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
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
Integration of Variable Renewables in the Energy System of the EU and
China: Policy Considerations
Table of Contents
Letter from the Team Leader
1. EU Leads the Global Energy Transition
2. Understanding China’s Action Plan for Reaching Peak Carbon
Emissions by 2030
3. Electricity Market Reform: ACER must empower consumers, not just
network operators
4. Distributed Energy Resources and Smart Grids: an opportunity or a
distraction?
5. EU and China trace parallel paths towards energy security
6. Biogas: the green key to energy security
7. Reimagining energy storage - flow batteries for a fossil fuel-free
future
8. ENTSO-e Grid Planning Modellling Showcase in China
9. Behaviour Change: strategies and case studies for reaching net-zero
by 2050
10. Greening Pensions: A Behavioural Perspective
11. News in Brief
Letter from the Team Leader
Dear All,
Another year has passed and we meet again at this Christmas double issue of EU China Energy
Magazine.
ECECP started 2021 with a workshop exploring opportunities and challenges in introducing
innovative energy solutions in EU and China, but 2021 was really a year of the power sector. We held
two additional workshops in the summer and autumn to share the experiences of the European power
sector in the clean energy transition and to offer China’s perspective. In November, ECECP brought a
small part of COP26 from Glasgow to Beijing when we hosted 50 guests at a live streamed
networking event to mark EU Energy Day, using Chinese interpreters.
Earlier this month, ECECP launched the final report of our flagship project ‘ENTSO-e Grid Planning
modelling Showcase in China’ and celebrated the successful conclusion of ECECP Phase I and the
beginning of Phase II, an event attended by 50 guests.
ECECP Phase I started on 15 May 2019. Since then, ECECP has organised 31 policy workshops and
12 networking events. In addition to the workshops mentioned above, policy workshops covered
promotion of renewables and integration of variable renewables in the energy system in EU and
China, market-based financing of energy efficiency investments, and the role of gas. Three Joint
Statement reports were also published in summer 2020.
Our website’s readership has quadrupled since its launch in 2020.
Even as COVID-19 continues to complicate interaction between the EU and China, we hope that our
magazine will go some way towards meeting the needs of the energy community in EU and China
for news and views.
This issue of the EU-China Energy Magazine includes articles on China’s action plan to reach peak
emissions by 2030, the global gas crisis, a discussion on the role of battery storage in the low carbon
energy system, as well as a behavioural perspective on greening pensions. Read the latest EU and
China policy developments in the News in Brief section. We hope you enjoy these and the other
articles in this issue!
Last but not least, we have a big announcement to make: from next year on, the EU-China Energy
Magazine will be published monthly.
Once again, I would like to thank our long-suffering editors Daisy Chi and Helen Farrell for making
this Christmas issue possible.
Merry Christmas and a Happy New Year from the ECECP project team!
Flora Kan
Team Leader
ECECP
1. EU Leads the Global Energy Transition
A livestreamed event brought energy players together in Beijing to follow
presentations given at Novembers COP26 summit in Scotland. Daisy Chi
and Helena Uhde offer a round up of key points from energy experts from
around the world.
On 5 November 2021, ECECP hosted a COP26 live streamed event in
Beijing to coincide with EU Energy Day, allowing policy makers, CEOs
and local politicians to discuss global initiatives to effect the energy
transition. COP26 is an international annual global event organised by the
United Nations, and has taken place every year since 1995 (apart from 2020
when the pandemic hit). The EU’s annual EU Energy Day has taken place
since 2016, and is intended to showcase the EU’s successful promotion of
clean energy and its current and upcoming initiatives. The event sessions
focused on critical topics including just transition, offshore renewable
energy, green hydrogen, the phasing out of coal and methane emission
reduction.
A just transition
Much is published about the many new jobs that will be generated en route
to climate neutrality, yet no one can deny that fossil fuel workers’ jobs may
be at risk. A people-centred approach, that balances social and economic
development, is needed to ensure that the benefits and costs involved in the
transformation of the energy system are distributed fairly and in a way that
protects the most vulnerable groups.
Europe is at the forefront of ensuring a just transition. The EU has pledged
to cut emissions by 55% by 2030 and to achieve net zero emissions by
2050. EU Energy Commissioner Kadri Simson stressed that the energy
transition will fundamentally change the way people live and therefore
require a radical change in thinking about development. ‘We believe the just
transition is a key issue of the climate fight: we must leave no one behind.
This is why the EU has made just transition a key pillar of the European
Green Deal – our energy and climate strategy,’ noted Simson.
The EU plans to put over EUR 60 billion of recovery funds into retrofitting
homes, and will invest massively in renewable energy and clean transport.
Up to EUR 75 billion will be set aside via the Just Transition Mechanism to
help regions affected by the phasing out of coal and the industrial transition.
The EU has also proposed a new Social Climate Fund, which will use
additional revenues from carbon pricing on home heating and road transport
to help those who are most vulnerable to higher energy and fuel prices. The
EU is also actively seeking new revenue streams and creating new jobs in
coal regions.
Following up on its commitment to sharing its experience with international
partners, the EU has taken an active role in the Global Commission on
People-Centred Energy Transitions, an initiative coordinated by the IEA
and established in January 2021. In collaboration with Germany, the EU
plans to co-finance a project that will support a just transition away from
coal in key partner countries such as Indonesia and South Africa. The EU is
also one of the signatories to a pioneering Just Transition Agreement with
South Africa, to support its transition and to accelerate decarbonisation.
Reports from around the world demonstrate that the re-employment of
practitioners in fossil energy industry is a shared concern. Canada is to
allocate CAD 200 million annually to fund skills training for workers most
affected by the clean transition. In Denmark, following the announcement
that exploration in the North Sea will soon cease, the government is now
actively working with labour unions to help those affected find new jobs.
Emerging and developing countries, such as South Africa, India, Indonesia
and Senegal, face greater pressure and challenges in the energy transition,
as they have to ensure economic development even as they reduce fossil
fuel energy use. Assistance and support from the EU, the US, and China are
particularly important if they are to achieve their goal.
Looking offshore
With around 40% of the world's population living in coastal areas, the
development of offshore renewable energy could largely meet the energy
demand of those coastal mega cities. According to the International
Renewable Energy Agency (IRENA), offshore renewable energy has the
potential to meet nearly 20 times the world's current electricity demand.
In his keynote speech, Francesco La Camera, Director General of IRENA,
reported that 2 000 GW of offshore wind capacity and a further 300 GW of
marine capacity will need to be installed globally by 2050 to achieve carbon
neutrality and meet the goals of the 2015 Paris Agreement. It is quite clear
that the deployment of offshore renewable energy needs to be accelerated to
keep on track.
Thanks to its unique geographical advantages, Europe has great potential
for offshore renewable energy, especially wind power. In 2020 the EU
published a dedicated strategy for offshore renewable energy, setting
ambitious targets for an additional 300 GW of offshore wind capacity and
40 GW of ocean renewables such as wave, tidal and floating solar by 2050.
Simson pointed out the practical issues that will need to be addressed in
order to meet these ambitious targets, such as building robust offshore and
onshore power grids across national borders and simplifying the licensing
process for offshore projects. Currently, the licensing issue is causing a
huge bottleneck in the deployment of offshore renewable energy. Industry
insiders reveals that it now takes four times longer to plan, prepare and
permit a wind farm than it does to build one. The solutions will be simpler
policy frameworks and permission procedures as well as public-private
partnerships, which will be vital for an accelerated decarbonisation.
Coordinated development of offshore wind and
green hydrogen
According to IRENA, the cost of green hydrogen will become competitive
by 2030; after which up to 30% of offshore wind power could be used to
produce green hydrogen by 2050, with green hydrogen deployment
contributing up to 10% of global emissions reductions. Green hydrogen has
an important role to play in the broad energy transition because it can meet
energy needs in various scenarios, especially in those sectors that are hard-
to-abate through electrification, such as aviation, road transport, and non-
ferrous metal industries. In addition, the development of green hydrogen
can contribute to the greening of the petrochemical sector. Disused offshore
oil and gas platforms can be retrofitted and repurposed for hydrogen
production.
Offshore wind can provide a high-quality renewable energy on a large
scale, and this is the ideal source for electrolysers to produce green
hydrogen. According to Simson, the EU has made renewable hydrogen a
top priority for its future agendas, with plans to install 6GW of electrolyser
capacity for hydrogen production by 2024 and 40GW by 2030. By then, the
cost of green hydrogen is expected to be competitive with gray and blue
hydrogen.
Spotlight on ports
Ports are central to the development of offshore wind power and green
hydrogen. Industrial bases near ports are often major consumers of
hydrogen energy, while port areas are not only natural gateways for
offshore wind power project construction and maintenance, but also landing
points for offshore wind power transmission and logistics centers for green
fuels such as hydrogen. Therefore, the construction of electrolysers in ports
to produce hydrogen using offshore wind power can provide sufficient
green electricity and hydrogen energy for industry in the immediate area,
thus forming a complete cycle of green energy production and
consumption.
The battle to drive down methane emissions
Methane is a major contributor to global warming. ‘Rapidly reducing
methane emissions is the single most effective strategy to reduce global
warming in the near term and have a chance to achieve the goal of limiting
warming to 1.5˚C. It is possibly the only low-hanging fruit left in our fight
against climate change,’ Simson warned at COP26. The fossil fuel industry
is responsible for one-third of manmade methane emissions.
On 2 November 2021, the USA, the EU, and partners formally launched the
Global Methane Pledge, an initiative to reduce global methane emissions. A
total of over 100 countries representing 70% of the global economy and
nearly half of manmade methane emissions have now signed the pledge.
Yet a lack of accurate data could hamper the drive to cut emissions. At the
G20 Summit, the UN Environment Programme (UNEP), with support from
the EU, launched the International Methane Emissions Observatory
(IMEO), a data-driven, action-focused initiative that aims to monitor
commitments made by signatories to the Global Methane Pledge.
The EU’s strategy to reduce methane emissions covers sectors including
energy, agriculture and waste. Now that this blueprint has been published, it
is time for detailed legislative measures at a regional, national and company
level. Challenges include data collection, refinement and publication to
create cost-effective solutions that both challenge and support companies to
achieve the performance standards.
Energy compacts[1] to power the energy transition
Without exception, all countries need to meet the challenges of climate
change. But these is no need for them to struggle alone. Every nation has to
participate in international exchanges and cooperation in this field.
For this reason, the EU is not just aiming to make the continent climate-
neutral by 2050, but is also ready to share its experience with the world and
support countries to achieve a fair and inclusive energy transition.
As a sign of its commitment to support global efforts, the EU has proposed
three Energy Compacts: 1) to put in place national zero-emission energy
roadmaps by 2050 with key partner countries, in cooperation with the IEA;
2) to create Regional Energy Transition Outlooks for Africa, South-Eastern
Europe, Latin America and the Caribbean, in cooperation with IRENA; 3)
Green Hydrogen Compact Catalogue, in cooperation with Denmark,
Germany, IRENA and other partners. These commitments will be key to the
EU's participation in global cooperation on climate and energy to support
the progress towards the same zero-carbon future.
Simone Mori, Head of Europe at Enel SpA, argued that the goal of
'Sustainable Energy for All' in countries of the global south was not an
energy transition from coal to renewable energy, but rather the development
of renewable energy to meet basic needs. This is not a question of
technology, but of creating the conditions for easily accessible investment
and risk mitigation. Global cooperation platforms, such as the Energy
Compacts, will lead to a common framework to support investment
mechanisms that can reduce risk, and so accelerate progress.
By Daisy Chi and Helena Uhde
EU-China Energy Cooperation Platform (ECECP)
2. Understanding China’s Action Plan for
Reaching Peak Carbon Emissions by 2030
China recently released a long-awaited policy document detailing how the
country intends to fulfill its target of reaching peak carbon emissions by
2030. The Action Plan for Reaching Carbon Dioxide Peak Before 2030,
takes aim at vast areas of the economy, including polluting commodity
industries, transport, and domestic waste, and outlines measures for
gradually slowing the emission of carbon, transitioning to renewable energy,
and reducing waste.
In the lead-up to the COP26 summit that is taking place over two weeks in
early November 2021, China released two of the most significant policy
documents on its climate response plan.
The documents titled the Working Guidance for Carbon Dioxide Peaking
and Carbon Neutrality in Full and Faithful Implementation of the New
Development Philosophy (‘Working Guidance’) and the Action Plan for
Reaching Carbon Dioxide Peak Before 2030 (‘Action Plan’), form the basis
of China’s policy framework for reaching its two key carbon reduction
targets, reaching peak carbon emissions by 2030 and carbon neutrality by
2060.
The Working Guidance offers an overview of China’s overall plan for
reaching both the 2030 and the 2060 goals. The full document is available in
English here.
Meanwhile, the Action Plan (Chinese only) provides an extensive overview
of the areas of China’s economy that will gradually be reduced or shifted to
sustainable energy and methods, in order to slow the growth of high-carbon
industries and areas of the economy.
In this article, we take a close look at the 10 key tasks for reaching peak
carbon emissions by 2030. Below we provide an overview of the 10 key
tasks and take a closer look at five of the most significant areas that will
change over the coming decade.
Background: China’s climate policy framework
The two documents mark the official launch of the government’s ‘1+N’
policy framework for tackling the climate crisis. First proposed by the
National Development and Reform Commission (NDRC) in March of 2021,
the policy framework provides a foundation for China’s long-term carbon
emissions strategy by outlining key targets and measures in a wide range of
industries and sectors of society.
The framework consists of one main policy document acting the country’s
overarching guiding principles, representing the ‘1’, and a series of auxiliary
policy documents targeting specific industries, fields, and goals, representing
the ‘N’.
The Working Guidance, released on October 23, represents the ‘1’ part of
the policy framework. The extensive, 37-article long policy document
outlines specific areas of the economy and society that need to change or
develop in order to meet China’s carbon targets. The Action Plan, released
on October 24, is the first of the ‘N’ documents and will be followed by
several more in the months and years to come.
Overview of the Working Plan goals
The most significant commitments made in the Working Guidance are three
major carbon milestones, set for 2025, 2030, and 2060.
By 2025, marking the end of China’s 14th Five-Year Plan (FYP) period,
reach:
● 13.5 percent reduction in energy consumption per unit of GDP from 2020
levels
● 18 percent reduction in CO2 emissions per unit of GDP from 2020 levels
● 20 percent share of non-fossil fuel energy consumption
● 24.1 percent forest coverage rate and 18 billion cubic meters in forest
stock volume
By 2030, the end of China’s 15th FYP period:
● Significantly reduce energy consumption per unit of GDP
● Decrease CO2 emissions by over 65 percent drop in CO2 emissions per
unit of GDP from 2005 levels
● 25 percent share of non-fossil fuel energy consumption
● Over 1200 gigawatts total installed capacity for wind and solar power
● 25 percent forest coverage rate and 19 billion cubic meters in forest stock
volume
● Peak and stabilize CO2 emissions
By 2060:
● Over 80 percent share of non-fossil fuel energy consumption
● Reach carbon neutrality
The Action Plan tackles the first part of the above goals, providing the initial
framework for measures to implement to achieve them.
Overview of the 10 tasks for reaching peak carbon
emissions
To reach peak carbon emissions by 2030, the Action Plan largely focuses on
controlling the growth of fossil fuel consumption and controlling the growth
of energy-intensive industries. At the same time, the plan proposes measures
to gradually transition to renewable energy and increase the energy
efficiency of new and existing infrastructure, while promoting the ‘circular
economy’ to improve resource use and recycling.
The measures cover a wide range of industries focusing, in particular, on the
carbon-heavy industries of steel manufacturing, non-ferrous metals, building
materials, petrochemicals, and construction. It also provides more concrete
measures for reducing coal consumption and switching to renewables.
Below is a brief summary of the 10 tasks for reaching peak carbon emissions
by 2030.
In-depth: How will China reach peak carbon
emissions by 2030?
Reducing coal consumption
One of the most critical changes China will need to make is to reduce its
consumption of coal. Coal is one of the most polluting forms of energy and
is still China’s biggest source of power. The country has cut its overall share
of energy derived from coal to 56.8 percent in 2020 from 72.4 percent in
2005, according to statistics from the Ministry of Ecology and Environment
(MEE). However, a report by climate and energy think tank Ember shows
that the total consumption of coal rose by 19 percent during the 14th FYP
period, resulting in China now accounting for 53 percent of the world’s total
consumption of coal.
As such, the Action Plan places reducing coal consumption and transitioning
to cleaner forms of energy at the top of the agenda.
Among other proposals, the Action Plan calls for:
● Strictly controlling the growth of coal consumption during the 14th FYP
and gradual reduction of coal consumption during the 15th FYP
● Strict control over new coal-fired projects, ensuring that new projects
adhere to international standards while phasing out the use of outdated coal
production
● Ensuring that the proportion of newly built renewable energy capacity
does not fall below 50 percent
● Demarcating areas where the ‘scattered’ burning of coal is prohibited,
actively introduce measures to replace coal as an energy source in an orderly
manner, and gradually reduce and eventually ban the ‘scattered’ burning of
coal
Note that the ‘scattered’ burning of coal mentioned in the Action Plan refers
to the burning of coal for small-scale use, typically by rural households or
for smaller-scale businesses and sectors such as farming and restaurants.
One of the biggest obstacles to reducing coal consumption is balancing the
reduction of coal with ensuring energy security for China’s population and
large, economically significant industries. Recent attempts to curb the use of
coal have led to an energy shortage that left some parts of China without
power and caused some factories to have to temporarily shut down. In
previous years, China has also made attempts to curb the ‘scattered’ burning
of coal, particularly by rural households who still rely on this form of energy
for heating and cooking in some areas, but had to roll back bans due to a
lack of alternative energy supplies.
The use of phrases such as reducing the use of coal ‘in an orderly manner’ is
likely a means of addressing what has been seen as the overzealous actions
of some jurisdictions to cut coal production and consumption, which has led
to past and present power shortages and inflated coal prices.
It is therefore clear that, regardless of how ambitious China’s carbon
emissions plans or how urgent the international cries for action are, China’s
authorities will not allow people to go without power or heating, which will
necessarily require the continued burning of coal until all demand can be met
by alternative sources.
Replacing coal with alternative power sources
The main alternatives to fossil fuels mentioned in the Action Plan are solar,
wind, hydroelectric, and nuclear power, as well as other forms of renewable
energy sources.
China has already made significant headway in transitioning to renewable
energy. According to the China energy report from Ember, China’s relative
share of renewable energy resources has grown significantly in the past five
years, with the share of solar and wind energy growing to 10 percent in 2020
from just 4 percent in 2015, which is an annual growth rate of 45 percent.
To wean itself further off fossil fuels, China is planning on adopting and
expanding the use of a wide range of power sources. Wind and solar will
make up the lion’s share, and the Action Plan has set a target of reaching 1.2
billion kilowatts of installed wind and solar power capacity by 2030.
In places where the environment permits, hydroelectric power will also be an
important component. The Action Plan calls for the development of
hydroelectric power projects in Western China in particular, in regions
including Qinghai, Tibet, Sichuan, and Yunnan. The Action Plan also set a
target to add 40 million kilowatts of hydroelectric power capacity.
Nuclear power, meanwhile, must be developed in an ‘orderly and
reasonable’ way to ensure its safety. Among other proposals, the Action Plan
calls for ‘promoting advanced reactor-type demonstration projects, such as
high-temperature gas-cooled reactors, fast reactors, modular small-scale
reactors, and offshore floating reactors.’
The Action Plan also calls for the development of other renewable forms of
energy in areas of the country where local conditions allow for their
implementation. These include biomass power generation, biomass heating,
biogas, geothermal energy, wave energy, tidal energy, and thermoelectric
power.
Reaching peak carbon in industry and construction
To curb carbon emissions, China must tackle its most polluting industries.
Steel production is a notoriously polluting industry and China is the world’s
biggest producer of the commodity. Making the steel completely carbon-free
is not possible with the current technology available, and China, therefore,
plans to slow emissions from the industry by cutting capacity and
eliminating outdated production capacity.
The government has been promoting this through a capacity swap scheme
for a number of years, under which companies who wish to open steel
projects in new areas can do so only if they agree to eliminate capacity
elsewhere, usually capacity that is created through outdated and more
heavily polluting forms of production.
The current capacity swap ratio is 1.5:1, which means companies need to
eliminate 1.5 million tonnes of steel capacity in order to build 1 million
tonnes of capacity elsewhere. The Action Plan does not set a new capacity
swap ratio but reiterates the need to strictly implement the current
requirements. In addition, it explicitly bans ‘added capacity’ and urges for
the reduction of outdated capacity, which means companies will not be able
to open new steel production projects outside of the capacity swap scheme.
The other industries that have made it into the spotlight are non-ferrous
metals, building materials, and petrochemicals. The Action Plan also
mentions implementing capacity swap schemes for these industries, while
calling for the replacement of fossil fuels with renewable energy, such as
wind, solar, and hydroelectric power, as well as increasing the reuse of waste
resources.
Turning to green transport
Transportation contributes a significant portion of China’s overall carbon
emissions, and as China continues to expand its transport infrastructure,
emissions will continue to rise without intervention. The Action Plan takes
aim at multiple areas of the transport industry, from private vehicles to
freight transport.
One obvious strategy to reduce future carbon emissions is to increase the
adoption of electric vehicles. China is already the largest auto market–and
largest electric vehicle market–in the world, and the government has already
set targets for electric vehicle penetration, requiring that 20 percent of all
new car sales be electric by 2025.
The Action Plan expands on this target, requiring 40 percent of new vehicles
sold in the year 2030 to be electric, and for a 9.5 percent reduction in carbon
emission intensity of operating vehicles from 2020 levels by 2030. Of
course, as electric vehicles get their power from the grid, this part of the
infrastructure will also have to be decarbonized in order for them to have an
impact on carbon emissions.
The Action Plan’s measures for curbing carbon emissions from the logistics
and public transport industries revolve largely around increasing efficiency
and conserving energy. For freight, this will involve creating more energy-
efficient transport routes, such as railway and waterway transport, as well as
building more urban and rural distribution centers and ‘innovating green,
low-carbon, intensive, and efficient distribution models’.
Finally, the Action Plan calls for building green and low-carbon public
transit systems as well as upgrading existing architecture to be greener,
requiring that at least 70 percent of transport infrastructure in cities with over
1 million people be green by 2030.
Developing the circular economy
Another aspect of China’s carbon peak plan is further developing the circular
economy. The circular economy refers to China’s plan to increase resource
efficiency and the lifecycle of products and commodities. The Action Plan
takes aim at a wide section of the economy, from industrial to domestic
waste, and sets specific targets for the reuse and recycling of various
resources.
For industry, the Action Plan calls for increased recycling capacity in
industrial parks. This primarily involves increasing the reuse of waste
products created in the industrial process, such as residual energy, water, and
gas.
For industrial production in core industries, the Action Plan offers a two-
pronged approach: the use of bulk solid waste produced as a byproduct of
industrial production processes and the recycling of industrial products and
resources.
The bulk solid waste mentioned in the Action Plan includes the coal
production byproducts of coal gangue and fly ash, which can be used in
building materials, tailings, or the waste remaining from mineral extraction,
slag, a byproduct from smelting metal, and straw, an agricultural byproduct.
The Action Plans targets for the volume of bulk solid waste used to reach 4
billion tonnes per year in the years leading up to 2025, and for the annual
volume to reach 4.5 billion tonnes in the years leading up to 2030.
The plan also mentions nine key resources that should be recycled, including
scrap iron, steel, copper, and aluminum, mandating that 450 million tonnes
be recycled by 2025 and 510 million tonnes be recycled by 2030.
Finally, the Action Plan tackles the issue of domestic waste, calling for both
the reduction of domestic waste and the implementation of waste sorting
systems. Larger Chinese cities have already begun implementing waste
sorting systems, with waste sorting plans going back to 2017. The plan aims
to extend this to cover all urban areas and increase the use of domestic waste
to 65 percent by 2030.
The start of China’s long road to net-zero
In an official interview published on the State Council website shortly after
the release of the two documents, the authorities stated that future ‘N’
policies will include a number of supporting measures to help reach these
targets.
They include scientific and technological support, carbon sink capacity,
statistical accounting, and inspection and assessment, as well as fiscal,
financial, and price guarantee policies. The aim of the ‘N’ documents is to
develop a complete policy framework that outlines clear goals, a reasonable
division of tasks, and effective measures for achieving peak carbon
emissions and carbon neutrality.
The Action Plan itself also stresses the need to establish new standards for
carbon accounting and energy conservation, revising energy consumption
quotas, setting mandatory national standards for product and equipment
efficiency, and raising energy-saving and carbon-reduction requirements. It
also states the need to formulate new laws and amend existing laws, such as
the Energy Conservation Law, the Electricity Law, the Coal Law, and the
Renewable Energy Law, among others, presumably to make them more
oriented towards carbon-cutting goals.
We therefore expect many more policy documents, environmental
regulations, and pieces of legislation to appear in the coming months and
years, as more and more government bodies step in to guide and regulate
polluting industries and incentivize the transition to clean energy and
sustainability.
This article was written by Dezan Shira & Associates and appeared in China
Briefing magazine. The practice assists foreign investors into China and may
be reached at www.dezshira.com
3. Electricity Market Reform: ACER
must empower consumers, not just
network operators
ACER, the EU Agency for the Cooperation of Energy Regulators, has
delivered to the EC its preliminary assessment of Europe’s high energy
prices and the current wholesale electricity market design. Simon Skillings
and Lisa Fischer at E3G interpret ACER’s assessment as showing it wants
to maintain the status quo. However, long-term changes in market design
are inevitable. The authors want ACER to accept this reality and ensure the
changes are driven by consumer interests rather than those of network
operators. They first summarise ACER’s analysis. They then make their own
recommendations which include investment programmes that make demand
management technology affordable to all, not just the wealthy; marginal
cost calculations for electricity that properly account for regional
variations; market reform that enables consumers to manage their own
demand and thereby provide needed flexibility to the grid as it drives for
cleaner power. ACER will deliver its broader assessment in April 2022.
Part of the fallout from the recent political panic over high gas prices has
been that some countries, notably Spain and France, have argued that the
rules of EU electricity markets need to change. This is because gas price
increases have directly fed through to electricity price increases, even
though gas makes up only a part of the electricity mix. This has led to an
equally strong response from other countries arguing that no change is
required. The European Commission called on ACER to referee the dispute
and it has just published preliminary findings.
ACER’s analysis
The ACER analysis shows that countries with lower proportions of gas in
the electricity mix, and those with better interconnections with neighbours,
have been less affected by increases in electricity prices. This is an
unsurprising but important observation. Reducing levels of fossil gas in the
energy mix and sharing electricity resources across the EU must remain top
policy priorities.
ACER goes on to argue that increased volatility in gas and electricity prices
will be an inevitable consequence of the move to a renewables-based
energy system. However, rather than try to suppress this volatility, ACER
says we should learn to live with it. This is because it is necessary to drive
the investment in flexible resources, including demand response, which is
essential to keep the lights on as renewable volumes increase.
Despite this push-back, ACER has not entirely rejected the claims by Spain
and France. It has deferred consideration of two key issues until a final
report in April. These are whether short-term price signals are the best way
to drive investment and how to protect consumers from price volatility.
What’s needed: protecting vulnerable consumers
Viewed through the eyes of consumers, these questions are closely linked.
The current rules mean that consumers must justify investment in
instrumentation and control technology on the expectation that they will
save future energy costs. This will remain the preserve of the wealthy and
engaged for some time to come. Everyone else must endure the
consequences of volatile prices. This is not acceptable from a climate or
social perspective. It is necessary to undertake an urgent programme to
deploy the digital technology that will create flexible demand and do so in a
way that is socially fair. This will enable the deployment of renewables to
continue at pace and ensure that the most vulnerable consumers will be
insulated from periods of high energy prices.
...More region-specific marginal cost calculations
Perhaps the biggest blind spot in the ACER commentary is the implication
that the current system produces prices that accurately reflect the marginal
cost of electricity production. Prices are averaged over large balancing
zones, often covering entire countries, ignoring the different values of
electricity at various locations. With more renewable electricity and new
demands from the electrification of heat and transport, system balancing
must happen locally. This will require marginal cost calculations which are
much more granular than produced by the current system. Moreover, the
cost of non-energy services, such as inertia and reactive power, will become
a more significant part of overall consumer costs.
...Electricity market reform
Electricity market reform will be essential to cope with the emerging
situation. It will happen in one of two ways. Either the current wholesale
market rules will remain unaltered and grid operators (at both transmission
and distribution levels) will have to strike flexibility and other contracts to
operate the physical grid. These contracts would, by default, become the
key component of the market arrangements. However, grid contracts have
traditionally been bureaucratic and have failed to stimulate rapid growth in
demand response. Eurelectric has recently published a report which sets out
the approach envisaged by the industry.
Alternatively, a programme of market reform could create prices that vary
between locations and even include non-energy cost elements. In this
situation, consumers could provide the required flexibility simply by
adjusting consumption to avoid high prices. This would be much easier to
manage for those looking to offer new energy products and services to
consumers.
The debate over electricity market design is not one of change versus no
change. Instead, it is between an increasing dependence on explicit grid
contracts or our willingness to create the new markets that allow a direct
consumer response to price.
The reform process is already underway and must continue at pace to
ensure a lack of flexibility does not apply a brake to energy system
decarbonisation. ACER must accept that reform is inevitable and decide
which pathway best serves the interest of consumers.
By Simon Skillings and Lisa Fischer
This article is republished with permission from E3G and Energypost.
4. Distributed Energy Resources and
Smart Grids: an opportunity or a
distraction?
Distributed Energy Resources (DERs) are poorly understood by the
utilities, explain Doyob Kim and Alyssa Fischer at the IEA. Part of the
problem is that new innovations and solutions are coming fast, and policy-
makers aren’t creating the incentives and frameworks to make them an
imperative. But, done right, the successful integration of DERs into the grid
will accelerate electrification, address grid stability, and reduce spending
on expensive ‘old world’ infrastructure. All are essential for meeting our
clean energy goals, say the authors. The list of DER solutions is extensive
and growing, including rooftop solar, household/buildings battery systems,
EVs, digitalisation, smart grids, demand response solutions, bi-directional
power flows, data collection, smart heating, advanced inverters, Virtual
Power Plants, and more. The authors look at each technology in turn, as
well as pointing at the solutions that are needed to make them part of the
electrification revolution. But if they remain a mystery, they will never be
taken seriously by the utilities.
There can be no doubt that the recent unprecedented heat waves, flooding
and tornadoes that hit the Northern Hemisphere were largely driven by
climate change. Climate impacts like these were a major point of discussion
at recent G20 meetings, prompting the release of the Energy and Climate
Ministerial’s Communiqué on July 23. The communiqué emphasised the
importance of distributed energy resources (DERs) for addressing both
climate and energy security challenges. In addition to their decarbonisation
and climate change mitigation benefits, DERs can help shield against the
impacts of extreme weather events.
Do utilities understand DER?
However, many electric utilities still struggle to understand how DERs fit
into the wider energy landscape. What are they and how can they be used to
improve grid reliability and save on energy costs? Are they worth the
trouble?
DERs can generate or store energy, or manage its consumption depending
on type. The term ‘DER’ covers a wide range of technologies that are
located close to customers, such as energy efficiency and demand response
solutions, solar photovoltaic (PV) assemblies and batteries. DERs are
sometimes more narrowly defined as ‘behind-the-meter’ resources. Behind-
the-meter solutions can be something of a black box, providing little
transparency to grid operators or utilities.
Rooftop solar, electric vehicles
While energy efficiency and demand response solutions are not new,
rooftop solar, and electric vehicles (EVs) have been driving recent growth
of DERs in some countries. The IEA estimates that 179 GW of distributed
solar were added globally from 2017 to 2020. China and the United States
contributed to almost half of new installed capacity. EV stock has tripled
since 2017 to surpass 11 million in 2020. Almost 80% of the cars are on
Chinese and European roads. These trends are expected to continue in more
countries in the coming years.
DERs support decarbonisation in many ways, especially by supporting fuel
switching. Distributed solar can replace fossil fuel generators. EVs enable
the switch at scale from oil for transport to electricity. As the scale of clean
renewable electricity supply grows, EVs and other electrification solutions
can extend its use to new sectors. In the IEAs Net Zero Scenario, global EV
sales grow by a factor of 18 from 3 million to 56 million. Additionally,
some 600 million heat pumps will provide clean heating by 2030, while
solar PV will more than quadruple to reach 633 GW by the end of this
decade.
The rapid penetration of DERs is posing new
challenges to the 20th-century power grid
Most grids are decades old and built for outdated 20th-century power
systems, where electricity was produced by large, centralised generators
connected to transmission grids and flowed to consumers in only one
direction. Power demand was stable and price-inelastic. The primary risks
for grid operators were large generator and network failures. There was
limited incentive to understand consumer demand patterns, so power lines
were only reinforced enough to accommodate peak load.
Weather-dependent variable renewables
Since the advent of DERs, the power landscape has been transforming. A
growing share of electricity is produced by weather-dependent and variable
renewables, requiring increased flexibility to ensure consistent supply to
meet demand. For example, after the sun sets, flexibility solutions like
battery storage enable solar power to meet evening demand. Distributed
generators present another challenge to utilities in the form of bi-directional
flow of power. When power flows from consumer-owned solar to the grid,
it can overflow power line capacity, resulting in more frequent grid
congestion.
Smoothing out peak demand
Electrification of end-use devices can place additional burden on grids.
Many consumers follow similar daily routines, like coming home from
office jobs around the same time in the evening. When vast numbers of
commuters plug in their electric vehicles to charge and turn on their electric
heat pumps, power demand can spike and overwhelm the grid. A cost-
benefit analysis on EV deployment in New York revealed that EV charging
could require around USD 2.3 billion more in grid upgrade and generation
costs across the state from 2017 to 2030, unless peak demand is smoothed
and distributed across off-peak hours.
Visibility and control of individual DERs
All of these emerging challenges should motivate grid operators to proactively manage networks and
behind-the-meter resources. However, many operators lack visibility and control over individual
DERs. Power consumption is becoming increasingly variable, especially as consumers respond to
dynamic price signals and shift their consumption to times when power is less expensive.
Rooftop solar PVs and other variable renewables can add additional complexity to predicting
consumption patterns. For example, grid operators struggle to plan for periods when clouds block the
sun and PVs are unable to meet demand.
Digitalisation can transform DERs into valuable
grid assets
Many of the challenges presented by DERs stem from the fact that they are largely invisible and
cannot be controlled by grid operators, which means it is difficult to integrate them into the overall
operation of the grid. Digitalisation can help address this challenge. Smart digital solutions enable
DER owners to monitor and manage their resources in real-time. This can help grid operators more
closely monitor and influence DER operations, boosting the value of DERs to the grid as a whole.
Digitalisation is especially powerful as it can be scaled to any aggregated level, from individual
devices to buildings, communities, or even a larger region.
Grid-connected electrified heating
Grid-connected electric resistance water heaters enable better management of electrified heating.
They can quickly modulate power load, shift daily energy consumption to match solar generation,
and reduce peak demand in an emergency without any noticeable disruption to consumers.
Smart heat pump water heaters are less responsive, but can help manage daily energy demand and
produce 2.5 to 3 times more energy than they consume.
Advanced inverters
Advanced inverters can help mitigate grid issues caused by rooftop solar generation. When equipped
with advanced inverters, solar installations can adjust their power generation rate to reduce grid
congestion and can remain online through minor grid disturbances. When a substantial number of
solar installations simultaneously disconnects from the grid too early, there can be severe
consequences. Such a series of events contributed to Europe’s largest ever blackout, which was
experienced by more than 15 million households across the continent in 2006.
Batteries
Needless to say, batteries, including those in EVs, are versatile resources. Batteries deliver up to 13
co-benefits to customers and the grid. Home battery pairing enables consumer to make the most of
the low-cost clean energy provided by rooftop solar. These capabilities make battery storage
indispensable to burgeoning virtual power plant (VPP) projects.
Grid-interactive efficient buildings
Grid-interactive efficient buildings that integrate a range of DERs can optimise building energy
‘prosumption’ and can be valuable assets to the grid. A recent study estimated that around 9,000
public buildings in the US could generate up to USD 70 million per year in value for grid users if
they were upgraded to be grid-interactive.
Virtual Power Plants (VPPs)
VPPs can aggregate DERs scattered across large regions and provide every grid service. Advanced
optimisation algorithms, such as artificial intelligence, enable VPPs to deliver value to DER owners
while maintaining grid reliability and meeting customer preference. The world’s largest VPP project
under development in Australia comprises 50,000 solar and battery systems.
Digitalisation alone is not enough. Every aspect of the power system needs transformation
Even when equipped with digital technologies, DERs can still create challenges for grid operators.
Unless DER owners are incentivised or mandated, they have little reason to consider the impact of
their devices on the grid as a whole. Compensation and regulation can encourage DER owners to
locate and operate their devices in better alignment with grid status in real-time, providing diverse
benefits.
Compensation can help align the interests of DER owners with the needs of the grid, improving both
grid reliability and DER economics. Electricity tariff design can ensure fair remuneration for the
value created by DERs, which can be time- and location-dependent. Regulators can facilitate the
aggregation of small-sized DERs and their participation in the wholesale electricity market. Incentive
schemes can also encourage utilities to procure DERs to replace costly grid upgrades.
Regulation can introduce minimum requirements to help maintain grid reliability. Data collection
rules can improve oversight of DERs without incurring onerous cost burdens to their owners.
Regulation also helps limit the impacts of crises when energy exports into the grid need to be
curtailed, for example. Two different sets of rules typically govern power generators and consumers.
Tailored grid interconnection rules can help facilitate the use of highly controllable batteries for both
generation and consumption.
Furthermore, grid operators need digital management systems to implement compensation schemes
and enforce rules. Advanced metering infrastructure has been one of the first such solutions to be
deployed at scale. Distributed energy resources management systems (DERMS) can be used to
register and manage DERs effectively. Addressing data privacy and cybersecurity also is crucial.
Without interoperability, consumer devices, aggregators and grid operators cannot efficiently
communicate together.
It is important to emphasise that the complexities of the new energy ecosystem should not
compromise the sustainable growth of DERs, which are a main driver of the net-zero energy
transitions. Besides, it is indispensable to proactively engage consumers, who are at the centre of the
energy system transformation, to leave no one behind. The ongoing evolution of DER technology,
regulation and business models will continue to present new solutions and challenges. As this field
evolves, the IEA continues to work with countries around the world to help identify the best, most
innovative solutions to these diverse challenges through our work on the Digital Demand-Driven
Electricity Networks (3DEN) Initiative.
by Doyob Kim and Alyssa Fischer
This article is republished with permission from IEA and EnergyPost .
5. EU and China trace parallel paths
towards energy security
Recent years have demonstrated the interconnectedness of the global
economy and the symmetry of shocks faced by both the EU and China. The
challenge posed by the global pandemic has presented both regions with
both medical and economic crises. More recently, both parties have faced a
natural gas supply crunch, underlining what they have in common when it
comes to their energy goals.
The shortage of natural gas globally has driven unprecedented increases in
wholesale gas prices, bringing into focus not just the increasing integration
of gas markets globally but also the commonality in national risks, and by
extension policy goals, in the EU and China.
The issue of energy security is of central importance to both China and the
EU. Both are increasingly dependent on imports of natural gas to secure
their energy needs. EU gas imports stood at 80% of consumption in 2020 as
domestic production declined, most notably in onshore Dutch production.
Similarly, China’s import exposure, whilst slightly lower at 40%, continues
to rise in line with increasing energy demand which is powered by strong
economic growth and the switch from coal to gas. This is expected to
continue as China looks to meet its NDC for coal use to peak by 2030.
In response to this common challenge, both China and the EU can point to
common areas where cooperation and dialogue could prove mutually
advantageous.
These fall into three categories:
● Global LNG capacity and gas transparency.
● Price resilience – contract design and procurement.
● Renewable energy deployment and market design.
Global LNG capacity and gas transparency
Demand is expected to continue to outstrip the annual capacity of LNG
growth for many years to come. This will contribute to a tight market up
until 2025. However, anticipated capacity increases will exceed annual
demand increases post 2025, when the gas market will loosen.
Baringa’s analysis of future LNG projects shows that around 70% of
additional capacity post-2025 will come from the US. Biden’s target for a
zero carbon power generation sector by 2035 is expected to create a huge
surplus of domestically-produced gas. Much of this capacity resides within
crucial swing states in the US, where previous Republican presidential
candidates have made political traction from weaponising Democrat
incumbents’ decarbonisation agendas, which they describe as ‘a war on
jobs’. To manage this political risk from the decarbonisation of power
generation, a policy pivot to export offers a natural solution. This additional
US capacity would provide extra liquidity to global markets, providing both
depth and alternative supply sources for both EU and China LNG
consumers.
Source: Baringa.
A common challenge raised by US shale has been the lifecycle emissions of
the gas. The gas extraction process, as well as gasification, transport, and
liquefaction steps, significantly increase the emissions impact of US shale
gas. This is driven primarily by methane leakage at each stage which is 80
times more potent than CO2. This has undermined the willingness of
consumers to use US gas, given the potential environmental implications.
Notably, the Irish government has banned imports of fracked gas due to
these emissions concerns.
In order to allay these concerns, cooperation between China and the EU to
develop transparency requirements for global gas could raise consumer
confidence over the lifecycle impact of shale gas emissions. In addition,
greater transparency is likely to create competitive incentives for shale
producers to work to reduce emissions.
Political players have also started to act to legitimise the role of shale gas.
Recent commitments on methane emissions from Biden at COP26, most
notably a target to reduce methane emissions by 30% by 2030, has the
capacity to improve the image of US shale gas. After a series of rollbacks of
regulations on methane venting, flaring and leakage from the Trump
administration, Biden era targets provide the opportunity to incorporate US
LNG into the global LNG market.
Recent deals between China and US LNG exporter Venture Global LNG for
4 million tonnes of LNG per year underline the potential for US LNG to
deliver additional supply to a tight market.
https://www.iea.org/articles/methane-tracker-database
Price resilience – contract design and
procurement
The balance between the security of supply and cost is borne out in the
design of contracts for natural gas imports. Here, recent events have
highlighted the potential volatility of a liberalised spot market-based design,
relative to a market dominated by long-term contracts. Finding the right
balance is an area of common interest.
European markets have predominantly embraced decentralised and
liberalised markets, with prices being set by gas on gas competition in spot
and futures markets. As a consequence, European consumers have benefited
in recent years when wholesale prices are low, acting as a swing market for
excess global supply. However, exposure to spot prices when they are high
has a corresponding negative outcome; making Europe much more
vulnerable to the price shock of recent months.
In contrast, China’s preference for long-dated contracts has insulated
Chinese consumers from the price shock to a greater extent than consumers
in Europe. For example, around 80% of Chinese contracts were long-dated
as of 2018*[2]. With European capitals such as Madrid calling for changes
in European procurement, this may represent a valuable knowledge sharing
opportunity for the two parties, allowing them to review and discuss the
impact of their different models and perspectives.
Alternatives such as fixed volume but flexible price contracts could provide
a ‘third way’ between the two market designs.
Renewable energy deployment and market design
The renewable energy revolution offers the opportunity to harness national
renewable resources without relying on imports. Indeed, the development of
the post-fossil economy redefines not just the domestic energy system but
also national external relations and the geopolitical environment more
generally.
However, as renewable production increases to take a greater share of the
energy mix, additional flexibility in grid management is required in order to
manage the variability in renewable output. In addition, the prospect of
significantly reduced marginal costs from renewables increases the
efficiency advantages of market-based dispatch, with lower price sources
being prioritised in merit order.
The current market design of the Chinese power market limits the
deployment of renewables at scale. Supply and demand are managed by
means of state dispatch, with industries being offered set supply
requirements at a standardised price. These terms favour base-load power
technologies which can provide predictable capacity, as opposed to more
volatile generation from renewables. Flexibility is provided by some
ancillary markets, with power companies paid to provide usable ramp-up
capacity to meet changes in demand.
As renewable energy production increases, greater flexibility is required in
order to match supply and demand. China is currently trialling eight spot
markets which allow for market-based dispatch. Leveraging price signals
allows for a market-based allocation of supply to meet power demand,
incentivising flexible dispatch from generators and rewarding the lowest
cost technologies.
Embracing a liberalised market approach does come with some
disadvantages for China. Specifically, liberalising prices removes certain
levers which Chinese authorities have traditionally used to achieve specific
economic and social goals. Namely, price setting has allowed authorities to
subsidise commercial activities and to encourage social stability through
energy bill management for households. Nevertheless, the gains from
liberalisation are expected to outweigh these disadvantages.
The European experience offers opportunities for valuable dialogue. Power
markets in the EU are liberalised, with most countries offering long term
capacity markets, day ahead markets and balancing intraday markets to
manage supply and demand based on price signals. In addition, the depth of
liquidity has been increased by means of an active policy of developing
interconnectors between the national power grids of member states.
China’s authorities have also signalled the existence of these twin goals,
both to develop market-based dispatch through price liberalisation and
greater liquidity in markets by integrating regional power markets through
transnational power exchanges. The integration of renewable resources into
the energy mix offers the palpable benefit of bolstering energy security by
reducing national exposure to fossil fuel imports. However, these goals
demand challenging market reforms. The opportunity to learn from the
European experience may provide opportunities to smooth China’s
transition to a liberalised power market.
Summary
2021 highlighted the challenge of energy security in both China and the EU,
as global shortages of natural gas drove wholesale prices to record highs.
This common challenge creates shared opportunities for dialogue and
cooperation. Increasing the global capacity of LNG can be aided by
supporting efforts to incorporate fracked gas into the global energy system
through the use of emissions disclosures. With China and the EU taking
differing approaches to gas procurement, the right balance between long-
dated contracts, which prioritise supply security, and spot market exposure,
which prioritises price advantages, is a natural area of dialogue after this
years price shock. Finally, energy security incentivises renewable energy
deployment. However, this will require market design changes in China,
where valuable insights could be garnered from the European experience.
By Caspian Conran
Caspian Conran is a political economist within Baringa’s Energy Market
and Analytics practice. Baringa is the leading energy consulting and
climate modelling provider and supports firms with the energy transition.
6. Biogas: the green key to energy security
An unprecedented leap in global wholesale gas prices has brought the
importance of security of gas supply into sharp relief. The issue is causing
sleepless nights for energy planners in countries that need to import a
significant proportion of their natural gas consumption, like the EU and
China.
Gas demand in China has risen sharply since 2015, driven by strengthened
environmental protection, the switch from coal to gas and rapid
urbanisation. In 2018, national natural gas consumption reached 287.7 bcm,
of which almost 44% was imported.[3] Can biogas fill the gap?
China is rich in biogas resources and has enormous development potential.
Each year, the country generates nearly 900 million tonnes of grain straw,
2.05 billion tonnes of manure from large livestock and poultry farms, and
250 million tonnes of kitchen waste.[4] According to rough estimates,
China’s biomass could be used to generate 200 bcm of biogas annually, and
the figure could even exceed 300 bcm by 2050.[5]
China is well aware of this option for domestically produced gas. In
December 2018, the National Energy Administration (NEA) included
biogas in the country’s energy development strategy for the first time. The
NEA called on the provinces and nine central enterprises to prepare
medium- and long-term plans for biogas development.[6]
Yet today, despite that huge potential, few available resources are converted
into biogas. The Sino-German Biogas Strategic Alliance Project estimates
that China could produce up to 60 bcm of biogas annually, yet current
annual output is less than 100 million cubic metres.[7]Is China dragging its
heels, or are there other reasons for the slow development of the biogas
industry?
Biogas development in China so far
In fact, China has a long history of biogas development and usage: there are
records of biogas plants in the coastal areas of southern China in the late
19th century.[8] In the 2000s, the Chinese central government offered more
financial support for the construction of biogas plants; total subsidies
increased from CNY 1 000 million (between 2003-2005), to CNY 5 000
million in 2010.[9] In 2009 biogas projects were offered subsidies ranging
from 25% to 45% of the total project cost and a policy similar to feed-in
tariffs (FiT) was created.[10]
While the government prioritised rural household biogas digesters before
2008, it started to focus its support on middle and large scale biogas plants
(MLBP) after 2009.[11] In 2015, the central government started funding bio-
natural gas (BNG) projects for the first time. That year, 25 BNG
demonstration projects were built, followed by the approval of 22 and 18
BNG projects in 2016 and 2017, respectively.[12] The number of BNG
projects approved each year appears to be going down.
In December 2019, the National Development and Reform Commission
(NDRC) issued the ‘Guidance on Promoting the Industrial Development of
Biogas (draft for comments)’. According to the development goals
announced in the document, China would see annual biogas production of
more than 10 bcm by 2025, and this ‘would exceed 20 bcm’ by 2030.[13]
In total, the Chinese central government has issued six key policy
documents defining the role of biogas in the overall energy strategy,
including Agricultural Law, Renewable Energy Law, Animal Husbandry
Law, Energy Conservation Law, the Act on the Development of Circular
Economy, as well as the currently revised Energy Law.[14]
The Cinderella of renewable energy
Apart from the overall biogas policy support framework, a variety of
programs support biogas, ‘initially as household-based, and gradually
switching support to farm-based biogas plants. During 2000–2017, the
central government invested CNY 42 billion (equivalent to EUR 5.5 billion)
in the biogas sector[15], roughly CNY 2.5 billion per year.
However, this needs to be set against the subsidies received by the solar
sector. Since 2010, when the Chinese government declared photovoltaics to
be an important strategic industry, a study by the Paulson Institute has
found that by end-2019 the solar industry had received a total of more than
CNY 100 billion (around EUR 14 billion), and CNY 200 billion (equivalent
to EUR 28 billion) if outstanding subsidies included, equating to CNY 22
billion per year.[16]
Subsidies can give initial support. The question is, when will biogas plants
be financially viable without government aid? A study on the operational
performance of agricultural biogas plants in Germany and China concluded
that biogas plants in Germany are profitable under their current FiT
contracts, but that this is far from being the case in China. ‘[In Germany]
the financial internal rate of return (IRR) ranged between 8.4 and 21.5%.
However, all Chinese biogas plants had negative IRRs, indicating that they
are financially unfeasible.’[17] One of the challenges for biogas plants in
China is the stable substrate supply due to ‘stricter environmental protection
requirements in the livestock sector, especially around Beijing where many
livestock farms closed down’[18].
Government support looks very different in China and Germany. While the
FiT system in Germany gave a subsidy per unit of biogas produced, the
Chinese government gave the funds mainly in the form of subsidies or
grants to households or livestock farms to help finance the construction of
biogas plants. This has led to inefficient use of the biogas plants, low
investment in the end products and inadequate maintenance.
Policies are needed that will support direct financing of biogas projects and
reduced operating and capital expenditure, argues Dr Xu Zhonghua of
TotalEnergies. With financial support provided only during construction,
this means plant owners focus on the initial project costs rather than
operation and maintenance, to the extent that some projects are left non-
operating once built. By contrast, as of 2021, many of Germany’s biogas
plants are no longer receiving FiTs.[19] The plants are required to operate
efficiently and develop a business model that does not depend on subsidies.
Delivering a big leap for BNG