of the alliance is to promote environmentally sustainable, socially inclusive and responsible mining, processing and recycling practices, as well as responsible critical mineral supply chains. So where the EU is leading in terms of policy today, it is possible that others could follow in the future.

By Linnet Cotterill

This article is contributed by HSBC Global Research. It must be read along with disclosures and disclaimers accessible through here.

5.  Energy transition’s new industrial landscape

Energy transition investment exceeded USD 1.1 trillion dollars in 2022, and for the first time equaled investment in upstream oil and gas and unabated fossil fuel-based power generation. Investment increased more than 30% year-on-year, with investment in renewable energy up 17% and investment in electrified transport up more than 54%.

One aspect of the energy transition is growing even faster than that rapid topline – investment in the factories producing the solar modules, wind turbines, batteries, and electrolyzers that are installed in grids and networks worldwide. Investment in clean technology factories reached just under USD 80 billion in 2022, up 44% year on year, and a four-fold increase since 2018.  Recent global industrial policy developments suggest that last year’s figure is only the beginning of a years-long capacity expansion in the world’s biggest economies.

Today’s clean energy manufacturing investment is highly concentrated in a few sectors. Two products, batteries and solar modules, were 88% of total investment in 2022, down from a high of 95% in 2019. Offshore wind investment has grown from USD 800 million to USD 5.8 billion in five years, onshore wind from USD 900 million to USD 2.6 billion, and electrolyzers from zero in 2020 to USD 800 million in 2022, but these sectors represent a very small share of total capacity expansion investment.

If clean technology manufacturing expansion has expanded around just a few sectors, it is even more concentrated by geography and focused on a single market – China. Five years ago, China took in more than 77% of total manufacturing investment dollars; last year, it received more than 90% of investment in a market four times larger than a half-decade earlier. The substantial disruptions of Covid-19 dropped China’s share significantly in 2021, with Europe receiving nearly a quarter of investment that year. But with that exception, China’s investment in clean technology manufacturing capacity in recent years is between eight and 10 times more than North America and Europe combined.

With the passage of the Inflation Reduction Act, US clean technology manufacturing has been supercharged. The US automotive and battery sectors have announced USD 52 billion in planned new factories since the IRA passed in August of 2022, with half of that outlay for battery production alone. That is more than 20 times the amount announced in 2021. As the CEO of Volkswagen’s Scout brand said in March when announcing its USD 2 billion factory in South Carolina, ‘there’s never been a better time to build a factory in America.’

The IRA (and the CHIPS and Science Act, aimed at enhancing US competitiveness in semiconductors) have not just re-written policy. They have changed where, and how, companies invest. The long timelines of the IRA’s support mechanisms have given manufacturers confidence to expand on multi-year timelines, and the total addressable markets for clean power generation equipment, hydrogen electrolyzers, and electric vehicles are large enough to support major expansion.

US industrial policy largesse, and the speed with which it has spurred investment commitments, has not gone unnoticed, particularly in Europe. As of January of this year, European Union officials were concerned that the IRA essentially discriminated against EU firms. The EU has, though, constructed its own policy response.

Last month, the European Union announced its Net Zero Industry Act, which BloombergNEF head of trade and supply chains analysis Antoine Vagneur-Jones describes as the bloc’s ‘rallying cry for onshoring clean energy manufacturing.’ The NZIA sets a minimum goal that EU factories be capable of meeting 40% of demand for key products such as solar modules, wind turbines, batteries, and hydrogen electrolyzers. The legislation must now pass through year (or more) of EU legislative process.

The NZIA is a substantial announcement, but at the moment it is more a goal than a support mechanism. Vagneur-Jones identifies a set of challenges that will make reaching the EU’s 40% goal difficult. Some are inherent in the nature of the EU’s fragmented governance, where countries themselves still have a significant say in support mechanisms and planning. The US, in contrast, has coordinated federal tax credits, valid in any domestic location. Others are structural. In particular, the NZIA adheres to World Trade Organization law, a stark contrast to the IRA. WTO adherence complicates efforts to set local content requirements.

And importantly, meeting the EU’s goals will incur a cost. Meeting 40% of the EU’s demand for batteries, solar, and hydrogen electrolyzers will require more than USD 70 billion of manufacturing capacity investment between now and 2030, with more than USE 50 billion of that just in the battery supply chain.

It will also incur additional costs for deployment thanks to structurally higher costs for equipment manufactured in the EU: an additional USD 12 billion a year for batteries and USD 3 billion a year for hydrogen electrolyzers.

Batteries provide a clear illustration of the opportunity cost in building substantial EU battery manufacturing capability. Today, battery packs made in Europe are 33% more costly than those made in China. Even with the assumption that battery costs decline in line with their historical 17% learning rate, meeting all of EU battery demand with batteries manufactured within its borders would cost an additional USD 11.9 billion a year in 2030.

That additional cost cannot be wished away. Higher equipment costs also mean a higher cost for stored electricity in stationary applications, and a higher price for automobiles. Those costs will be distributed across millions of vehicle buyers and hundreds of millions of electricity ratepayers, but they will be real.

The major industrial policy moves underway in the US and EU have the potential to remake each country or bloc’s clean technology manufacturing landscape. Already in the US, the IRA’s incentives have brought manufacturing capacity home that would not otherwise be built. The combination of forecast demand and clear and accessible tax credits to support supply are having their effect.

The EU’s moves are still nascent, and they might be more challenged in the future too. The first hurdle is the sheer scale of current importation, for solar in particular. Between January and November 2022, 95% of the EU’s solar module imports came from mainland China. And without the same sort of production-linked credits which the US is deploying, investors may not have sufficient visibility on long-term support to dedicate capital to expansion.

Finally, given the current political climate, the US and EU are unlikely to become clean energy equipment exporting powerhouses anytime soon. With China, East Asia and Southeast Asia all ramping manufacturing, a more realistic goal for Western nations might simply be to meet local demand with local supply. After all, demand is poised to grow massively everywhere. US and EU manufacturers could have plenty to feast on just by eating their own slices of the pie.

By Nat Bullard

Republished with permission from BloombergNEF

6.  News in Brief

European News

EU accelerates renewable energy targets

The EU reached a provisional deal on 30 March 2023 on higher renewable energy targets. It now aims to source 42.5% of its energy from renewable sources like wind and solar by 2030, potentially rising to 45%. The move represents an important pillar of the bloc’s plans to fight climate change and end dependence on Russian fossil fuels. The EU’s current 2030 target is for a 32% renewable energy share. The European Commission has said additional investments of EUR 113 billion euros (USD 123 billion) in renewable energy and hydrogen infrastructure will be needed by 2030, if EU countries are to end their reliance on Russian fossil fuels.

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European Parliament approves key EU climate measures

The European Parliament has approved three major pieces of legislation from its landmark Fit for 55 package. These include reform of the EU’s Emissions Trading System to phase out free allowances in the ETS system from 2026 and to include the maritime sector in the system. Road transport and buildings sector will be included in new ETS II from 2027. The new carbon leakage instrument CBAM also got approval. It is intended to protect EU industry and increase global climate ambition, and is to be phased in from 2026. The third piece of legislation adopts the Social Climate Fund to combat energy and mobility poverty. The texts of these legislation still have to be formally endorsed by Council. They will then be published in the EU Official Journal and come into force 20 days later.

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Nuclear research to benefit from EU funding

On 4 April 2023, the European Commission published an ambitious declaration ‘EU Small Modular Reactors (SMRs) 2030: Research & Innovation, Education & Training’, which is intended to maintain its position as leading developer in the nuclear sector. A EUR 132 million budget for the Euratom Work Programme 2023-2025 will be allocated to researchers for nuclear innovation and technology. This includes the first-ever Innovation Action of EUR 15 million which will be used to support the safety of European Light Water SMRs, and EUR 12 million for co-funding researchers and industry to work together on the safety of Advanced Modular Reactors (AMRs).

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EU opens first call for joint gas purchasing

The EU Energy Platform for joint gas purchasing has initiated its first call for placing demand on 25 April 2023, in a crucial step towards preparation for the next winter and storage filling season. Once the demand is submitted, it will be aggregated as a central buyer and tendered by the AggregateEU service to attract competitive global gas supplies that match the demand. The window to place demand will be closed on 2 May 2023. The tender rounds will occur every two months for the next 12 months, with each round lasting approximately two weeks. This joint purchasing platform is a key instrument to secure stable supplies of gas at lower prices, by reaching new markets and suppliers.

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EU legislates for decarbonisation of car fleet from 2035

The EU has approved a law that prohibits sales of CO2-emitting cars by 2035 and requires a 55% CO2 emissions reduction target for new cars by 2030 compared to 2021 levels. The targets are designed to drive the rapid decarbonisation of new car fleets in Europe. Adoption of the legislation was delayed pending approval from Germany, which finally agreed to a compromise that will permit sales of cars and vans running on e-fuels with captured carbon. The Commission plans publish proposals in the autumn of 2023 for sales of e-fuel-only cars after 2035. Such cars will have to include technology that will prevent them from operating when filled with petrol or diesel.

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Europe’s battery storage capacity to double in 2023

Europe’s battery storage capacity reached 4.5 GW in 2022, with 1.9 GW of grid-scale battery storage installed across the continent during the year. The bloc is expected to add at least another 6 GW of battery storage in 2023, according to a European Market Monitor on Energy Storage (EMMES) report, published by LCP Delta and European Association for Storage of Energy (EASE). Another report by Aurora Energy Research anticipates that Europe’s grid-scale battery storage systems could reach 95 GW by 2050, with Germany, Great Britain, Greece, Ireland and Italy named as the top five markets.

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G7 boosts ambitions on accelerating energy transition

The G7 ministers agreed to speed up the energy transition by setting more ambitious renewable targets in a two-day meeting in Japan on climate, energy and environmental policy. However, they failed to endorse a deadline for phasing out coal. In their communique, the G7 pledged collectively to boost offshore wind capacity by 150 GW before 2030 and to lift solar capacity to more than 1 TW. They aim to achieve at least a ‘predominantly’ decarbonised power sector by 2035. The countries also undertook to reduce additional plastic pollution to zero by 2040, bringing the target forward by a decade.

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Germany shuts down last remaining nuclear reactors

In April 2023, Germany shut down its last three remaining nuclear reactors with a total capacity of 4 GW. The country began phasing out nuclear power more than 20 years ago, but plans were accelerated following Japan’s Fukushima nuclear disaster in 2011. All the reactors were originally scheduled to be shut down by the end of 2022, but the gas supply squeeze stemming from war in Ukraine meant closure of the last remaining plants was delayed until April 2023. The country aims to generate 80% of its electricity from renewables by 2030.

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Germany to ban new oil and gas heating systems from 2024

Germany has approved a bill that outlaws fossil fuel-powered oil and gas heating systems from 2024. All new heating systems are now required to run on 65% renewable energy, while subsidies and exemptions are offered to support the transition. The government plans to offer a 30% subsidy to support residential households with the switch to renewable heating, with an additional 10% subsidy if consumers opt into the transition earlier than required by law. An extra 20% subsidy will be offered to lower-income households. Currently, fossil fuels supply 80% of the country’s heating demand. Studies show that Germany will have to shut down its 500 000 km gas distribution network within the next 20 years as a consequence of the new bill, making 71% - 94% of its existing gas grid redundant.

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Ukraine offers 10 bcm of winter gas storage to Europe

Ukraine has offered 10 bcm of natural gas storage capacity to Europe for the coming winter, according to Oleksiy Chernyshov, CEO of Ukraine’s state-owned oil and gas firm Naftogaz. The extra capacity, which is equivalent to roughly 10% of EU’s current gas storage facilities, could represent a significant reinforcement to Europe’s energy security. Ukraine’s underground gas storage facilities are the largest in Europe, with a capacity of 31 bcm.

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RWE to use wooden wind turbines to lower emissions

Swedish company Modvion has entered into a partnership with RWE Renewables Sweden AB to supply wooden towers for RWE’s future onshore wind farms, which is part of RWE's efforts to increase production capacity while reducing its carbon footprint. Modvion’s module-based wind turbine towers are made of laminated wood, which is stronger than steel in proportion to its weight, making the towers lighter and more practical. The material is particularly suitable for taller towers. Using wood reduces emissions by 90% compared to conventional steel towers of the same height and load, according to a life cycle analysis from the Swedish research institute RISE. The first commercial wind turbine using Modvion’s towers will be installed in 2023, and the company has plans for a 6 MW installation, which will be one of the largest turbines used on land, according to RWE’s press statement.

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Dutch Port of Rotterdam plans green hydrogen cluster

The Port of Rotterdam Authority is planning to develop a 1 GW green hydrogen plant at a facility in Maasvlakte, Netherlands. The announcement comes ahead of a tender for the 2 GW IJmuiden Ver Wind Park, which is expected to be completed by 2028 and will supply electricity to the green hydrogen plant. The facility will also include a 1 GW of electrolysis capacity and a new hydrogen transportation pipeline. The Port of Rotterdam Authority aims to achieve 2 GW - 2.5 GW of electrolysis capacity by 2030, accounting for half of the country’s overall electrolysis target of 4 GW by the same year.

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UK unveils route to net zero

On 30 March 2023, the UK Government announced a comprehensive net zero plan – ‘Powering Up Britain - Energy Security Plan’. This 1 000-page document sets out a long-term plan and a package of measures designed to strengthen the country’s energy security and to reduce emissions, while making energy more affordable. The plan presents guidelines for the acceleration of industries such as renewable energy to boost the UK’s independent energy generation, and also proposes adjustments to existing government schemes to extend their reach in an effort to bring down household energy bills. Planned targets and measures include: the launch of Great British Nuclear; solar power capacity to reach 70 GW by 2035; the provision of GBP 20 billion of investment funds for the early deployment of CCUS; 10 GW of low-carbon hydrogen production capacity by 2030; investing GBP 30 million through the Heat Pump Investment Accelerator and nearly GBP 400 million into infrastructure supporting electric vehicles.

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UK funds innovative renewable energy storage projects

The UK government has disbursed GBP 30 million in funding for projects focused on long duration energy storage for renewable energy to facilitate the modernization of the energy system and testing business cases. GBP 9.4 million will be awarded to Cheesecake Energy from the Net Zero Innovation Portfolio to trial its FlexiTanker technology that stores electricity by integrating compressed air and thermal energy storage; GBP 11 million to Invinity Energy to manufacture and develop a 7 MW, 30 MWh 4-hour Vanadium Flow Battery, and another GBP 9.4 million for Synchrostor to manufacture a Pumped Thermal Energy Storage (PTES) grid-connected demonstration plant running at 1 MW. The announcement comes on top of the GBP 32.8 million funding awarded to five UK energy storage projects in November 2022.

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Denmark opens EUR 168 million Power-to-X tender

Denmark has launched a DKK 1.25 billion (EUR 168 million) Power-to-X (PtX) tender to support production of green hydrogen, which can be used to decarbonise hard-to-abate sectors such as industry and heavy transport. The winning projects will be awarded with a 10-year fixed subsidy based on the volume of hydrogen produced. Only hydrogen that is made using renewable energy sources can compete in the tender. The government will aim to achieve the cheapest price and largest hydrogen amount for the budget. Interested parties have until 1 September 2023 to submit bids. The tender will contribute to Denmark’s ambition to install between 4 GW and 6 GW of electrolysis capacity by 2030.

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Europe’s largest nuclear plant starts operating in Finland

Finland’s Olkiluoto 3 nuclear power plant started producing electricity in April 2023, according to Finnish plant operator Teollisuuden Voima Oyj (TVO). With a capacity of 600 MW, the OL3 plant - Europe’s largest nuclear power plant - will boost Finland’s energy security by increasing domestic production and is intended to be operational for the next 60 years. Finland has five operating nuclear reactors which provide 33% of the country’s generation capacity, according to the World Nuclear Association.

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China News

China outlines standards system for achieving carbon targets

China has unveiled a guideline outlining the structure of a standard system for achieving carbon peaking and carbon neutrality targets. The system includes four primary subsystems covering general standards, carbon emission reduction standards, carbon removal standards, and market mechanism standards, with 15 secondary subsystems. The aim of the document is to address key issues such as accurate carbon emission accounting, reduction, and neutralisation, and to ensure that emissions are quantifiable and tradeable. The standards are intended to provide comprehensive support for key industries and fields to achieve carbon peaking and carbon neutrality goals.

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New target boosts solar thermal power development

China’s National Energy Administration has released a notice proposing an annual installation target of 3 GW of solar thermal power (CSP) until 2025. At the end of 2022, China’s accumulated installed CSP was just 588 MW, representing 8.3% of global capacity. The new notice highlights the significance of CSP technology in providing vital flexibility such as peak shaving and energy storage. It also calls for the roll out of CSP projects to be accelerated by integrating with the development of new energy bases in desert areas. Power grid companies are requested to give priority support to grid connection and dispatching of solar thermal power projects.

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Zero tariff policy for coal imports to be extended until end 2023

China has decided to extend zero tariffs on coal imports until the end of 2023. The zero tariffs policy, announced in April 2022 by Chinese Ministry of Finance, was scheduled to end on 31 March 2023. Amid concerns about supply disruptions and global market uncertainties, the extension is intended to safeguard the country’s energy security. Coal import volumes will be determined by the coal price difference at home and abroad. China’s coal imports have surged in 2023 following a sharp fall in coal prices on the international market.

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China’s coal imports jump to three-year high

China imported 41.17 million tonnes of coal in March 2023, the highest monthly level of the past three years, according to data from the General Administration of Customs. Energy companies are buying more coal in anticipation of a post-Covid demand recovery and following the removal of curbs on cheap Australian coal imports. In the first quarter of 2023, China’s coal imports almost doubled compared to the relatively low levels recorded in 2022. Import volumes are set to grow further as the economy recovery boosts domestic coal demand.

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New deals to boost China-France energy cooperation

France and China signed several deals on energy cooperation during a recent state visit to China by French President Emmanuel Macron. French utility EDF and China National Nuclear Corporation have renewed their long-standing partnership on nuclear power. EDF and China Energy Investment Corporation have agreed to build an offshore integrated smart energy island in Jiangsu Province with a total installed capacity of 1.5 GW. China State Power Investment Corporation also signed a framework collaboration agreement with EDF on low carbon innovations, including onshore wind, energy storage and urban energy services; a further agreement on smart energy with Schneider Electric will see joint exploration of third country markets. French container shipping line CMA CGM has placed a USD 3 billion order with the China State Shipbuilding Corporation (CSSC) for 12 methanol dual-fuel 15 000 TEU vessels and four liquefied natural gas (LNG) dual-fuel 23 000 TEU vessels. Cosco Shipping, CMA CGM and the Port of Shanghai have additionally signed a MOU to collaborate on green marine methanol supply.

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Carbon impact analysis required for all new investment projects

China’s National Development and Reform Commission (NDRC) is to require a carbon impact analysis to be included in the feasibility studies for all new investment projects in the country. Local governments and enterprises will not only need to predict and calculate the total annual carbon emissions of the project and the carbon emission intensity of major products, but will also need to propose a carbon emission control plan. The new requirements also stipulate a broader analysis of the project’s impact on regional carbon targets. The analysis has to be included in the feasibility study report, which is a prerequisite for obtaining government approval, bank loans, and hence implementation of a project in China.

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China opens consultation to update voluntary carbon market methodologies

China’s environment ministry has launched a public consultation, seeking new methodologies and revisions to existing methodologies intended to generate voluntary carbon credits under the nation’s China Certified Emission Reduction (CCER) scheme. Registration of new projects under the CCER scheme has been paused for the past five years and the credits circulating today are from projects registered before 2017. The consultation process signals a relaunch of the scheme, which is expected to ease the current supply shortage and high prices of CCERs. The environment ministry said baseline settings of the existing methodologies need to be updated, while additionality needs to be justified to prove that cuts to emissions are directly linked to a project. The consultation is due to close on 30 April.

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China’s first solid-state hydrogen storage project starts operation

China Southern Power Grid’s ground-breaking solid-state hydrogen storage facility has begun operations. This is the first project to use solid-state hydrogen generated by PV power. It offers a solution to the issue of how to store hydrogen in solid form under normal temperature conditions, and achieves flexible conversion between green power and green hydrogen. The technology is based on a chemical reaction between hydrogen and a new-type of alloy material. When the ambient temperature of the alloy is raised, the hydrogen gas is released and converted into electricity through a fuel cell. The project represents a milestone for large-scale hydrogen production from renewable energy, supporting the development of new power systems.

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China plans trans-regional hydrogen pipeline

China is planning its first ‘west-to-east’ green hydrogen pipeline to transport clean energy from Inner Mongolia’s Unlanqab to Beijing, marking the nation’s first cross-regional hydrogen transmission pipeline. According to Ma Yongsheng, Chairman of Sinopec, the 400 km pipeline will initially transport 100 000 tonnes of hydrogen per year, with the potential to increase to 500 000 tonnes. Once operational, the pipeline will bring low-carbon hydrogen produced from renewable-rich Inner Mongolia and other western regions to Beijing-Tianjin-Hebei region, replacing fossil fuel-based hydrogen production.

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New breakthrough achieved in hydrogen blending

PetroChina (CNPC) announced in April that it achieved a blending ratio of 24% on its 397 km Ningdong hydrogen blending demonstration pipeline. This provides technical support for China’s future large-scale, low-cost long-distance hydrogen transportation. As of the end of 2022, China had 185 000 km of oil and gas pipelines. When the hydrogen blending ratio reaches 20% or above, these pipelines have the potential to transport more than 10 million tonnes of hydrogen, equivalent to more than 560 TWh of green electricity. This new breakthrough signals that it will be possible to achieve significant hydrogen cost savings.

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Green product exports rise 66.5% in Q1 2023

Green products dominated a surge in China’s exports in the first quarter of 2023, particularly passenger EVs, lithium batteries and solar panels. Customs statistics show a 66.9% growth in exports of these products, raising the country’s overall export growth by two percentage points. Exports of passenger EVs saw the highest growth with an increase of 122.3%. The export of lithium batteries also grew over 94%, driven in particular by foreign electric vehicles and household energy storage markets, while solar panel exports rose 23.6% in Q1.

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CATL targets carbon neutrality across all operations by 2035

China energy storage giant Contemporary Amperex Technology Limited (CATL), the world’s largest battery manufacturer, has committed to achieve carbon neutrality in its core operations by 2025 and across its entire value chain by 2035. The company identifies five ‘key links’ across its value chain in reducing emissions: mining, bulk raw materials, battery materials, cell manufacturing and battery systems. The company has also launched a transparency audit program called CREDIT to report on some key metrics in order to raise sustainability awareness in the industry. CATL sold 289 GWh of batteries around the world in 2022, holding a 43.4% share in the stationary storage market and a 37% share in the EV market by sales volume.

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China’s ‘artificial sun’ achieves breakthrough

The experimental advanced superconducting tokamak (EAST), or ‘artificial sun’, achieved a steady-state high confinement plasma operation for 403 seconds in April, a key step toward development of a fusion reactor. The ultimate goal of EAST, located at the Institute of Plasma Physics under the Chinese Academy of Sciences (ASIPP) in Hefei, is to create nuclear fusion like the sun, using substances abundant in the sea to provide a steady stream of clean energy. Fusion energy is considered safer and cleaner, and therefore the ideal ‘ultimate energy’ for the future of humanity. At present, the engineering design for the China Fusion Engineering Test Reactor (CFETR), which is seen as the next-generation ‘artificial sun’, is now completed. The project is expected to be the world’s first fusion demonstration reactor.

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China completes world’s largest chemical looping combustion facility

The world’s largest chemical looping combustion (CLC) demonstration facility was completed recently at Dongfang Boiler Co Ltd, with a thermal power of up to 4 MW. The facility is a key piece of the China-Europe Emission Reduction Solutions (CHEERS) project, bringing CLC technology from the laboratory into an industrial large-scale application. CLC low cost carbon capture technology costs less than one-third of traditional carbon capture technology and has the potential to provide significant environmental and social benefits in high-emission industries such as electricity, heating, petrochemicals, chemicals, and oil and gas. The project is a collaborative research effort between China and the EU, jointly funded by China’s Ministry of Science and Technology’s key R&D program and the EU Commission’s Horizon 2020 program, providing a new technical solution for carbon capture in industrial combustion, which is known to have high energy consumption and cost.

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China sees first yuan-settled LNG trade

In March 2023, China’s National Offshore Oil Corporation (CNOOC) and French TotalEnergies completed China’s first yuan-settled purchase of imported LNG through the Shanghai Petroleum and Natural Gas Exchange. The transaction involved the purchase of 65 000 tonnes of LNG sourced from the UAE, which currently exports LNG from Adnoc’s LNG plant in Das Island. TotalEnergies, which has a 5% stake in the facility, will offtake the volumes. The transaction marks a significant milestone in China’s efforts to reform its oil and gas market and facilitate multi-currency pricing and cross-border payments.

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7.  Featured Publication

Global Electricity Review 2023

Ember’s fourth annual Global Electricity Review aims to provide the most transparent and up-to-date overview of changes in global electricity generation in 2022 and a realistic summary of how ‘on track’ the electricity transition is for limiting global heating to 1.5 degrees. The report analyses electricity data from 78 countries, representing 93% of global electricity demand, and includes estimated changes in the remaining generation. It also analyses emissions from the top CO2 emitters which account for over 80% of global CO2 emissions. One key takeaway from this report is that global emissions from power generation may already have peaked in 2022: clean power growth is likely to exceed electricity demand growth in 2023, and fossil generation will see a small fall in 2023 with bigger falls in subsequent years as wind and solar capacity expands. A new era of falling power sector emissions is at hand.

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Making energy regulation fit for purpose: state of play of regulatory experimentation in the EU

This report by the Joint Research Centre of the European Commission investigates the role of regulatory experimentation as an innovation tool in EU Member States. It identifies forms of regulatory experimentation adopted, areas of experimentation, stakeholders involved, emerging trends and lessons learned. The analysis, based on existing literature, desk research and interviews with competent authorities, includes initiatives already implemented at national level, as well as those under development or still in the planning phase. It gives an overview of the main regulatory developments to show the direction EU Member States are taking, and reflects on the potential impact of EU level guidance to support the implementation of regulatory experimentation initiatives in individual Member States.

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Europe Gas Tracker Report 2023

In the ongoing fallout from Russia’s invasion of Ukraine, the rush to secure gas supplies threatens a massive overcapacity buildout: Europe is pursuing an expensive and uncoordinated expansion of LNG import infrastructure, which could result in a 136% increase in capacity. Global Energy Monitor’s annual review of data in the Europe Gas Tracker Report indicates that up to 227.2 bcm/yr of additional LNG terminal import capacity could be added to the bloc at a cost of EUR 22.1 billion. This additional infrastructure, born out of crisis conditions, is at risk of ending up as stranded assets: it is likely to be supplanted by cheaper renewable energy long before the end of its lifetime. The report also notes that the case for a mass build out of EU hydrogen transmission network is a weak one, primarily because of the cost and issues with retrofitting gas pipelines to carry hydrogen.

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Balancing Act: Stranded Assets and Flexibility in China’s Power Sector

This report from the UK by the Carbon Tracker Initiative think tank discusses how to balance stranded coal-fired power assets and flexibility in China’s power system, which is crucial for the country’s shift away from coal towards clean energies in meeting the carbon neutrality targets. The report argues that with the scale of planned coal power capacity additions, these assets may end up with significant financial risks. To reduce these risks, the report recommends cancelling or mothballing all planned coal units that are not critical for grid balancing or district heating. It also suggests facilitating more price discovery and flexible inter-provincial trading, and expanding options for short-term power trading and flexibility. Finally, the report suggests that while retrofitting coal units for greater flexibility have a positive impact, economic incentives are necessary for coal plants to invest in these technologies.

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Technical Report of China Carbon Neutrality Investor Map

－China SDG Investor Map Phase II

The United Nations Development Programme (UNDP) has developed the SDG Investor Map, a market intelligence tool for investors and businesses to identify investment opportunity areas (IOAs) with potential to generating both business returns and development impact. It is designed for use by all stakeholders for business strategy development, policy-making and consultancy. While the Phase I report focused on the health and agriculture sectors, this Phase II report, co-developed with China-based securities company Industrial Securities, focuses on China’s dual carbon goals, and explores investment opportunities in the circular economy, as well as renewable energy. Within the report, 18 IOAs are identified under seven sub-sectors, each with 20 data points. These data points cover essential information such as industrial landscapes, regional locations, business models, investment returns, policy enablers, market infrastructure, development needs, SDG tagging, impact indicators and more. (SDG is an acronym for Sustainable Development Goals.)

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Also by EU-China Energy Cooperation Platform Project

2020

EU China Energy Magazine Spring Double Issue

EU-China Energy Magazine Summer Issue

中欧能源杂志夏季刊

EU-China Energy Magazine Autumn Issue

中欧能源杂志秋季刊

EU-China Energy Magazine 2020 Christmas Double Issue

中欧能源杂志2020圣诞节双期刊

2021

EU-China Energy Magazine 2021 Spring Double Issue

中欧能源杂志2021春季双期刊

EU-China Energy Magazine 2021 Summer Issue

中欧能源杂志2021夏季刊

EU China Energy Magazine 2021 Autumn Issue

中欧能源杂志2021秋季刊

EU China Energy Magazine 2021 Christmas Double Issue

中欧能源杂志2021圣诞节双刊

2022

EU China Energy Magazine 2022 February Issue

中欧能源杂志2022年2月刊

EU China Energy Magazine 2022 March Issue

中欧能源杂志2022年3月刊

EU China Energy Magazine 2022 April Issue

中欧能源杂志2022年4月刊

EU China Energy Magazine 2022 May Issue

中欧能源杂志2022年5月刊

EU China Energy Magazine 2022 June Issue

中欧能源杂志2022年6月刊

EU China Energy Magazine 2022 Summer Double Issue

中欧能源杂志2022年夏季雙刊

EU China Energy Magazine 2022 September Issue

中欧能源杂志2022年9月刊

EU China Energy Magazine 2022 October Issue

中欧能源杂志2022年10月刊

Digest of the Handbook on Electricity Markets - China Edition

Digest of the Handbook on Electricity Markets - International Edition

电力市场手册 （精华版）- 中国发行

电力市场手册 （精华版）- 国际发行

EU China Energy Magazine 2022 November Issue

中欧能源杂志2022年11月刊

EU China Energy Magazine 2022 Christmas Double Issue

中欧能源杂志2022年12月刊

2023

EU China Energy Magazine 2023 February Issue

中欧能源杂志2023年2月刊

EU China Energy Magazine 2023 March Issue

中欧能源杂志2023年3月刊

EU China Energy Magazine 2023 April Issue

Joint Statement Report Series

Electricity Markets and Systems in the EU and China: Towards Better Integration of Clean Energy Sources

中欧能源系统整合间歇性可再生能源 - 政策考量

Supporting the Construction of Renewable Generation in EU and China: Policy Considerations

中欧电力市场和电力系统 - 更好地整合清洁能源资源

支持中欧可再生能源发电建设: 政策考量

ENTSO-E Grid Planning Modelling Showcase for China

ENTSO-E 电网规划模型中国演示

Accelerating the Incubation and Commercialisation of Innovative Energy Solutions in the EU and China

加速中欧创新能源解决方案的孵化及商业化

Comparative Study on Policies for Products’ Energy Efficiency in EU and China

中欧产品能效政策比较研究

欧盟和中国的能源建模报告

Integration of Variable Renewables in the Energy System of the EU and China: Policy Considerations