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

中欧能源杂志2023年4月刊

EU China Energy Magazine EU Energy Innovation Special Issue

中欧能源杂志2023年欧盟能源创新专刊

EU China Energy Magazine 2023 May 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.  Reforming the EU internal electricity market will not suffice to deliver EU aims

2.  Navigating China’s transition to a clean and reliable electricity future

3.  China’s CO2 emissions hit Q1 record high after 4% rise in early 2023

4.  What does the EU’s Net Zero Industry Act mean for Chinese renewables firms?

5.  Cleantech manufacturing: where does Europe really stand?

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,

Welcome to the May issue of the EU-China Energy Magazine!

In this issue, we continue our discussions about some key issues in the energy transition, such as power system flexibility and clean tech manufacturing, while keep track of the latest policy and market developments in the energy sector in the EU and China.

Our first article delves into the question of whether a reform of the EU power market alone would be sufficient to achieve EU’s goal of energy security and decarbonisation. Professor Jean-Michel Glachant, writing for the Oxford Energy Forum, explores the complexities and conditions necessary for a successful transition.

Like the EU, China faces the urgent task of managing the rising output from variable renewable energy sources while ensuring supply reliability and security by incorporating flexibility into its energy system. Our second article examines the challenges associated with increasing power system flexibility and highlights some key considerations for Chinese policymakers.

Next, we look at China’s record-breaking CO2 emissions in Q1 2023. We examine the reasons behind this alarming increase and look at the prospects for emissions amidst the somewhat contradictory context of strong growth in low-carbon energy and new coal expansion.

Taking centre stage in recent EU-China energy discussions is the EU's Net Zero Industry Act. The Act, designed to bolster EU’s local clean tech manufacturing, has sparked considerable debate in both China and the EU. This issue features two articles on the subject, providing a comprehensive examination of the Act and its implications: one article looks at the potential impact of this Act on Chinese renewables companies, drawing on the views of industry insiders and analysts; the second piece assesses Europe’s current standing in the diverse manufacturing landscape of different clean technologies, comparing their manufacturing capacity and development levels, and providing a better understanding of whether Europe can secure a competitive edge in clean tech manufacturing.

We hope you enjoy this issue of the EU-China Energy Magazine. Please feel free to reach out to us with any feedback or contributions you may have.

Dr. Flora Kan

ECECP Team Leader

1.  Reforming the EU internal electricity market will not suffice to deliver EU aims

We need to wonder if a reform of the EU internal electricity market would suffice to deliver EU energy security, decarbonization, and electrification. Regrettably, this is not the case. Let us be frank: this market reform, this entry into an era of ‘hybrid electricity markets’, is a condition for success but only a necessary condition, not a sufficient one. Why? Let us consider four other conditions for success to make this point clearer. Decarbonization and electrification face (1) other direct constraints, such as adequacy of grids and infrastructure; (2) indirect constraints, such as the allocation of decision rights between the EU level and the member states; and other types of constraints, both external and internal to the energy field, such as (3) the EU Central Bank monetary policy and member states’ public budget financing and (4) existing international trading and manufacturing chains.

It is therefore equally true to say that the existing EU market reform does not change all the fundamentals in the European energy policy, and that the EU energy landscape, post market reform, will require more effort, more attention, and more coordination from public and private energy decision-makers.

Direct constraints: adequacy of grids and infrastructure

When decarbonization and electrification trends displace the technology frontier to wind farms, photovoltaic (PV) panels, heat pumps, and electric vehicles, the reality of electricity flows must still deal with the reality of grids and system operation. The four countries leading the EU’s offshore expansion are targeting 65 GW in their northern seas in 2030 (more than France’s existing nuclear fleet) and 300 GW in 2050 (2.2 times France’s total generation set). Where are the transmission lines to move all of this? Will the corresponding enormous power flows only be canalized among these northern maritime countries, or will they also feed many other EU countries—and in the latter case, with which lines, interconnections, or corridors? How can citizens in the Benelux be persuaded to accept construction of power lines that pass through their countries to supply power to Italy, Austria, and perhaps elsewhere? How should the grid in the North Sea and beyond be financed?

The same can be said of offshore wind, solar PV, and distribution grids. For example, the European vision of the solar future expressed in RePowerEU in May 2022 is 320 GW of PV by 2025 and 600 GW by 2030. Are there distribution grids ready to connect and manage this supply? One can also consider heat pumps and electric vehicles in the future. The EU would like to double its number of heat pumps to 10 million in 2027. Are the distribution grids ready for this? The Dutch distribution grids are already quite congested, and the Belgian grids are starting to be. And what would ‘being ready’ mean?

In the past, flow constraints in distribution grids were considered a given, and grids had to be adapted to overcome them in a ‘fix and forget’ manner. Today, research shows that new investments in distribution grids can vary by 40–50 per cent if the users of the grid behave differently and become proactive. How can users be incentivized to adapt and react to the reality of grid constraints, peaks, congestion, and investment costs? Should it be by creating new markets, local markets, new grid usage rules, or new connection agreements, or by giving grid managers new grid congestion management rights?

This reasoning could be extended to other assets and investments needed to secure and operate the grids—such as large storage, demand response, and other balancing reserves—to deliver security and resilience of electricity systems by 2030 and 2050.

Indirect constraints: allocation of decision rights between the EU level and member states

A comprehensive reform of the EU internal electricity market is likely to have three pillars: long-term contracts for price hedging, long-term contracts for energy delivery, and long-term contracts for capacity building. Aside from market reform, another key condition for the success of Europe’s energy transition aims is related to grids and infrastructure adequacy.

Frankness and realism immediately show that, in each of these four key areas, the member states and not the EU have the core decision-making rights. The EU mainly intervenes via the numerous European grid codes for flows operation, and the coordination of power exchanges and transmission system operators through ‘market coupling’. It is somewhat paradoxical that an ideal reform of the internal electricity market would reinforce so deeply the role of public authorities in each country but would not consider at all how to better coordinate the new European web of long-term contracts. Regarding the elementary microeconomics of collective action, one might say that the EU as a whole will face a consistent ‘moral hazard’ issue. Each country will directly combine the way it wants to handle its four key areas of decision-making; but many core results will affect Europe as a whole and only appear at the EU level: for example, dependence on imported fossil fuels, sensitivity to fossil price shocks, sharing of new decarbonized assets through interconnection and market coupling, and resilience against new types of energy shocks created by worsening climate change.

Certainly, we already have some European tools addressing some similar issues: the studies made by the European Network of Transmission System Operators – Electricity ENTSOE (the 10-year network development plan and the adequacy study), the financing granted to Projects of Common Interest through the EU network policy, and the National Energy & Climate Plans (and the corresponding regulation of Energy Union governance). However, all these tools suffer from two main limits: they were conceived to work within the former internal electricity market framework, and they are all quite deeply entrenched in their respective silos. A new system of European governance has to be carefully thought through and practically implemented to reach the level of coordination that the EU will need to successfully accelerate its decarbonization and deepen its electrification. The challenges that European industry and the European economy will face in the new world geopolitics in the three decades up to 2050 do not allow us to make many mistakes or lack cohesion.

Constraints external to the energy sector: EU Central Bank monetary policy and member states’ public budgets

Unfortunately, the success of Europe’s market reform aims also faces hard constraints external to the energy sector, which means that one cannot expect much benevolence and leniency there. Among these are the EU Central Bank’s monetary policy and the member states’ public budgets.

EU monetary policy should have stayed outside our review, because the European Central Bank’s leaders are openly addressing climate change, and have put it in their general policy framework, which is remarkable. But the current inflationary wave has created a much more urgent priority for them. The Bank is no longer willing to sustain the ‘easy money’ policy that it had adopted for a long time, and a tightening of monetary and financial policy is the new normal. This may last for a long time, as the Bank is not willing to impose a rapid and brutal tightening of policy but rather prefers a significant but softer and longer hardening. It is not obvious that this softer tone will not depress companies’ and households’ willingness to invest. How will the EU then accelerate its investments in both decarbonization and electrification?

The size and speed of investment flows are not the only concern here. Most decarbonization investments are in capitalintensive options with low variable costs (such as wind, solar, storage assets, and building refurbishments). The total cost of these actions is then strongly impacted by rises in interest rates. Even if interest rates stay under the current inflation trend, the total cost of many decarbonization actions is jumping today and will push up the European price for decarbonization.

The second part of this monetary and financial lock is member states’ public budgets. In 2021, member states enjoyed €750 billion more funding at the EU level, as the post-Covid extraordinary recovery instrument supplemented the ordinary European budget of €1,000 billion for 2021–2027, but things have tightened since. More than €700 billion was spent in 2021–2022 by EU governments only to feed current energy and fossil fuel consumption, and this crisis is expected to last through 2023 and 2024. The cost of the Commission’s RePowerEU plan, if implemented by the member states, was evaluated in May 2022 at €300 billion. The cost of addressing the lack of Russian gas in 2023 has been put by the Internal Energy Agency at €100 billion. While the prospects for growth in the EU are seen as very slim if not negative, where will governments find the financing to accelerate decarbonization and electrification? Of course, the macroeconomics of such energy transition investments and expenses are good for economic growth, as was demonstrated in an Oxford 2020 study with Stiglitz and Stern, but where can the initial financing be found?

Furthermore, financing the acceleration of the energy transition at the member state level not only competes with more redistributive expenses that governments might prefer in an atmosphere of energy crisis, but might also have to compete with other types of macroeconomic stimuli. The new understanding of ‘green macroeconomics’ is less rosy than that of 2019–2020. Many decarbonization and electrification actions require investments today to obtain the same amount of services as yesterday. These investments do not increase industry productivity or consumption satisfaction. They ‘only’ reduce an externality: climate change. This means that the effort to invest de facto reduces the available amount of ‘market wealth’ that can be redistributed. It is literally an effort.

The new ‘sobriety’ wording gives some of that meaning. When starting this effort, we have to be sober with appropriable wealth and promises of consumption. This is a difficulty not yet factored into the ‘fair and green growth’ policy that the EU has made popular since 2019. Of course, citizens and decision-makers will find ways of absorbing this new approach and giving it a sense, for example as a duty to build a sustainable future for future generations or as pride in constructing or reconstructing sustainable industry and a sustainable economy in the EU, responding to the strong geopolitical turmoil that we face until 2050. All of this is doable, sensible, and positive, but it has to be done—the sooner the better.

Constraints internal to the energy sector: existing international trade and manufacturing chains

It is more and more understood in the EU that the worldwide global economy is fragmenting, and that new geopolitics and geoeconomics have come or are coming, with a still undefined shape and a new set of rules but a clearly different direction to 20 years ago at the birth of this century. It is pointless here to wonder why, but we need to ask ourselves what the possible consequences are for the success of the current European market reform aims.

The first obvious consequence concerns European energy security. For 10 years (1994–2004) the European Commission president, José Manuel Barroso, was unconvinced that Russia and its leaders could be fully trusted. An immense majority of other European leaders, business leaders, and presumably public opinion thought the opposite. As Jean Monnet (the ‘founding father of Europe’) used to say, doing business appeases tensions and if you do not become friends you might at least become partners respecting a few basic rules for a peaceful neighbourhood. This actually worked well between France, Benelux, and their former enemies Germany and Italy, but finally not with the core of the former USSR: Russia. Therefore, the EU and Russia are divorcing. As Russia was our first supplier of oil, coal, and gas, this divorce is economically and financially traumatic. Together, as the EU, we have not decided to replace our dependence on Russia with exactly the same dependence on other countries. We will instead try to accelerate our independence from fossil fuels by accelerating decarbonization and electrification. Our decarbonization has for the moment several pillars, the biggest being renewables (e.g. hydro, wind, solar, geothermal, biomass, and biogas) and another being low-carbon options like nuclear or fossil fuels with Carbon Capture and Storage. In addition, our electrification (for example with heat pumps and electric vehicles) is conceived as expanding our decarbonization beyond today’s uses of electricity. We also know that electricity will not be a universal vector for all energy uses, and we are preparing a green low-carbon hydrogen sector (with methanol and ammonia) for heavy transport as a part of maritime and air traffic plus parts of industrial processes. How much clean hydrogen the EU will import and from where remains an open question.

A less obvious but equally important factor is other industrial chains, notably ones centred on manufacturing. Will the EU keep quietly importing solar panels, wind turbines or key components of wind turbines, heat pumps, and other equipment from remote foreign countries? If we really want to accelerate our decarbonization and strengthen it as a component of our energy security, shouldn’t we build an entire European manufacturing chain for these supplies? We have already realized that we need to Europeanize the manufacturing of electrical batteries for our coming wave of electric vehicles. What else should we see similarly?

As ‘green manufacturing chains’ are fed at their roots by many ‘green critical materials’ like lithium, cobalt, and rare earths, how should the EU organize the basic supply of these key strategic components? Are we going to open mining activities for those materials in Europe? There is enough lithium for batteries in Europe, but it is so difficult to get a permit... Or is it better to import a maximum to avoid public opposition?

The EU is discovering what dependence is in a deglobalizing world and what alternative options are doable, with their pluses and minuses. We have to build a minimum base of European sovereignty to be sure to be able to achieve our core strategic aims. It is doubtful that we can do it separately in each of our 27 countries. We shall do it in some kind of European sovereign cooperation: to be explored, tested, and then duly implemented. Having a reformed electricity markets helps, but does not deliver all the steel for that armour.

Conclusion

A new market configuration combining long-term contract arrangements and short-term central markets is not a surprise discovered during the European crisis. Leading electricity researchers at the Massachusetts Institute of Technology arrived at the same conclusion when studying the main consequences of the push for decarbonization in the US. Both the US and the EU are entering a new era of hybrid electricity markets combining private and public dimensions. What the EU adds to this general finding is a need to build strongly independent European energy security when accelerating the decarbonization push and the electrification pull.

Left alone, the reform of the EU internal electricity market cannot guarantee the success of the core European aims.

By Jean-Michel Glachant,

Professor at the Florence School of Regulation, European University Institute

This article was originally published on Oxford Energy Forum and is republished with permission from the Oxford Institute for Energy Studies

2.  Navigating China’s transition to a clean and reliable electricity future

As China ramps up its renewable energy production, it is becoming ever more urgent for it to manage the fluctuating energy yields of wind and solar by incorporating flexibility into its energy system. Demoting coal power to play a supportive role in the power system not only offers a short-term solution for satisfying the demand for flexibility. It also provides valuable time for strategic planning to support the large-scale deployment of clean replacements, like battery storage and green hydrogen.

In the past decade, China's power sector has seen a significant increase in renewable generation, rising from approximately 740 TWh in 2010 to 2 300 TWh in 2021. Wind and solar power account for about 60% of this surge; in 2020, generation from wind and solar equalled total electricity generation in Japan, the world’s third largest economy. By contrast, the share of coal in China’s generation mix has fallen from more than 70% in the mid-2010s to less than 60% in 2022[1].

However, achieving China’s ambitious dual-carbon goals – peaking carbon emissions before 2030 and achieving carbon neutrality before 2060 – will require an even more profound clean power transformation. Such targets cannot be met simply by building more renewable energy projects: they require an overhaul of the entire power system to accommodate major changes in the generation mix. A crucial aspect of this system overhaul is improving the flexibility of the power system, defined by the International Energy Agency (IEA)[2] as the ability of a power system to reliably manage a high degree of uncertainty and variations in electricity demand and supply in a cost-effective manner.

Wind and solar are highly weather dependent. Hydropower – another major form of clean energy – is dispatchable on short time scales, yet much of China’s hydro is seasonally variable due to the seasonality of rainfall and the country’s relatively small reservoirs. Balancing these variable energy sources requires adequate energy storage and backup capacity, as well as a strong infrastructure and well-functioning electricity markets that facilitate flexibility.

China, like many other countries, has yet to establish this flexible capacity because the current system was initially designed to support large-scale thermal power plants, not intermittent renewable sources.

The urgency to fill the flexibility shortfalls in China’s power system

China’s power sector has been plagued by recurring crises in recent years, underscoring the urgent need to improve the flexibility of the country’s power system to cope with abrupt changes in renewable generation.

In September 2021, the country experienced its worst power crisis in a decade[3], resulting from reductions in coal supplies and rising fuel prices. This exposed the inability of coal power to compensate for the renewable energy shortfalls caused by drought in southwest China and windless weather in northeast China, both of which impacted hydro and wind generation.

A year later, a record-breaking heatwave sparked a surge in demand for air conditioning, exacerbating the impact of scant rainfall on hydro-reliant provinces like Sichuan, in southwest China[4]. Even operating at full capacity, local thermal generators were unable to meet the supply gaps. Limited connectivity to local grids and inflexible long-term supply contracts also made it virtually impossible to divert some hydropower exports to satisfy local electricity needs. This led to industrial users curtailing their operations and calls for reduced electricity usage in homes, office buildings and shopping malls.

In early 2023, Yunnan, another hydro-reliant province in southwest China, experienced a period of low rainfall. This led to widespread concerns about electricity shortfalls, with energy-intensive factories, such as local aluminium smelters, being asked to curtail their production[5].

Barriers to the wider adoption of clean flexibility technologies

Drawing on input from domain experts, a recent report[6] jointly released by the Centre for Research on Energy and Clean Air (CREA) and the International Society for Energy Transition Studies (ISETS) highlights the various techno-economic, infrastructure and market issues that are hampering widespread adoption of clean flexibility technologies, such as battery storage, green hydrogen, and thermal energy storage.

Pumped hydro is a technically mature technology, but its potential is restricted by geological limitations, high development costs, long lead times, and lengthy payback periods. Moreover, it takes 5-6 years to construct a pumped hydro station, which means it cannot address the current flexibility shortfalls in China’s power system.

Despite substantial cost reductions, battery storage systems require significant upfront investment, and this continues to present a major obstacle to their wider adoption. The challenge is further compounded by the recent surge in prices for raw materials and battery components[7].

Clean hydrogen offers promise as a long-duration energy storage solution. However, its wider adoption depends on resolving several techno-economic challenges, such as the high costs of hydrogen production and the safe storage and transportation of hydrogen. Meanwhile, most thermal storage technologies, apart from molten salts storage, are still in the early stages of development and have yet to be commercialised.

To enable more active demand-side response, innovations such as smart meters, advanced sensors, and communication technology are needed to automatically monitor and regulate electricity-consuming activities. However, the development of this infrastructure is hampered by a lack of standardisation and protocols, as well as concerns about data security and privacy.

Although China has taken action to address these pressing issues and promote the deployment of clean flexibility technologies, including pumped hydro, battery storage, and green hydrogen, it is unlikely to achieve significant progress in the short term, particularly to the degree necessary to match China’s rapidly expanding variable renewable generation.

Deeper power connectivity: the challenges confronting moves to increase flexibility

Deeper power connectivity could help unlock substantial flexibility in China’s existing power system. Through effective sharing of complementary renewable resources like hydro, wind, and solar, which are distributed unevenly throughout the country, deeper power connectivity could reduce the need for expensive reserve and backup capacity and broaden the scope of supply- and demand-side options for managing the variations in renewable generation.

Recent developments demonstrate that the Chinese government has recognised the importance of power connectivity and intends to accelerate the development of a unified national power market. However, implementing market reform remains challenging.

Starting in the mid-1980s, China has several times embarked on efforts to reform its electricity markets. The most recent initiative, outlined in Several Opinions on Further Deepening Power Sector Reform by the Central Committee of the Communist Party of China issued in 2015, aims to improve the efficiency of electricity supply by establishing a market for electricity trading that is ‘fair, normative, efficient, competitive, open-access, and non-discriminative’. Additionally, in 2022, the central government signalled its intention to accelerate the reform process and create a unified national market for electricity.

Nevertheless, despite the efforts of the past three decades, cross-provincial and cross-regional power trade in China has remained relatively low. Most of this trade has relied on inflexible long-term plans or deals that offer limited scope for short-term adjustments.

Preparing for a clean flexible electricity system: Coal power’s transitional role

Given the short-term challenges of rapidly scaling up clean flexibility capacity and implementing electricity market reforms, an immediate pragmatic step that China could take would be to transition its large coal power fleet from its current role as baseload provider to a supportive role that provides ancillary and capacity services to the power grid. Doing so would provide time to plan for a more flexible power system that can handle large output from variable renewable energy sources.

As recommended in the joint report by CREA and ISETS, such a step should acknowledge that innovation is critical to prepare clean flexibility technologies for wider adoption. However, increased R&D support alone is insufficient for a task of this scale: a more systemic approach is needed. The report advocates an approach that includes three aspects:

‘Demand pull’ through indicative planning and market reform. Although the need for a more flexible electricity system to enable higher levels of renewable penetration is acknowledged, it is not fully reflected in the official requirements for system flexibility in China. To formalise this requirement, energy planners could integrate the need for system flexibility into the planning process by introducing long-term indicative targets that would drive investment in storage capacity and network augmentation. They could also consider establishing technology-neutral markets for procuring ancillary and capacity services. Such moves would help coal power to transition to a new, supportive role in China’s power system while enabling the gradual integration of clean flexibility technologies into the system as they become more competitive.

‘Technology push’ by addressing factors that block innovation. Factors that block innovation may include a lack of industry standards, difficulties in getting access to the necessary financial resources, and misalignment between the priorities of research and education and industrial requirements. Addressing these factors requires a multidisciplinary approach that should include various measures, such as R&D support, financial incentives, better information sharing, and support for market introduction of new technologies.

Policy learning and adaptation. The dynamic and multi-faceted nature of the innovation process highlights the importance of learning from experience. This process involves a cycle of problem-solving attempts through the repeated analysis of issues that emerge during policy implementation and experimentation with possible solutions. To facilitate these iterative processes, it is important to monitor and evaluate the impact of individual policies and involve stakeholders in envisioning, negotiating, learning, and experimenting.

Conclusion

The power system is a complex network of interdependent and interconnected elements that includes technology, network infrastructure, market mechanisms, regulatory frameworks, and planning processes. These elements interact in various ways to ensure the efficient and reliable functioning of the system. Therefore, the introduction of major changes to any of these elements, such as increasing the share of renewable generation, will entail transformative changes throughout the entire system.

The rapidity of China’s transition towards renewable generation poses a significant challenge to achieving such a systemic overhaul, particularly given the need to enhance the flexibility of the system to handle variations introduced by weather-dependent renewable energies. While China is not alone in this struggle, the problem it faces is on a much larger scale than in many other countries.

Demoting coal power to play a supportive role in the power system not only provides short-term relief but also creates the space for strategic planning towards a clean and more flexible power system capable of handling large output from variable renewable energy sources while maintaining supply reliability and security. This article highlights some aspects that policymakers may like to consider when devising such a plan.

By Muyi Yang, Associate Director of Clean Energy, Society Policy Institute;

Xunpeng Shi, Research Principal, Australia-China Relations Institute;

Xing Zhang, Former CREA Senior Analyst, CREA;

Ye Yuan, Communication Officer, Ember

3.  China’s CO2 emissions hit Q1 record high after 4% rise in early 2023

China’s carbon dioxide (CO2) emissions grew 4% in the first quarter of 2023, reaching a record high for the first three months of the year.

The new analysis for Carbon Brief, based on official figures and commercial data, shows the increase was driven by an economic rebound after the end of China’s long zero-Covid policy, stimulus measures and weak hydro generation due to an ongoing drought.

Looking at the rest of the year, the government’s focus on economic growth means that China’s emissions are likely to reach an all-time high in 2023, topping the previous peak in 2021.

The medium-term picture is less clear. The first quarter of 2023 saw further approvals for new coal power capacity, after a sharp increase last year. In the same period, additions of wind and solar capacity both reached record highs, with nuclear also accelerating.

The growth of low-carbon energy means new coal capacity is not guaranteed to raise China’s emissions – and recent high-profile criticism could mean more scrutiny of coal expansion.

The rapid expansion in low-carbon energy, if sustained, could enable emissions to peak and enter structural decline, once the post-Covid recovery has played out.

China’s CO2 emissions hit record for Q1

The new analysis shows that China’s CO2 emissions grew 4% in the first quarter of 2023, compared with a year earlier. This means first-quarter emissions were the highest on record, exceeding the previous peak reached in the first three months of 2021.

The first quarter of each year is highlighted red in the figure below, which also illustrates the yearly cycle in China’s emissions. (The first quarter usually has the lowest emissions each year, as it includes the annual Chinese New Year celebrations.)

China’s quarterly CO2 emissions from fossil fuels and cement, million tonnes of CO2. Emissions are estimated from National Bureau of Statistics data on production of different fuels and cement, China Customs data on imports and exports and WIND Information data on changes in inventories, applying IPCC default emissions factors and annual emissions factors per tonne of cement production until 2019. Monthly values are scaled to annual data on fuel consumption in annual Statistical Communiques and National Bureau of Statistics annual Yearbooks. Chart by Carbon Brief using Highcharts.

Emissions increased due to rising demand for fossil fuels, with oil consumption up 5.5%, coal by 3.6% and gas by 1.4%, while cement production climbed 4.1%.

There are multiple reasons for these increases, including a rebound in the economy after the end of China’s zero-Covid policy, government financial stimulus for manufacturing and infrastructure construction, as well as an ongoing collapse in hydropower generation due to low rainfall.

(There was a difference in the change in CO2 emissions in the first quarter calculated from apparent fuel consumption and changes in consumption reported by the National Bureau of Statistics, with the first approach giving a year-on-year increase of 5.7% and the second approach 3.8%. The difference was almost solely due to differing coal consumption growth rates, of 5.9% and 3.6%, respectively. Such differences are typical for preliminary data.)

Why China’s CO2 emissions went up

Looking at specific sectors, the largest contributor to rising emissions was electricity generation – as shown in the figure below – where power output from coal increased by 2%.

China’s CO2 emissions in the first quarter of 2023, broken down by sectors. Emissions are estimated from National Bureau of Statistics data on production of different fuels and cement, China Customs data on imports and exports and WIND Information data on changes in inventories, applying IPCC default emissions factors and annual emissions factors per tonne of cement production until 2019. Monthly values are scaled to annual data on fuel consumption in annual Statistical Communiques and National Bureau of Statistics annual Yearbooks. Chart by Carbon Brief using Highcharts.

The increase in coal-power output came despite relatively limited growth in electricity demand, which grew by 3.6% compared to the same quarter a year earlier.

Coal power grew regardless, due to ongoing poor hydro output, which has been falling due to droughts and low rainfall since summer 2022.

If hydro generation had been at average levels, coal power would have fallen slightly. Moreover, the overall rise in China’s emissions would have been 0.6 percentage points slower.

Since 2021, China has been making major efforts to boost domestic coal production in the name of energy security. Production reportedly grew 11% last year. Despite higher domestic supply, however, China’s coal imports nearly doubled in the first quarter of 2023.

As noted in CREA’s previous analysis for Carbon Brief, the expansion of domestic mining was accompanied by a sharp fall in the average calorific value of coal produced in China, meaning each tonne contained less energy.

This degraded quality of domestically produced coal, combined with rising demand for the fuel, led to the increase in imports during the first three months of this year.

The ongoing need for imports shows the limits of the government’s energy security push. It also weakens the economic competitiveness of domestic coal mining and power generation, as the targeted reduction in prices and increase in supply of domestic coal fails to materialise, despite major investments and efforts.

Electricity demand growth was driven by industry, where consumption increased by 4.4% and accounted for 78% of the rise overall.

With China ending its zero-Covid policy, the demand for electricity from the service sector also increased, as people spent more time in offices, public and commercial spaces. At the same time, household power demand fell, as people spent less time at home.

The second-largest reason for the growth in emissions was higher production volumes of construction materials, mainly steel and cement, which increased 6% and 4% respectively across the first three months of the year. In March, this growth accelerated to 7% and 10% respectively.

The rise in heavy industry output and emissions have caused concerns over a rollback of the air quality improvements made in recent years, especially in the capital Beijing.

The Chinese government did not issue any air pollution action plan last winter, for the first time since 2017. These plans have included restrictions on heavy industry output. The lack of a plan was reportedly seen as a signal that industrial output took precedence over air quality.

The third-largest factor was greater use of oil products, which increased 6.5% driven by resumption of transportation activity. Jet fuel consumption, in particular, rebounded sharply as a result of the end of China’s zero-Covid policies. This was to be expected, as zero-Covid had depressed air travel volumes during the past years to a fraction of pre-pandemic levels.

China hits symbolic clean-energy milestone

While China’s emissions increased again in the first quarter of 2023, the country also passed a symbolic milestone for the capacity of electricity generation from non-fossil sources.

These sources, including renewables and nuclear, passed 50% of China’s installed power capacity for the first time, overtaking coal and other fossil fuel-based capacity.

Solar installations increased to a record 34 gigawatts (GW) in the first three months of the year, nearly tripling the previous high of 13GW in the same period of 2022. (For comparison, total UK solar capacity has been stuck at around 13GW for the past five years.)

New wind power installations also reached a record for the first quarter. The 10.4GW added in the three months to March 2023 was an increase of 32% over the period in 2022.

These records for wind and solar are shown in the figure below.

Meanwhile, nuclear power plant approvals and construction have also sped up. By the end of 2020, China had 50GW in operation and 16GW under construction.

With 27GW of capacity under construction and 57GW in operation, the country is on track to have 70GW in operation and 30GW under construction by 2025. Two reactors have started construction and one has started generating electricity this year.

New power generating capacity additions, GW, shown as cumulative totals year-to-date. Source: China Electricity Council data via WIND Financial Terminal. Chart by Carbon Brief using Highcharts.

For 2023, China is targeting 160GW of new wind and solar capacity. It beat its target of 120GW for 2022, installing 125GW by the end of the year.

If the 160GW target is met, the additional capacity would generate enough to cover a 3% increase in China’s electricity demand. Demand growth is likely to be even larger in 2023, due to the economic rebound and government stimulus, meaning coal power output will also increase.

However, the growth in low-carbon supplies is accelerating towards the long-term rate of electricity demand growth. When low-carbon power growth matches – and then exceeds – the annual increase in electricity demand, the sector’s CO2 emissions will peak.

An important part of China’s strategy to scale up wind and solar is building large ‘clean energy bases’ in the country’s desert regions, abandoned coal mines and other marginal land.

CREA’s earlier analysis for Carbon Brief found that such bases were going to enable China to meet its 2030 wind and solar capacity target years earlier than planned.

These bases are being developed in a series of batches, the first two of which included 97GW and 200GW of capacity to be completed by 2025. Essentially all of the projects in the first batch, published in 2021, have reportedly already started construction. In the first quarter of 2023, the list of new projects for the third batch of clean energy bases was approved.

To achieve the various wind and solar ambitions of central and local governments, including the clean energy bases, annual capacity additions will need to continue accelerating in 2024-25.

CREA previously compiled the plans for a total of 570GW of new wind and solar capacity to be added during the 14th five-year period (2021–25). A more up-to-date assessment raised this to 870GW.

If installations in 2023 reach the 160GW target, then 385GW will have been added in the first three years of the five-year period, leaving up to 240GW per year to be added in the next two years.

China’s new wave of coal power continues

Low-carbon capacity is not the only source of energy being expanded in China, however.

China saw a sharp increase in planned coal power capacity in 2022, with the total amount of capacity planned to be in operation in 2030 rising by 10% (126GW) due to new project announcements, permitting decisions and re-activation of previously shelved projects.

Another 10GW of coal power projects were approved in the first quarter of 2023.

China’s local governments permitted approximately 100GW of new coal power capacity in 2022, equivalent to 100 large coal-fired power plants and the largest wave of approvals since 2015. The amount of newly permitted capacity waved through by local officials quadrupled from 2021.

Besides permitting, other new project activity also accelerated, with 50% more construction starts and twice as much new capacity announced as in 2021.

The capacity of coal power plants that started construction in China in 2022 was six times as large as that of the rest of the world combined.

Perhaps counterintuitively, however, this new wave of coal power plants is not being driven by increasing annual demand for electricity. The real driver is concern about meeting peak demand.

China has seen a rapid increase in electric peak loads in recent years, with the highest recorded momentary load increasing by 210GW (20%) from 2020 to 2022.

This dramatic increase resulted from the steadily rising prevalence of air conditioners coupled with record-high temperatures in 2022, after two cooler-than-average summers.

People fish on a hot day as a cargo ship travels along China’s largest freshwater lake, Poyang Lake, in Jiangxi, on 28 August 2022. Credit: IC Photo

Record peak demand, a historic drought and heatwave, and inflexible grid management, resulted in power shortages in many parts of the country last summer.

These events triggered the start of the new wave of provincial government coal plant approvals, with an apparent green light from the central government, evidenced by the energy regulator targeting 165GW of coal power construction starts in 2022–23.

Yet building new coal plants to cover demand peaks of just a few days or months per year is a costly and sub-optimal solution. Moreover, 50% of newly announced coal projects and 40% of construction starts last year took place in regions with ample capacity to cover demand peaks.

The Chinese energy regulator said in a document published in early 2022 that no new coal power plants would be permitted if their sole purpose was bulk power generation. The evidence from the last year suggests this policy is not currently being enforced.

Local governments are making maximum use of the window of opportunity to permit new coal plants. New construction projects are a boon to local governments, boosting economic growth and increasing demand for construction materials and services from local state-owned enterprises.

Even if this new infrastructure is not fully utilised, any risks of default on the debt used to build it tends to fall to the central government, which controls the banking system.

Many new coal projects went from being announced to receiving permits, obtaining finance and breaking ground on construction within a matter of months last year. This left little space for scrutiny or consideration of alternatives.

Indeed, several provinces permitted or announced a round number of 10 large coal power projects, suggesting that symbolism was more important than careful planning of how much was needed.

What do China’s new coal plants mean for emissions?

Contrary to widespread perception, China’s new wave of coal power plants will not automatically translate into an increase in its coal use or CO2 emissions.

Indeed, the combination of rapid expansion of low-carbon energy supplies and expected slower electricity demand growth means China’s annual coal power output could soon start to decline.

Moreover, such an outcome is implied by president Xi Jinping’s pledge that China would reduce coal consumption during its next five-year plan period from 2026-30.

This apparent contradiction of higher coal capacity, but lower coal use and emissions, could come about, if a larger fleet of coal plants sees declining utilisation. This would mean the average coal plant running for fewer hours each year, reducing its profitability.

On the other hand, plant operators and local governments are expecting to generate more electricity and revenue from the newly built plants. These economic and political interests would need to be managed, if coal power output and average utilisation is indeed going to fall.

These interests could also influence how quickly China’s CO2 output falls after peaking, as well as any other emissions targets that are put in place in the future.

For example, the pressure to make use of the newly built coal power plants could trigger lobbying that could slow down China’s low-carbon energy buildout, or could encourage growth in energy-intensive industries so as to increase electricity demand.

This is what happened after the previous wave of coal power plant permitting in 2015. Lobbyists argued that the development of renewable energy had been ‘too fast’.

A contraction in renewable capacity additions followed, allowing demand for coal power generation to grow and for coal power plants to increase their operating hours.

One way to maintain the economics of coal plants while cutting their running hours would be to give them ‘capacity payments’. These would allow plants to make money not just for the electricity that they generate, but also for the regulated capacity that they provide to the system.

The government’s plan for economic and social development in 2023 includes studying such capacity payments.

(The expectation of capacity payments could provide additional motivation for coal power groups to pursue new projects.)

A coal carrier berthed at a coal terminal in Jiangsu, China, on 12 January 2023. Credit: IC Photo

The recent wave of new coal permitting has faced some high-profile criticism, most notably from Wang Zhixuan, former general secretary of the China Electricity Council (CEC). He called for tight controls on new projects based on assessment of local needs and warned against going down the ‘old path’ of large-scale newbuild and replacement of small units with larger ones.

Zhou Dadi, the former director general of the Energy Research Institute under China’s state economic planner the National Development and Reform Commission (NDRC), said in an interview that increasing coal power capacity is not the best solution to power shortages.

Zhou acknowledged that energy enterprises still rely on ‘traditional’ energy for their core business and that they are accustomed to using familiar thermal power plants – usually coal – to solve new problems. However, he added that this would only work in the short term and could have negative impacts in the future.

Another article in the Economic Daily, a newspaper published by China’s State Council, defended new coal power plants. However, it said the new plants should be ‘drip irrigation’, being installed in the places where electricity was needed the most, rather than the current ‘flood irrigation’.

The article also warned that excessive new coal power capacity and a corresponding decline in utilisation rates would make it harder for China to achieve its climate goals.

These high-profile criticisms could indicate that new coal projects will face more scrutiny.

What is the outlook for China’s emissions in 2023?

While the balance between low-carbon energy and coal power will take time to play out, the outlook for China’s emissions in 2023 is already clear.

Both current trends in the first quarter and domestic projections indicate that China’s CO2 emissions will increase in 2023, likely topping the previous peak in 2021.

China’s CO2 emissions in 12-month moving sum, broken down by cement, gas, oil, coking coal and steam coal. Emissions are estimated from National Bureau of Statistics data on production of different fuels and cement, China Customs data on imports and exports and WIND Information data on changes in inventories, applying IPCC default emissions factors and annual emissions factors per tonne of cement production until 2019. Monthly values are scaled to annual data on fuel consumption in annual Statistical Communiques and National Bureau of Statistics annual Yearbooks. Chart by Carbon Brief using Highcharts.

China’s emissions over the last 12 months are shown in the figure below, which illustrates the rising trend as well as the previous peak in 2021.

Emissions are likely to grow this year because the government is pursuing a broad-based approach to economic recovery that seeks to boost exports, manufacturing output and construction, in addition to a rebound in private consumption.

This includes a sharp increase in bank lending and investment, particularly towards traditional targets for government stimulus measures such as new manufacturing capacity, transportation infrastructure and energy production.

In the power sector, the CEC expects that barring surprises with the weather, electricity consumption will increase by about 6% in 2023 due to the economic rebound.

The targeted wind and solar growth of 160GW will meet half of this demand growth, which still leaves space for coal power generation to grow.

Guosen Securities, a state-owned financial services company, expects coal consumption to grow 3.5% in 2023, with a 4% increase in power generation, 3% increase in the steel industry and in building materials, and a 5% increase in the chemical industry.

The expanding wind and solar installations are, however, reaching a scale where they will likely cover long-term average growth rates in power demand, bringing an emissions peak in the power sector within reach after this year’s rebound.

As transport continues to rebound from zero-Covid, oil consumption is projected to increase by 5%, according to the China Petroleum Economic and Technological Research Institute (ETRI). Demand for petrol, diesel, jet fuel and other refined fuels could rise 9% and demand for gas by 5%.

One factor that could affect these expectations is that the government is reportedly planning to limit 2023 steel production below 2022 levels, which would mark the third year of stable or falling steel production, after reductions of 3% and 2% in 2021 and 2022.

Given that steel output increased by 6% in the first three months of the year and has continued at high levels in April, this would mean a drop-off in the rest of the year.

Looking at energy demand overall, China Energy News expects an increase of around 3% in 2023. After accounting for the expected increase in low-carbon energy production, this would imply a 1% increase in CO2 emissions as fossil fuels make up the difference. In contrast, the projections by CEC, Guosen Securities and ETRI imply an increase of around 4%.

Beyond 2023, a continued rapid expansion of low-carbon energy could enable emissions to peak and enter into a structural decline, once the post-Covid recovery has played out.

Data for the analysis was compiled from the National Bureau of Statistics of China, National Energy Administration of China, China Electricity Council and China Customs official data releases, and from WIND Information, an industry data provider.

Power sector coal consumption was projected based on power generation, to avoid the issue with official coal consumption numbers affecting 2022 data.

When data was available from multiple sources, different sources were cross-referenced and official sources used when possible, adjusting total consumption to match the consumption growth and changes in the energy mix reported by the National Bureau of Statistics.

CO2 emissions estimates are based on National Bureau of Statistics default calorific values of fuels and IPCC default emissions factors. Cement CO2 emissions factor is based on 2018 data.

For oil consumption, apparent consumption is calculated from refinery throughput, with net exports of oil products subtracted.

By Lauri Myllyvirta, Lead analyst at CREA

Qi Qin, China analyst at CREA

Republished with permission from Carbon Brief and Centre for Research on Energy and Clean Air (CREA)

4.  What does the EU’s Net Zero Industry Act mean for Chinese renewables firms?

Industry insiders and analysts share their views on the new proposal to spur Europe’s clean tech manufacturing.

An employee of Eno Energy works on a wind turbine bearing in Rostock, Germany (Image: Jens Büttner/ Alamy)

A newly proposed European act aimed at boosting local manufacturing capacity of clean technologies is unlikely to directly impact Chinese companies, industry insiders have told China Dialogue.

The Net Zero Industry Act intends to strengthen the competitiveness of the European Union in technologies like wind turbines, solar panels, heat pumps and carbon capture and storage, by driving domestic production. It was put forward on 16 March by the European Commission, the EU’s primary executive body.

Sources in Chinese renewable firms told China Dialogue that it will be ‘very hard’ for the EU to build complete manufacturing chains internally, especially if it wants to hit its renewable energy targets. They also said Chinese firms have sped up expanding into other overseas markets to mitigate the impact of possible EU and US restrictions.

European analysts agreed the act should not substantially impact Chinese firms, but gave different reasons. Some said its purpose is to provide a better policy environment for the EU’s clean tech industry, rather than to come ‘with all guns blazing’.

Others noted that even though the act sets a goal of at least 40% of Europe’s clean tech being locally produced by 2030, the language is ‘blurry’. One Belgium-based professor said the proposed act ‘in principle’ shouldn’t affect Chinese companies because it does not require clean tech producers to source a certain amount of components from local suppliers.

Part of a wider green plan

The Net Zero Industry Act – alongside a Critical Raw Materials Act proposed on the same day – is part of a much broader plan called the Green Deal Industrial Plan.

The plan is widely considered the EU’s answer to the Inflation Reduction Act, which aims to boost US manufacturing capacity for clean tech through US$369 billion of subsidies. The US act, which was signed into law last August, sparked fears that companies would leave Europe to set up shop across the Atlantic.

But the Net Zero Industry Act differs from the subsidies-heavy American approach, in focussing on administrative support, such as cutting red tape for green industries.

This is because Europe is ‘inherently more complex’, and providing subsidies is not usually a measure EU-level policymakers can take, Domien Vangenechten, senior policy advisor at thinktank E3G, told China Dialogue. Besides, the EU has ‘a quite limited budget’.

Therefore, the European Commission is trying to ‘provide a space’ for member states to come up with subsidies and tax incentives themselves, Vangenechten said.

A week before the act was proposed, the commission adopted a policy that loosened some rules on how EU member states could provide aid to companies.

According to Vangenechten, the Temporary Crisis and Transition Framework gives member states ‘the options to provide more support’ for green technology manufacturing until the end of 2025.

He explained: ‘It introduces the possibility [for member states] to give tax breaks, for example. It also gives them the option to match subsidies’ that projects could have been given by countries outside the EU.

But he pointed out that the framework contained ‘guardrails’. For example, member states have to prove subsidies will only make a project competitive, not ‘lead to windfall profits’.

According to law firm White & Case, states also have to demonstrate that foreign subsidies would otherwise cause a given project to leave the EU, and that their aid will not cause companies to relocate from one European country to another.

The relaxation of the state-aid rules amounted to the EU ‘stepping up its green subsidy race with the US’ in the Guardian’s words.

How will the act work?

The cornerstones of the Net Zero Industry Act are eight net-zero technologies identified as ‘strategic’. These include solar, wind, batteries and carbon capture and storage; nuclear has not made the cut.

The act sets a headline benchmark for the strategic technologies. By 2030, EU manufacturing capacity for each should approach or reach ‘at least 40%’ of the bloc’s annual deployment needs.

A series of actions are in the pipeline. For example, the act intends to reduce the administrative ‘burden’ and simplify project permitting processes – issues that have restricted the growth of some industries in Europe, such as wind power.

‘A lot of the permitting processes are done locally. They’re not necessarily super digitalised,’ Pierre Tardieu, chief policy officer at WindEurope, a trade association, told China Dialogue. ‘Even though people want more wind, working through that red tape takes too much time.’

The act also requires public authorities to consider ‘sustainability and resilience’ criteria – not just cost – while awarding contracts and ranking bids.

It will now go on to be discussed between the European Commission, the EU Parliament – the bloc’s law-making body – and the European Council, which comprises government ministers of each EU country.

Is European production realistic?

In 2021, China was the EU’s largest import partner for wind turbines and solar panels. The bloc is especially dependant on Chinese solar panels. Statistics from the EU show that it imported nearly €10 billion worth of solar panels in 2021, of which 89% came from China.

‘Our dependency on Russian gas has taught us a number of lessons. Let’s not replace that dependency with a reliance on others to produce solar panels and other technologies we rely on,’ Thierry Breton, European commissioner for internal market, said of the act.

But industry players in China see a Herculean task for the EU to grow home-based manufacturing chains, particularly given the pressure on the bloc to hit its climate and energy goals.

The EU aims to have ‘at least 32%’ of its overall energy consumption supplied by renewables by 2030 and is looking to increase the portion to ‘at least 40%’. Overall, it plans to cut its greenhouse gas emissions by ‘at least 55%’ by 2030, compared to 1990 levels.

A senior director at a Chinese solar panel firm told China Dialogue that they do not think the act will affect Chinese solar manufacturers ‘that much’.

One of the reasons is that renewable firms are motoring to secure markets in the rest of the world, such as the Middle East, Central Asia and Eastern Europe, in preparation for potential trade measures taken by the EU or the US.

China holds a market share of more than 80% in all key manufacturing stages of solar panels globally, according to the International Energy Agency.

Workers making solar photovoltaic panels for export in Lianyungang, Jiangsu province (Cynthia Lee / Alamy)

The source, who agreed to speak on condition of anonymity, said it will be ‘very hard’ for the EU to build a domestic manufacturing chain for solar panels from head to toe because of its current high reliance on Chinese firms and the high cost of production. ‘Even if they manage to build it, the final products will be really expensive,’ they added.

Another reason is that the act was proposed to ‘prevent the European clean energy industry from moving to the US’, not to block Chinese companies, the source said.

Besides, the bloc ‘might not be able to hit its 2030 clean energy installation targets’ if it wants to rely on domestic production at all stages.

The EU aims to bring online almost 600 gigawatts (GW) of solar photovoltaic power by 2030, more or less tripling its capacity compared to the end of 2022.

The source explained further that European companies might be able to localise some of the mid-to-downstream production for solar panels, such as cells and modules, but it would be difficult for them to develop upstream production.

They said, for example, the production of polysilicon, an upstream stage, requires a large amount of electricity, ‘but electricity in Europe is expensive’.

‘Further actions’ needed

The wind industry presents a different picture: 85% of EU demand is currently met by EU production, according to the European Commission.

But the figure could include some wind turbines produced in China for European firms.

Data from China’s Wind Energy Association show that more than two-thirds of the world’s wind turbines are manufactured in China, including those made for foreign brands. For example, more than half of the global orders by Vestas – the Danish wind turbine manufacturer owning the largest global market share in 2021 – are delivered by the company’s manufacturing bases in China, according to the Chinese association.

The EU will need 440 GW of wind energy by 2030, doubling the current capacity, to meet its emission reduction goal, according to Tardieu of WindEurope.

Gu Limin, a senior director at Envision Energy, a major Chinese wind turbine manufacture, said he expects the act to have ‘not much’ impact on Chinese turbine manufacturers ‘for the time being’ because the EU is not a ‘key’ market for Chinese wind turbine firms for now.

But he pointed to the need for financial incentives for EU manufacturing to actually happen. ‘In the long term, it will need to depend on whether EU member states would take further actions to benefit local manufacturers, such as hefty subsidies,’ Gu told China Dialogue. ‘Without that, it will be hard [for manufacturing] to return [to the EU].’

Views from China-focused analysts are similar. ‘Setting super ambitious targets is always the easy part,’ Cosimo Ries, a renewable energy analyst at Beijing-based consultancy Trivium China, told China Dialogue.

‘But whether the EU can actually succeed in building up entire supply chains and manufacturing capacity across so many industries at the same time... very much remains to be seen.’

Ries added that how the EU plans to respond to Chinese companies that want to open factories in the bloc ‘will be very interesting’.

Views from Europe

European experts interviewed by China Dialogue foresee the act having no major impact on Chinese firms. They also believe that Chinese companies should still be able to set up manufacturing bases in Europe in the future.

‘We’ll probably welcome them with open arms,’ said Berlin-based Vangenechten, of E3G.

However, experts have split opinions on the implications of the act’s proposed measures, especially its 40% benchmark.

Vangenechten described the percentage as the EU’s ‘aspirational goal’ – not a requirement – to ensure the bloc’s access to these clean technologies in the event of global emergencies and geopolitical tensions.

He said that, in broad strokes, it refers to ‘all aspects of the production of these critical and strategical clean technologies’.

‘This is a 40% target for, for example, how many windmills are installed in Europe, but [it’s] also about every little component, every magnet that gets produced that will go into that windmill,’ Vangenechten said, adding that adjustments might well be made in a few years if one of the technologies is not on track to hit the benchmark.

Ignacio Arroniz Velasco, a researcher on trade and climate at E3G based in Brussels, interprets the act as a signal of action by the EU, rather than a threat to Chinese exports.

‘Chinese companies are not going to lose access to the EU market. They’re not going to lose access to possibilities of selling their products to companies that install solar panels,’ Arroniz said.

‘The difference would be that there is now a clear signal that Europe is in the race for clean tech manufacturing as well, and that it will bring its own tools to the race.’

But some experts think the domestic production benchmark could be perceived as ‘trade-distortive subsidies’, which are prohibited by the World Trade Organization. Roberta Pierfederici at the London School of Economics (LSE) in the UK, not part of the EU, is one of them.

Pierfederici works as a policy analyst at the LSE’s Grantham Research Institute on Climate Change and the Environment. She said that like the Inflation Reduction Act, the Net Zero Industry Act ‘could play a powerful role’ in driving the innovation of private sectors, but the prospect of government subsidies ‘could trigger global trade tensions’.

However, Pierfederici expected the EU–US subsidies competition to ‘accelerate the development and diffusion of green technologies in China as well as other countries’ because it could foster innovation and generate ‘knowledge spill-overs’.

She also foresaw the potential for competition between the US, EU and China to drive down the cost of green technologies in the long run and, therefore, contribute to meeting global climate goals.

Other experts were more critical. The Brussels-based thinktank Bruegel voiced concern over ‘protectionism’ after a draft of the act had been leaked before the final proposal was published.

Reinhilde Veugelers is a professor at KU Leuven in Belgium, and a senior fellow at Bruegel and the US-based Peterson Institute for International Economics.

Veugelers is ‘pretty disillusioned’ by the proposed act because the text paints ‘a blurry picture’. She said the act, especially the 40% benchmark, leaves ‘a lot of unclarity’.

‘Is it something they’re just going to monitor and see how far we get?’ Veugelers asked. ‘Or if the target is not being met, would that lead to more support?’ she added.

‘What it definitely means for China is that the [EU] market is not closed. It just means that [products] need to be locally produced.’

Companies from China should still be able to open factories in the EU, Veugelers added. ‘In that respect, it’s not completely protectionist.’

By You Xiaoying

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

5.  Cleantech manufacturing: where does Europe really stand?

A single European Union cleantech manufacturing capacity target should be based on an understanding of the situation in each cleantech sector.

Securing a competitive edge in cleantech manufacturing has increasingly come to be seen as a priority for Europe. China’s dominance of this sector and the subsidies offered under the United States Inflation Reduction Act (IRA) (Kleimann et al, 2023), compelled the European Commission in February 2023 to publish a Green Deal Industrial Plan with the goal of boosting the European cleantech sector and speeding up the transition towards climate neutrality (European Commission, 2023a). The industrial plan’s regulatory pillar is the draft Net Zero Industry Act (NZIA), which includes a target for the European Union by 2030 to have the capacity to manufacture at least 40 percent of its cleantech deployment needs (European Commission, 2023b).

Assessing Europe’s cleantech manufacturing capacity

Meanwhile, basic facts on the status of cleantech manufacturing in Europe are missing from the discussion, which has so far been mainly about global shares of cleantech manufacturing capacity (Figure 1). When looked at from a high-level perspective, China is dominant[8] but this perspective does not allow the situation in Europe to be captured fully.

To address this, we provide an overview of Europe’s current cleantech manufacturing capacity and compare it to current cleantech deployment levels. This assessment is useful for two reasons. First, it allows for a better appreciation of the scale of the EU’s manufacturing capacities. Second, it shows that adopting a one-size-fits-all 40 percent manufacturing target, as proposed under the NZIA, may make little sense considering the very different situations of different clean technologies.

A caveat is here important. A significant share of European cleantech production is currently destined for export and not the EU domestic market. We ignore this trade dimension and compare only domestic cleantech manufacturing capacities to deployment levels, thus taking an approach that is similar to the NZIA and its 40 percent headline target[9]. Our analysis covers the manufacturing and deployment levels of five technologies pinpointed by the NZIA: solar photovoltaic (PV) panels, wind turbines (onshore and offshore), electric vehicle batteries, heat pumps and electrolysers (Figure 2).

Data details from figure 2

A variable picture

Figure 2 shows the limited scale of the EU solar PV industry. EU countries installed 41.4 GW of new solar PV capacity in 2022, while EU manufacturers only produced 1.7 GW of wafers, 1.37 GW of cells and 9.22 GW of modules (SolarPower Europe, 2023). In other words, EU solar manufacturers, had all their output been deployed in the EU, would have met only 4 percent, 3 percent and 22 percent of solar deployment needs, respectively.

For wind turbines, however, Europe is well placed. In 2022, EU countries installed 19.2 GW of new wind power capacity in 2022: 16.7 GW onshore and 2.5 GW offshore (Wind Europe, 2023). In 2021, for onshore wind capacity, EU manufacturers produced 17 GW worth of turbine blades, and more than 11 GW of nacelles and towers (Wind Europe, 2023), equivalent to 102 percent and 71 percent of the deployment needs of the following year. For offshore capacity, they produced blades, nacelles, and towers equivalent to 2.9 GW, 6.7 GW and 7 GW respectively (IEA, 2023), or the equivalent of 116 percent and 286 percent of the deployment needs of the following year.

Meanwhile, over 90 percent of clean energy transition-related additions to battery capacity in the EU in 2021 were related to electric vehicles (Bielewski et al, 2022). European electric vehicle sales in 2021 amounted to 2.3 million units, roughly equivalent to a battery capacity of 156 GWh (see Table 1 in the annex for details). But domestic battery manufacturing capacity hovered around 60 GWh, or the equivalent of about 38 percent of the domestic deployment needs (but currently representing only about 7 percent of global manufacturing capacity) (IEA, 2022).

Heat pumps produced in Europe mostly serve the domestic market. In 2021, global heat pump production capacity (excluding air conditioners) was 120 GW. The EU contributed about 19 GW and accounted for 68 percent (Lyons et al, 2022) of Europe’s 2.18 million newly installed heat pumps[10]. China supplies most compressors for air-air pumps, while Europe remains the main source for air-water and ground-source pumps.

Finally, water electrolyser manufacturing capacity in Europe stands currently between 2 GW and 3.3 GW per year (Hydrogen Europe, 2022), many times more than the current installed capacity, which is equal to 0.16 GW (European Commission, 2023c). The wide disparity between the current manufacturing capacity and deployment is explained by delays between investment decisions and operational deployment, lack of hydrogen demand compared to supply capacity, and regulatory bottlenecks. It is noteworthy that EU electrolyser manufacturing capacity is still far from the 17.5 GW/year target set for 2030[11].

Too easy for some, too hard for others

One implication of this analysis is that applying the same 40 percent manufacturing target to each cleantech sector as set out in the NZIA proposal, may make little sense considering the very different situations of different clean technologies. For solar panels, reaching this target would be very challenging and likely very costly, while it would be much easier (and even too conservative) for other technologies, including wind turbines and batteries. It is also unclear to what extent the target would apply to the components and materials used in the identified clean technologies. This is a crucial issue, because access to these components is often a major bottleneck for domestic manufacturing in Europe (Le Mouel and Poitiers, 2023).

Instead of setting cleantech production targets, the EU would better focus on facilitating private sector investment in cleantech by providing the right enabling framework conditions. That is the only course of action that might ultimately secure Europe a competitive edge in cleantech manufacturing.

Annex: Data on European cleantech manufacturing and deployment capacities

Source: Brugel based on SolarPowerEurope, WindEurope, IEA, EHPA, Clean Hydrogen Monitor. Notes: a Deployment capacity of solar PV refers to newly installed capacity of solar PV in EU27. b,c Deployment capacity of wind onshore/offshore refers to newly installed capacity of onshore/offshore wind installations in Europe (EU and United Kingdom). d Deployment capacity refers to the million units of EVs sold in Europe (EU, Norway, Iceland, Switzerland and United Kingdom) according to IEA (2022). e Deployment capacity is computed by multiplying the amount of electric vehicles sold in Europe (EU, Norway, Iceland, Switzerland and United Kingdom) in 2021 and 43 kWh (equivalent to the average capacity of a battery in battery electric vehicles (BEV) and plug-in hybrid electric vehicles (PHEV)). f Manufacturing capacity of heat pumps is equal to 68 percent (equivalent to the share of suppliers located in Europe) of the total units sold in 2021. Units sold include brine-water, air-water, air-air and sanitary hot water systems sold in Europe (Austria, Belgium, Czechia, Denmark, Estonia, Finland, France, Germany, Hungary, Ireland, Italy, Lithuania, Netherlands, Norway, Poland, Portugal, Slovakia, Spain, Sweden, Switzerland, United Kingdom) in 2022. g Manufacturing capacity refers to the capacity of electrolysers in Europe (EU, Norway, Iceland, and United Kingdom).

By Giovanni Sgaravatti, Simone Tagliapietra, and Cecilia Trasi

This article is republished with permission from Bruegel. Full references can be accessed through the original article.

6.  News in Brief

European News

EU announces success of first joint gas tender

The EU has announced the results of the first tender on its joint gas procurement platform, with 25 international suppliers submitting bids in response to requests from 77 buyers, offering a total of 13.4 bcm of natural gas. This volume surpasses the 11.6 bcm submitted by buyers through the AggregateEU mechanism. The most attractive offers totaling 10.9 bcm were accepted, including 8.7 bcm of pipeline gas and 2.2 bcm of LNG. European Commission Vice-President Maroš Šefčovič hailed the tender as a remarkable success, which has leveraged Europe's collective power to secure sufficient gas supplies for the upcoming winter and fill gas storage.

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EU emissions drop 4% amid economy rebound

The EU’s greenhouse gas emissions fell by 4% in the fourth quarter of 2022 compared with the same period in 2021, even as the economy grew by 1.5%, according to newly published data from Eurostat. The development offers a positive signal for the bloc’s efforts to meet its own climate goals, and demonstrates that the energy crisis caused by Russia’s invasion of Ukraine has not led to a short-term increase in emissions. The data show that the EU’s emissions were 6% down compared with pre-pandemic levels: 23 out of the 27 Member States saw emissions fall.

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Commission launches a large-scale skills partnership for energy-intensive industries

A new large-scale skills partnership has been established for energy-intensive industries (EIIs) in Europe, supported by the European Commission, industry partners, research organisations, social partners, and educational institutions. The partnership aims to identify skill requirements and create relevant curricula and training programs, ensuring that the EII workforce possesses the necessary skills to maintain its leadership in the green and digital transition. It will also focus on promoting the recruitment and upskilling of workers. With EIIs comprising over 20% of European manufacturing and employing over 7 million people, this partnership aims to strengthen the workforce and support the growth of sustainable industries.

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EU confirms €18bn Global Gateway investment drive

The European Commission and the European Investment Bank (EIB) have announced an investment of EUR 18 billion through the Global Gateway initiative to spur investments in climate action, clean energy, and connectivity in developing economies around the world. The investment strategy aims to bridge the climate finance gap and marks a step towards the EU's goal of mobilising EUR 300 billion in investments between 2021 and 2027. The financing package includes grants, concessional loans, and guarantees to de-risk private sector investments.

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Industry launches ‘Energy Storage Coalition’

A new industry coalition launched on 4 May 2023 aims to promote sustainable energy storage technologies that will increase the resilience of Europe’s power grid and open the door to more renewables. The Energy Storage Coalition comprises four organisations - SolarPower Europe, the European Association for the Storage of Energy, WindEurope, and Breakthrough Energy. The new coalition wants to shape future EU policy around storage, contributing to development of a decarbonised energy system.

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EU countries eye 150 GW of nuclear capacity by 2050

The 16 European countries participating in the ‘nuclear alliance’ (France, Belgium, Bulgaria, Croatia, the Czech Republic, Finland, Hungary, the Netherlands, Poland, Romania, Slovenia, Slovakia, Estonia, Sweden, Italy and the UK) are to prepare a roadmap to develop an integrated European nuclear industry that will contribute 150 GW of nuclear power capacity to the EU’s electricity mix by 2050. To reach this goal, the EU will need a total of 30 to 45 new large reactors as well as the development of small modular reactors (SMR). The countries have signed a joint declaration calling for a European action plan to foster cooperation in the nuclear sector.

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EU Mediterranean countries pledge to create green energy hub

Energy ministers for nine EU states—Croatia, Cyprus, France, Greece, Italy, Malta, Portugal, Slovenia and Spain – committed to creating a green energy hub at an inaugural MED9 summit for energy ministers from the Mediterranean region on 18 May 2023. The Malta Statement prioritises development of offshore renewable energy and construction of new energy interconnections between EU and non-EU Mediterranean countries.

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Germany to subsidise power use for energy-intensive industries

Germany plans to offer EUR 4 billion/yr (USD 4.4 billion) to energy-intensive industries to offset soaring electricity costs. The goal is to facilitate the transition away from fossil fuels and discourage companies from relocating abroad. Economy Minister Robert Habeck said the government wanted industries to remain in Germany and be viable in the future. The proposed subsidy would cap prices at EUR 0.06 cents per kilowatt-hour (kWh), covering 80% of industrial firms’ consumption while incentivising the search for cheaper renewable energy sources. The subsidy, estimated to cost between EUR 25 billion and EUR 30 billion, is expected to be phased out by 2030 and will be financed through the Economic Stabilisation Fund (ESF).

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France to offer tax credit for renewable technology investment

The French government has proposed a tax credit that will boost investment in renewable and low-carbon technologies, in an attempt to compete with the subsidies and tax breaks offered by the US Inflation Reduction Act. The credit will generate private investment totalling EUR 20 billion by 2030 and create tens of thousands of jobs, the government said. It plans to include the credit in the 2024 budget. The measure will cover companies’ capital spending on between 25% and 40% of their investments in wind and solar projects, including power facilities, heat pumps and storage batteries.

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French Parliament endorses construction of six EPR reaactors

The French Parliament has adopted a nuclear stimulus law that removes the previous cap of 63.2 GW of total authorised nuclear capacity and cancels a prior objective that would limit nuclear power generation to 50% of the French power mix by 2035. The move paves the way for construction of six new European Pressured Reactors II (EPR) reactors and the launch of studies for the construction of eight more EPRs as well as SMRs (Small Modular Reactors). The law will deliver 25 GW of new nuclear capacity by 2050.

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Italy, Austria, Germany join forces for hydrogen pipeline project

Italian, Austrian, and German companies have joined forces to create the SoutH2 Corridor, a 3 300 km hydrogen-ready pipeline corridor connecting North Africa to central Europe. The partnership includes Italy’s Snam, Trans Austria Gasleitung (TAG), Gas Connect Austria (GCA), and Germany-based bayernets. The project aims to produce renewable hydrogen in North Africa and southern Europe and transport it mainly via repurposed pipelines to European consumers by 2030. The respective energy ministries have announced their support for the project to obtain the status of a Project of Common Interest (PCI) in each participating country. The pipeline, part of the European Hydrogen Backbone, will ensure a secure supply and could import over four million tonnes of hydrogen per year from North Africa, meeting 40% of Europe's REPowerEU target for imported hydrogen.

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Power from wind surpasses gas for first time in UK in Q1

A recent research report by Imperial College London shows that, for the first time, wind power surpassed gas as an electricity source for the UK in the first quarter of 2023. Wind produced 32.4% of the country’s electricity, while gas produced 31.7%, representing a key milestone in the clean transition of the power system. Renewable generation accounted for 42% of the total power mix in Q1, with 33% coming from fossil fuels and the remainder from nuclear plants and power imports.

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UK awards first offshore carbon storage licences

The North Sea Transition Authority (NSTA) has awarded 20 carbon storage licences to 12 companies at offshore UK sites, including some near Aberdeen, Teesside, Lincolnshire and Liverpool. Applications for Britain’s first carbon storage licensing round closed in September 2022. In total, the areas cover about 12 000 km^2. The NSTA claims that the first injections of CO2 could follow within six years. The government’s goal is to store up to 30 million tons per year of CO2 beneath UK waters by 2030. Up to 100 CO2 stores could be needed for the UK to meet its net zero aims by 2050.

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Researchers pilot carbon capture using sunlight and mirrors in Norway

Researchers at SINTEF and Svalin Solar are constructing a pilot floating solar power plant in Norway that uses mirrors to capture ‘concentrated sunlight’ to produce both electricity and heat. The plant will be built in a way that allows it to rotate using propellers, allowing maximum electricity and heat yield. The heat from the plant will be connected to a heat pump and the electricity and heat generated will be used in a carbon capture facility. The companies plan to test the system onshore initially at one of SINTEF’s existing carbon capture facilities outside Trondheim, Norway. The system is part of EU-funded project called TRINEFLEX that aims to assist heavy industry in Europe to become more sustainable.

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Pilot underground hydrogen storage system launched in Austria

Austria’s gas storage operator RAG has launched the world’s first underground hydrogen storage pilot at a former natural gas reservoir in Rubensdorf. The project is aimed at demonstrating hydrogen in seasonal energy storage and will pave the way for large-scale deployment. It has the capacity to store 4.2 GWh of solar power generated in summer in 1.2 million cubic meters of hydrogen for use during the winter months. The hydrogen will be produced by a 2 MW proton-exchange-membrane electrolyser provided by US-based Cummins, which will initially operate off baseload power to fill the reservoir with sufficient hydrogen. Later in the project’s timeline, the electrolyser will be operated more flexibly to store excess renewable electricity on the grid. The project aims to test hydrogen withdrawals at the site by the end of 2023.

+ More

China News

New guidelines released to further boost power demand response

On 19 May 2023, China’s National Development and Reform Commission (NDRC) issued two new drafts for opinions on power demand-side and load management respectively. While both documents highlight the importance of demand response, they set a noticeable target that by 2025, local demand response capacity must reach between 3% and 5% of the maximum power supply load, while provinces with an annual peak-valley difference of more than 40% of the maximum electricity load must achieve 5% or more. The documents also call for development of demand-response price mechanisms, championing incentive-based measures to guide power users to cut their consumption in a bid to boost power flexibility. Other highlighted measures include new business models for demand side resources such as energy storage and EVs to participate in demand response through aggregators and virtual power plants.

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China to promote new energy vehicles in rural areas

China NDRC and NEA have jointly released a guideline to support the purchasing and uptake of new energy vehicles (NEVs) in rural areas, with a focus on enhancing charging infrastructure. It aims to accelerate the installation of charging stations at the county level and charging points at the township level, addressing the current lack of charging infrastructure in rural areas. The guideline also encourages the use of NEVs in public transport, logistics, and delivery services. In addition, it proposes offering consumption coupons to rural residents intending to purchase NEVs in their registered permanent residence county areas. Officials and business leaders highlight the immense potential of the rural market to shore up the growth of the sector.

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China shares 5G best cases in the energy sector

The NEA and the MIIT have issued a collection of typical 5G application cases in the energy sector for 2022. This initiative aims to stimulate innovation, expand 5G application scenarios, and explore replicable business models supporting the high-quality development of the energy industry. The collection focuses on 5G-enabled smart power plants, grids, coal mining, oil and gas, integrated energy system, and intelligent manufacturing and construction. Out of 198 received cases, 33 exemplary cases were selected for communication and promotion, showcasing the potential and benefits of integrating 5G technology in the energy sector.

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China unveils proposed standards for decarbonisation of industry

China’s MIIT has unveiled a draft document that provides guidelines for development of a standards system supporting the industrial sector to achieve carbon peaking and carbon neutrality. Under the plan, China is to establish a comprehensive standards system for the industrial sector by 2025 and will formulate more than 200 standards required for decarbonisation of the industrial sector, taking account of current technological developments and new trends of low carbon technologies as well as the evolving needs of the sector. The standards system will focus on areas such as general application, accounting and verification, as well as low-carbon technologies and equipment. It aims to provide essential technical support for assessing industrial carbon emissions and facilitating their reduction.

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Permitting process of distributed wind energy projects to be streamlined

China NEA has recently unveiled plans to further streamline the permitting process for renewable projects. A proposed notice seeks to introduce an exemption for distributed wind power projects that are connected to the power grid with a voltage level of 35kV or below from the requirement of acquiring power business licences. This move is expected to facilitate the implementation of such projects, fostering the growth of distributed wind power generation in the country. China has been making concerted efforts to boost the development of distributed wind power projects in rural areas as well as in industrial parks and economic zones.

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China takes a step further on power transmission and distribution tariff reform

On 15 May 2023, China’s NDRC released three important notices on power tariffs for the third regulatory cycle (2023-2026). Power transmission and distribution tariffs for provincial and regional grids are made clear, with policy optimisation measures on consumer price classification and composition, and T&D pricing for industrial and commercial power users. According to the documents, capacity charges, which used to be fixed, will now be based on voltage levels, which can better reflect the actual cost of supply capacity. They also promote price unification by eliminating the difference between tariffs charged to regular commercial and industrial users and to large industrial users in most provinces, which is intended to encourage industrial and commercial sectors to actively participate in electricity market trading. Incentive mechanisms based on load rate are proposed: power users will be awarded a 10% discount if monthly power consumption stays above 260 KWh.

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China wind and PV capacity soars in 2023

China saw a robust expansion of renewable energy in the first four months of 2023 as the country stepped up efforts to ensure sufficient energy supply and cut emissions, with 62.51 GW of newly-installed wind and PV power, accounting for 74% of total additional capacity, and up 11.5 percentage points from a year ago. Wind and PV power generation reached 482.8 TWh over the same period, up by 26.8%, and supplying 17.2% of national power consumption. Latest statistics from NEA show that, by the end of April, the installed capacity of wind and PV reached 380 GW and 440 GW respectively, together representing 30.9% of the country’s power capacity mix.

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China’s coal imports from Australia surge 75% in April

China’s appetite for Australia’s high-quality coal is gaining momentum amid concerns that rising domestic production includes too much lower-grade fuel. Thermal coal imports from Australia, primarily designated for power plants, surged 75% since March to 3.89 million tons, hitting their highest level since Beijing halted imports in the autumn of 2020, according to Chinese customs data. As of April, Australian coal accounted for a tenth of total coal imports, twice as much as in the previous month. At the same time, Russia’s coal exports to China have fallen back from the record level hit in March. China’s total coal imports fell slightly in April to 40.68 million tons, but have increased 89% over the year to date. The benchmark price at the port of Qinhuangdao has dropped to its lowest level since the start of 2022 as the rising tide of imports lands at a time of seasonally weak demand.

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Green power exchange exceeds 2023 target in SGCC service area

The Beijing Power Exchange Center has reported that as of early May, State Grid Corporation of China (SGCC) successfully completed 218 transactions of green electricity in 2023. The total volume of traded green electricity reached 31 TWh, already surpassing the 2023 target of 30 TWh. The Center has established easy-to-access channels for green power trading, effectively meeting the demand for green power, and ensuring the continuous operation of green electricity trading. The scale of transactions in the green power market is expanding steadily.

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China inaugurates its largest CCUS-EOR demonstration project

China National Petroleum Cooperation (CNPC) has begun construction of a large scale carbon capture, utilisation and storage (CCUS) project that, when fully completed, will be the country’s largest such facility. It will be integrated with enhanced oil recovery (EOR) at the country’s largest Changqing oil/gas field. The whole project will be implemented in three phases by CNPC jointly with Ningxia Coal Industry Co. (NCI) and the Ningxia local chemicals industry authority with a total investment of CNY 10.2 billion. NCI would capture CO2 emitted from its 4 million ton/yr coal-to-oil facility in Ningxia and supply it to CNPC for use in EOR at the Changqing field in the Ordos Basin. At full operation, the project could supply a total of 74.5 million tons of CO2 for injection into Changqing over a 30-year period, boosting Changqing’s oil output by a cumulative 17 million tons through EOR.

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First tandem wind turbine starts trial operation

On 13 May 2023, China’s Huaneng Group hoisted the independently developed ‘Sairui’ tandem wind turbine with a unit capacity of 2.7MW at the Tongyu wind farm in Jilin province. The system, part of a national key research project on wind power technology, hosts a number of technological innovations: it is equipped with the first set of multi-impeller aerodynamically coupled blades and high-power radial twin-rotor generator, and also has a fully decoupled independent transmission system. Compared with traditional turbines, the new dual wind wheel unit uses the front and rear set of turbines to capture wind, which can almost halve the blade length of the turbines while producing the same amount of power. The cost of the dual wind wheel unit is 10% lower than that of the regular single wheel unit, and the efficiency of single wind turbine unit can be increased by 15%, which could effectively cut the amount of land area occupied by wind power projects.

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CNNC launches test platform to extract uranium from seawater

China National Nuclear Corporation (CNNC) has commissioned a seawater uranium extraction test platform, said to be the largest such test platform to be built in the South China Sea. According to the company, the facility can carry out material verification and amplification experiments in real ocean conditions. Although the concentration of uranium is only around 0.003 parts per million in seawater, the oceans are estimated to contain approximately 4.5 billion tonnes of uranium resources - around 1 000 times more than land reserves - making it an important source of uranium if it can be recovered economically. China aims to achieve international leadership in this technological field by 2035.

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New research finds bioenergy could supply 19% of China’s energy

A joint research team from China’s Academy of Sciences (CAS) has developed a comprehensive biomass accounting model with a multi-dimensional analysis that has evaluated China’s biomass production and carbon emission reduction potential. The results were published in ‘The Innovation’ on 13 April 2023. According to the findings, China’s recoverable biomass resources are 49.09 EJ annually, mainly from organic waste (63.5%) and energy plants on marginal land (35.6%). Excluding other uses and losses of biomass, the potential for energy use is about 29.73 EJ. Through efficient energy conversion, clean bioenergy production is 23.30 EJ, representing about 19% of China’s total primary energy production. The corresponding carbon reduction potential is 2 535.32 Mt CO2 equivalent, approximately 25% of China’s carbon emissions.

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UAE signs nuclear energy cooperation agreements with China

The United Arab Emirates (UAE) has signed three memorandums of understanding (MOUs) with China National Nuclear Corporation (CNNC) and its subsidiaries to boost cooperation. These include an agreement with Nuclear Power Operations Research Institute that will focus on possible collaboration between the two parties in nuclear energy operations and maintenance. The deal signed with the CNNC Overseas will focus on cooperation in the field of high-temperature gas-cooled reactors. The third agreement with the China Nuclear Energy Industry Corporation focuses on collaboration in nuclear fuel supply and investment. UAE is home to the Arab world’s first operational nuclear energy plant at Barakah, which is being built at a cost of USD 24.4 billion by South Korea.

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China proposes China-Central Asia energy development partnership

China’s president Xi Jinping has called for a new China-Central Asia energy development partnership in a keynote speech at the China-Central Asia Summit in Xi'an, northwest China’s Shaanxi Province. Xi called for acceleration of work on Line D of the China-Central Asia natural gas pipeline, an increase in oil and gas trade, development of energy cooperation across the industrial chain, and more cooperation in new energy and the peaceful use of nuclear energy.

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7.  Featured Publication

The State of Clean Technology Manufacturing

Deploying clean energy technologies at the pace required to put the world on a trajectory consistent with net zero emissions by mid-century will demand rapid expansion in manufacturing capacity, underpinned by secure, resilient and sustainable supply chains for their components and materials. This Energy Technology Perspectives Special Briefing by the IEA provides an update on recent progress in clean energy technology manufacturing in key regions. It focuses on five technologies that will be critical to the energy transition, including solar PV, wind, batteries, electrolysers and heat pumps. The aim of the report is to keep decision makers informed of investment trends and the impact of recent industrial strategies in these highly dynamic sectors.

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Flexibility Requirements and the Role of Storage in Future European Power Systems

The transition to a climate neutral energy system relies on renewable energy sources contributing more into European electricity grids. Because the production of renewable energy sources is inherently variable, technologies that offer the flexibility required to balance supply and demand are expected to play a growing role in the years to come. Using the METIS energy system mode, this report from the EU assesses the flexibility needs of European power system in 2030 and 2050, and identifies technologies that may offer such flexibility, including energy storage. It assesses the economic value of financial arbitrage for these technologies in the spot market, and offers an assessment of the optimal combination of electricity storage solutions to accommodate flexibility needs in future European power systems, taking into account storage investment costs and available interconnection capacity.

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The State of the European Wind Energy Supply Chain

This report, produced by Rystad Energy in cooperation with WindEurope, assesses the state of the European wind supply chain and its ability to support ambitious capacity targets towards 2030, identifying potential bottlenecks and expansion needs. A key challenge for the European wind industry is to meet growing demand primarily with domestic supply rather than an increase in imports. However, wind turbine manufacturers' low margins and poor financial results make it difficult to scale up local production. The report warns that in order to avoid supply chain bottlenecks by 2024-25, wind suppliers need to resolve to expand capacity either in 2023 or 2024, while European policymakers must provide strong policy signals to support such investment. The challenge is to balance the race to meet wind generation targets against the need to secure a domestic supply of wind turbines.

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The Race to Replace: the economics of using renewables to free Europe from Russian gas

At a total cost of EUR 811 billion, the EU could fully replace Russian natural gas by 2028 with green technologies rather than sourcing fossil fuels from other countries, according to a new report from the Oxford Sustainable Finance Group, part of the Smith School of Enterprise and the Environment at Oxford University. It estimates that up to 90% of the additional investment required, on top of currently planned European Green Deal spending, could be recouped over the next thirty years by eliminating the need to buy gas. The report models both ‘high’ and ‘low’ policy scenarios for the EU to entirely replace Russian gas by 2028 with measures including renovation, efficiency gains from heat pumps, and renewable electricity. To enable this transition, the report proposes policy changes, emphasising the need for both public and private funds to support large-scale deployment of renewables and heat pumps. It also suggests targeted policy support for investors, improved auctions for utility-scale solar and wind projects, addressing permitting challenges, and additional support for insulation and heat pump installation.

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Corporate Green Power Procurement in China: Progress, Analysis, and Outlook

The rapid growth of China’s green power market is making it difficult for corporate buyers to navigate the fast-changing environment. The Rocky Mountain Institute produces an annual report on corporate green power procurement that aims to familiarise corporate buyers with the market and assist efforts to promote the development of green power. Drawing on 2022 key policies and data, this report offers a comprehensive analysis of green power market developments that aims to help corporate buyers to understand the market’s dynamic and make reasonable green power procurement decisions.

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[1] https://www.cec.org.cn/detail/index.html?3-317477

[2] https://www.iea.org/reports/status-of-power-system-transformation-2019

[3] https://www.scmp.com/economy/china-economy/article/3150457/china-power-crisis-thermal-coal-inventory-nears-record-low

[4] https://www.scmp.com/comment/opinion/article/3192257/end-power-crunches-china-must-rebuild-its-electricity-grid-around

[5] https://www.caixinglobal.com/2023-03-01/yunnan-whacks-power-supply-for-aluminum-again-102002990.html

[6] https://energyandcleanair.org/publication/opportunities-and-challenges-of-flexibility-technologies-for-achieving-a-net-zero-electricity-future-in-china/

[7] https://about.bnef.com/blog/lithium-ion-battery-pack-prices-rise-for-first-time-to-an-average-of-151-kwh/

[8] In assessing China’s cleantech dominance, the capacity and the utilisation rate of its factories must also be taken into account (IEA, 2023). A factory able to produce 1 gigawatt of solar panels but running only 20 percent of the time will produce fewer solar panels than a factory with 250 megawatts of capacity running 90 percent of the time. Levels of utilisation vary greatly across the world, but China generally has much more spare capacity than other countries in the manufacturing of green technologies (IEA, 2023). The average capacity utilisation rate in cleantech manufacturing in the EU is around 80 percent. China’s low capacity utilisation rate drags down the overall global average utilisation rate to about 40 percent of capacity for solar modules and 43 percent for electric vehicle batteries, in which China has about 75 percent of global manufacturing capacity. The capacity utilisation rate is much closer to 80 percent for heat pumps, a market in which Europe and North America combined still have a bigger share of production capacity than China (IEA, 2023). The notion that Europe is trailing behind and heavily reliant on Chinese production to meet its deployment requirements is not entirely accurate, or at least not for all clean technologies.

[9] Note that the NZIA 40 percent target refers to EU manufacturing capacity relative to expected deployment in 2030. Here, we compare EU manufacturing to current deployment.

[10] European Heat Pump Association, ’Heat pump record: 3 million units sold in 2022, contributing to REPowerEU targets’, 20 February 2023, https://www.ehpa.org/press_releases/heat-pump-record-3-million-units-sold-in-2022-contributing-to-repowereu-targets/.

[11] See European Commission press release of 5 May 2022, https://ec.europa.eu/commission/presscorner/detail/en/ip_22_2829.

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