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
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
Letter from the Team Leader
1. Message from the Ambassador of the European Union to China
2. EU moves decisively to curb dependence on fossil fuels and
accelerate the clean energy transition
3. How EU business can support China’s quest for net zero
4. Seizing the innovation opportunities in China’s carbon neutrality
journey
5. Social innovation for the energy transition
6. Will distributed renewable energy pave the way for green electricity
trading in China?
7. News in Brief
8. Featured Publication

Letter from the Team Leader

Dear All,

Welcome to the June 2022 issue of the EU-China Energy Magazine.

We are almost halfway through the year and the geopolitical situation

continues to keep us on our toes. There are no quick solutions to the

military conflict in Europe, and rising energy prices and tightening global

energy supplies make strong energy cooperation more important than ever.

For the EU, moving away from dependence on Russian energy imports is a

top priority, while maintaining the Green Deal. In this issue, we have

invited Octavian Stamate, Counsellor for Climate Action and Energy, EU

Delegation to China, to give an overview of the EU’s strategy in these

unprecedented times, as set out in the REPowerEU Plan.

This issue also includes an article on the new report by the European Union

Chamber of Commerce in China on how European companies are

supporting China’s path to carbon neutrality by 2060, and two articles on

how social innovation and active consumers can support decarbonisation.

It is not often that ECECP blows its own trumpet. This month, however, we

are delighted to include a testimonial from the outgoing EU Ambassador to

China, Nicolas Chapuis, who has taken the opportunity to recognise the

work of ECECP in encouraging cooperation between the EU and China

despite multiple challenges, including but not limited to those posed by the

ongoing Covid-19 pandemic.

This month, ECECP has thwarted Covid-19 once again: we have managed

to publish the June issue on schedule despite our English editor, Helen

Farrell, having tested positive for Covid. Congratulations and thanks to her

and to our ever-patient Chinese editor, Daisy Chi, for once again delivering

a very informative issue against the odds.

Flora Kan

ECECP Team Leader

1. Message from the Ambassador of the

European Union to China

Just over three years ago, I spoke at the Launch Event of the EU–China

Energy Cooperation Platform. In front of a fine gathering of officials,

experts, regulators, grid operators and business representatives from Europe

and China, who were obviously entertaining great hopes for this initiative, I

first and foremost pointed out the good auspices under which this

collaborative effort was beginning its work. High level policy dialogue had

just been held in Brussels, culminating in the signature of a Joint Statement,

in the presence of the top leaders. I also highlighted the enormous potential

for positive engagement between the EU and China in this particular policy

area, which is crucial to achieve meaningful progress in tackling the climate

crisis and to generate a positive momentum in terms of sustainable

development worldwide.

Today, as my tenure as Ambassador of the European Union to China comes

to a close, I am taking stock of what has been actually achieved, and I am

really pleased to note that the Platform and its competent and dedicated

team have definitely met the high expectations held by both sides, and this

has happened in spite of unforeseen and sometimes tremendous challenges,

including, but not limited to, the Covid-19 pandemic, with its retinue of

restrictions and limitations.

The Platform has managed to establish itself as a privileged venue of

interaction, coordination, reflection and productive exchanges between

European and Chinese stakeholders of all extractions. In the course of

dozens of workshops and networking events, on-and offline, discussions

covered topics of mutual interest, such as promotion and integration of

variable renewables in the energy system, market-based financing of energy

efficiency measures, reform of the energy market, introducing innovative

energy solutions, the role of gas in achieving low-carbon development and

so on. The deliberations that took place at these events provided valuable

material for a series of excellent comparative studies and reports, as

required by the Joint Statement. These documents effectively provide a

comprehensive blueprint for a clean energy transition in China, taking

European expertise and experience as a starting point. They also give some

guidance on the adjustments still necessary to make China an even more

favourable environment for businesses that stand ready to offer solutions

designed to facilitate and accelerate the clean energy transition.

The Platform has also helped to meet the ever growing thirst for

information among those interested in the latest energy policy

developments in the EU and China, as well as the prospects and state of

play in terms of bilateral cooperation. I know that the readership of

ECECP’s website and its flagship publication, the now monthly Magazine,

has grown exponentially over time, and its WeChat account now has

hundreds of followers. This outreach work has helped make the EU a

relevant and active presence in China.

Before I conclude, I wish to convey a message to partners and friends of the

Platform, to reassure them that the venue for dialogue and mutual

understanding represented by the Platform is here to stay, and is set to

develop further. Hopefully, it will demonstrate the necessary resilience

against an occasionally turbulent backdrop, and inject the positive (and

clean) energy that is essential to support the ongoing dynamism and

strength of EU-China bilateral relations.

Nicolas Chapuis

Ambassador of the European Union to China

2. EU moves decisively to curb

dependence on fossil fuels and accelerate

the clean energy transition

On 18 May 2022, the European Commission presented the REPowerEU

Plan. This is a policy initiative designed to accelerate a radical

transformation of the EU energy system by significantly reducing

consumption of fossil fuels, while effectively tackling the climate crisis.

The bold move is also a direct response to the global energy market

disruption caused by Russia’s invasion of Ukraine.

The REPowerEU Plan will achieve its objectives through energy savings,

diversification of energy supplies, and an accelerated roll-out of renewable

energy to replace fossil fuels in homes, industry and power generation.

The envisaged transformation will generate growth, strengthen EU energy

security and reaffirm its global leadership in climate action.

The Recovery and Resilience Facility (RRF), a dedicated financial

instrument designed to support the building back of the EU economy in the

post-pandemic era, will provide necessary resources for cross-border and

national infrastructure, as well as for energy projects and reforms.

Saving energy is the cheapest and quickest way to address the current

energy crisis. Therefore the plan puts forward a proposal to enhance long-

term energy efficiency measures, which includes raising the binding Energy

Efficiency Target from 9% to 13%, alongside adoption of short-term

behavioural changes aimed at reducing demand of oil and gas by 5%. At the

same time, Member States are encouraged to use fiscal measures to

encourage energy savings, such as reduced VAT rates on energy efficient

heating systems, building insulation and appliances and products etc.

Contingency measures in case of severe supply disruption and prioritisation

criteria for customers have also been put in place.

The EU is engaged in talks with actual and potential suppliers of gas, in

order to diversify and increase deliveries, while the newly created EU

Energy Platform will enable voluntary common purchases of gas, LNG and

hydrogen by pooling demand, optimising infrastructure use and

coordinating outreach to suppliers. Based on the experience gained with the

common purchase of anti-COVID vaccines at EU level, the Commission

will consider the development of a ‘joint purchasing mechanism’ which

will negotiate and contract gas (and renewable hydrogen) purchases on

behalf of participating Member States. Measures that will require Member

States to diversify their supply sources are also under consideration.

It is clear that EU energy independence can be realistically achieved only

through a massive scaling-up and speeding-up of renewable energy

provision in power generation, industry, buildings and transport. Therefore,

the Plan raises the EU’s ambition in terms of rolling out renewables, with a

Fit for 55 target increase from 40% to 45% for year 2030, matching the EU

Solar Strategy aim for a doubling of solar photovoltaic capacity by 2025

and installation of 600GW by 2030.

To achieve these goals, a new legal requirement will come into force: solar

panels will have to be installed on all new public and commercial buildings

and new residential buildings. The rate of deployment of heat pumps and

integration of geothermal and solar thermal energy in district and communal

heating systems is expected to double. Major renewable projects will

benefit from a shortened and simplified permitting processes, and Member

States will have to designate ‘go-to’ areas, based on EU digital maps and

datasets on environmentally sensitive areas. For hard-to-abate sectors, there

will be a big push to replace oil, gas and coal with renewable hydrogen,

with a target of 10 million tons of domestic production and 10 million tons

of imports per year. At the same time, the Commission will issue a

definition of ‘renewable hydrogen’, to ensure that production leads to actual

decarbonisation. There is also a plan to increase production of bio methane

to 35 bcm/yr by 2030, including through the Common Agricultural Policy.

The EU hopes that, through energy savings and efficiency measures,

electrification, and increased uptake of renewable hydrogen, biogas and

biomethane in key sectors such as industry, transport and construction, it

could save up to 35 bcm/yr of natural gas by 2030 on top of what is

foreseen under the Fit for 55 proposals.

EU Emission Trading System allowances currently held in the Market

Stability Reserve will be used to support the whole process, by

supplementing the RRF financial envelope. Thus, ETS will not only effect

emissions reduction by inhibiting use of fossil fuels, but it will also

contribute towards the strategic goals of EU energy policy. To achieve

REPowerEU objectives, EUR 225 billion is already available in loans under

the RRF. However, an additional EUR 210 billion is needed by 2027.

Financial instruments designed for regional and cohesion policies, the

Common Agricultural Policy and to support innovation will provide

funding of around EUR 35 billion. To allow import substitution, limited

additional gas infrastructure will have to be built, at a cost of a further EUR

10 billion, which will be drawn from the budget allocated to EU Projects of

Common Interest. Almost EUR 1 billion will go towards the necessary

adaptation of the power grid. The amount of money required is significant,

but it is worth every penny, as it represents investment in EU energy

independence and security, and will eventually allow the bloc to save

almost EUR 100 billion per year, by cutting imports from Russia or

elsewhere.

The success of the REPowerEU plan depends to a large extent on the EU’s

successful engagement with partner countries, primarily in the vicinity of

the EU, but also around the world. The EU external energy strategy, made

public as part of the REPowerEU plan, explains the EU’s vision for a global

clean transition: to reduce overall energy demand, ensure fair competition

for resources and boost energy savings, energy efficiency and development

of renewables. These topics were on the agenda of the 10th edition of the

EU-China Energy Dialogue that was held, on the margins of the EU-China

Summit, on 31 March 2022. On this occasion, Commissioner Simson and

Administrator Zhang reviewed progress on the implementation of the Joint

Statement on EU-China Energy Cooperation, signed back in 2019. The

high-level EU-China energy dialogue focused in particular on energy

security, the green energy transition and electricity market reform. LNG,

natural gas and oil markets featured prominently in discussions on energy

security.

The EU and China have a common interest in building a properly-

functioning global energy market that will help them to be less dependent

on fossil fuel imports and accelerate the transition to a cleaner energy

system worldwide. Only by working together can the EU and China achieve

success in reshaping the world’s energy landscape, in order to tackle

effectively the existential threat related to climate change, and to guarantee

the sustainable, secure and affordable supply of energy to humanity as a

whole, for generations to come.

Octavian Stamate

Counsellor - Climate Action and Energy

Delegation of the European Union to China

3. How EU business can support China’s

quest for net zero

On 25th May, the European Union Chamber of Commerce in China

(European Chamber) in partnership with Roland Berger, published Carbon

Neutrality: The Role of European Companies in China’s Race to 2060.

Based on a member survey and extensive interviews, the report identifies

areas where EU-China cooperation can be deepened so that China can

frontload the technologies and holistic solutions it needs to accelerate its

carbon neutrality drive and accomplish its 30/60 Goals.[1]

China’s recognition of the importance of fighting climate change was

reflected in the ambitious pledges made by President Xi Jinping at the

United Nations General Assembly in 2020. The unprecedented scale of the

challenge demands an inclusive approach, with China bringing to bear all

the tools it has at its disposal. It will require China to fundamentally

restructure its energy economy, reshape whole industries and accelerate the

development of nascent technologies and value chains, as well as promote

an environmentally conscious and energy-efficient society.

Driven by stringent environmental regulations and consumer demand, and

guided by their global corporate carbon neutrality pledges, European

companies are well placed to help China to pursue its 30/60 Goals. The

report finds that 67 per cent of European companies operating in China are

already pursuing carbon neutrality, and 40 per cent have established

decarbonisation teams in China, many of which report directly to the board.

However, three main barriers currently prevent European firms from fully

contributing to China’s carbon neutrality drive.

First, more policy guidance at the national, local and sectoral levels is

needed to enable businesses to make informed investment decisions today

with 2060 in mind. Although China has started rolling out its ‘1+N’ policy

framework, it needs to be quickly fleshed out. As it stands, 65 per cent of

European companies report that a lack of industrial guidance and best

practice sharing from the government or NGOs could prevent them from

achieving their decarbonisation goals in China.

Second, there is also the need for a more transparent, open, and flexible

power market. While China leads globally in installing new renewable

energy generation capacity, barriers prevent businesses from fully utilising

it. This is a serious challenge for 69 per cent of companies, whose

decarbonisation efforts in China could be derailed without sufficient access

to renewable energy. China’s emissions trading system (ETS) also needs to

be reformed and its deployment accelerated.

Third, the development and roll out of leading green technologies is stifled

by a lack of open markets and common standards, as well as limited

corporate and consumer awareness. For example, 54 per cent of

respondents from the environment sector to the European Chamber’s

Business Confidence Survey 2022 (launched in June 20th 2022) reported

missing business opportunities because of market access restrictions or

regulatory barriers; and 31 per cent report that the lack of a low-carbon

culture in China could be prevent them from achieving their

decarbonisation goals. Furthermore, common standards are needed to

provide assurance to those looking for truly ‘green’ investments and to

eliminate green washing.

Although China’s 30/60 Goals are extremely ambitious, European Chamber

members believe they can be achieved provided China leverages all the

tools at its disposal, including implementing deep market reforms and

utilising proven European technologies and holistic solutions that

companies have developed through experiences acquired on the ground.

Having worked on decarbonisation with government stakeholders, non-

governmental organisations (NGOs) and civil society in their home

markets, they are in a position to make strong contributions.

However, European companies currently face numerous challenges that

prevent them from doing so, which include the following:

A lack of clear information at the national, local and sectoral levels.

The lack of a transparent, open, flexible power market and well-

developed carbon market.

Insufficient access to renewable energy sources.

Investment barriers.

Undeveloped value chains for green technologies.

The absence of a low-carbon culture in China.

Achieving carbon neutrality is the world’s most urgent common mission. It

is also the first subject in history that has managed to align—at least some

extent—all the great powers. They understand that greenhouse gases

(GHGs) have no ‘passport’, and that that exceeding 2°C of global warming

would have disastrous socioeconomic consequences, mainly hitting the

world’s poorest.

China’s 30/60 challenge

WHEN CHINA BEGAN TO open and reform its economy in 1978, the

approach it adopted was ‘crossing the river by feeling the stones’, which

served the country well and gave it the confidence to move cautiously but

steadily forward with further opening, culminating in WTO accession in

2001. At that time, China was a developing economy by most measures,

and hence every step and condition to complete the accession process was

meticulously negotiated.

While it was expected by other WTO members that post-accession reform

and opening would accelerate, China continued to exercise restraint. This

worked to China’s advantage as it selectively opened parts of the economy

to foreign investments where it needed technology and/or competition,

while protecting its domestic companies to allow them to build scale and

develop competence in strategic areas of the economy (this plan became

concrete with the launch of Made-in-China 2025 in 2015, which clearly

outlined the strategic industries in which China had determined to become

self-reliant).

China made remarkable economic progress, and its focus on manufacturing

and exports saw it become the ‘factory of the world’. However, while this

economic model propelled growth at breakneck speed, it also came at a

significant ecological cost. Over the past four decades, China has suffered

rapid environmental degradation because of its over-reliance on cheap,

highly polluting sources of energy (mainly coal) to fuel its manufacturing

economy. The result is huge amount of soil depletion, wastewater, solid

waste, and high GHG emissions from the energy supply and overall

industrial and social systems.

The climate crisis came to prominence as a global topic in 1988, when the

Intergovernmental Panel on Climate Change (IPCC) was formed.[2] Since

then, China’s level of participation in related discussions has steadily

increased. In 1993, China ratified the United Nations Framework

Convention on Climate Change (UNFCCC), and it was a non-annex I

signatory to the Kyoto Protocol in 1988, with ratification following in 2002.

China’s status under the Kyoto Protocol allowed it to only undertake

nationally appropriate mitigation actions (NAMAs), whereby it declared its

‘intent to mitigate greenhouse gas emissions in a manner commensurate

with...[its]...capacity and in line with...[its]...national development goals.’[3]

In March 1994, China officially passed the China 21 Actual Agenda –

White Paper on China’s 21 Actual Population, Environment and

Development, and during the 11th Five-year Plan (11FYP) period, China put

forward the concept of ‘sustainable development’ as a major national

development strategy and put it into practice for the first time.

However, by 2004, China had recorded the world’s largest carbon footprint,

[4] hence investing in low-carbon technologies, strengthening environmental

controls and density controls appeared in China’s 11th Five-year Plan

(11FYP) (2006–2011), and were even more prominent in China’s 12FYP

(2011–2016). Meanwhile, within the context of the Kyoto Protocol, some in

China argued that climate change was largely caused by developed nations,

and therefore those countries needed to shoulder the most responsibility for

fixing it. This argument became harder to sustain when it was reported that

China had emitted more GHGs than the entire developed world combined

in 2019.[5] As the world’s largest carbon emitter, China now accounts for

about 29 per cent of the world’s total GHG emissions, while its GDP

represents about 19 per cent. Hence, China’s carbon intensity is far higher

than world average, and accounts for approximately three times that of the

European Union.

China’s firm commitment to fighting climate change followed when in

September 2020 President Xi Jinping announced to the United Nations

General Assembly China’s pledge to peak carbon emissions before 2030

and to be carbon neutral by 2060 (30/60 Goals),[6] putting climate change

high on China’s policy agenda.

China’s carbon neutrality pledge was not just a result of mounting external

pressure, nor was it following in the footsteps of Europe with its 2050

carbon neutrality pledge and the launch the European Green Deal. The

increasingly extreme weather conditions that China faces and the huge costs

resulting from environmental depletion (estimated at around nine per cent

of GDP) have been pivotal, as has the recognition that the situation presents

just as much an economic opportunity as it does an existential threat.

Decarbonisation is now an imperative in China and local government

authorities and Chinese companies are being forced to address it. Prompted

by President Xi’s decisive commitment, China’s 14th Five-year Plan

(14FYP) (2021–2025) incorporated among its pillars ‘Green Development’,

deemed indispensable to building an ‘ecological civilisation’. However,

although the need to strengthen ecological and environmental protection has

been explicitly acknowledged by China’s top leadership, its national 14FYP

did not provide specific objectives. The few targets included in the plan,

i.e., reducing CO2 intensity by 18 per cent and energy intensity by 13.5 per

cent over a five-year period, lack ambition and are not in line with the top-

down commitments for carbon peaking and neutrality. While various

ministries and government bodies—including the Ministry of Ecology and

Environment, the National Development and Reform Commission, the

National Energy Administration, the Ministry of Housing and Urban-Rural

Development—have issued their own 14FYPs with further details, they still

do not focus on how to practically achieve the 30/60 Goals. This makes

2025 another significant milestone in addition to 2030 and 2060. By that

time China will need to have fleshed out its ‘1+N’ policy framework, and

have added more granular detail at the provincial, municipal and industry

levels.

China is aiming to achieve carbon neutrality under extremely challenging

conditions relative to the rest of the world. This situation is recognised by

European companies and makes it more difficult for them to reach their

own decarbonisation goals in China and, therefore, globally.

WHILE EUROPE IS MOVING towards carbon neutrality at a time when

its per capita electricity consumption and overall energy intensity are

decreasing, China is doing so while its per capita electricity consumption is

continuing to increase, despite its energy intensity decreasing slightly each

year. China’s economic growth is also still largely dependent on

manufacturing for both domestic consumption and export, and while this

remains the case its transition towards an economic model based on

services and consumption—which would allow it to vastly reduce its energy

intensity—is still some way off.[7]&[8]

According to European companies, the main challenges to China achieving

its 30/60 Goals are reducing industrial dependence on cheap energy while

maintaining energy security, and the fact the current energy mix contains

only a small proportion of renewables.

MOST EUROPEAN COMPANIES in China have global decarbonisation

pledges to fulfil and are already comparatively well advanced with their

strategies: 40 per cent have established decarbonisation teams in China,

with many of these teams reporting directly to boards; and 69 per cent have

achieved at least a basic level of preparation.

HENCE, CHINA DOES NOT need to reinvent the wheel in its pursuit of

carbon neutrality. European companies have deployed effective, innovative

decarbonisation technologies and holistic solutions in their home markets

and want to work with China to help it quickly frontload, presenting a

strong argument for deepening EU-China industrial cooperation.

The two most significant drivers for European companies to decarbonise

are environmental, social and governance (ESG), and regulation. This

creates a mutually reinforcing situation as these companies are both driven

to meet their own corporate commitments and obligated to comply with

regulations, globally.

AT THE GOVERNMENT LEVEL, the European Union (EU) is already

deep into the process of developing and rolling out the European Green

Deal. Much like China’s provinces, each EU Member State is at a different

level of development and has unique socio-economic conditions, making

the EU a logical institutional partner for China to collaborate with on

formulating practical decarbonisation policies.

A less tangible challenge for China will be bringing about a wholesale

change in mindset, starting with local officials that are still highly target-

driven and often struggle to see the bigger picture (this was one of the main

reasons for the electricity shortage and curtailment crisis in 2021). Even

when local authorities are presented with KPIs related to decarbonisation,

the methods employed for achieving them often lack a measured, scientific

approach. Addressing this will require further fine-tuning to China’s

environmental governance model to ensure robust incentive and

accountability mechanisms are in place through more effective and

professional enforcement at the local level.

Within corporate culture and consumer society there also needs to be a

wider understanding of both climate change and the need for international

common standards to ensure that ‘green washing’ does not take hold. This

can be accelerated through the creation of a framework that enforces

corporate transparency and accountability regarding emissions. All

companies operating in China must be held to the same environmental

standards and should be subject to the rigors of independent, third-party

environmental assessments, adopting well-established international

standards. China could play a proactive role by adapting and tuning its

economic and industrial conditions and not introducing new local standards

which would make it challenging, if not impossible, to create a global

carbon market.

Despite these challenges European companies believe that China can

achieve its goals: 75 per cent believe China will be able to peak emissions

before 2030, and 78 per cent think it can become carbon neutral by 2060.

Conclusions

CHINA AND THE EU HAVE both made formal commitments with

stringent goals to become carbon neutral. Both are facing unprecedented

challenges to drastically reshape their economic and social models across

all value and supply chains, as well as to develop a low-carbon culture

among businesses and the population as whole.

China’s success will be predicated on its ability to leverage as much

expertise as possible. This will require providing European companies with

increased market access and a level playing field on which to operate so

they can make greater and more proactive contributions.

A clear mutual benefit in this regard is that China is fertile for both

receiving and developing European technologies and cooperating to

improve and localise them. European companies can also significantly

contribute to China’s 30/60 Goals through comprehensive environmental

protection and circular economy solutions, including resource recycling,

energy efficiency, demand side electrification, district energy modelling,

energy storage, green hydrogen, and digitalisation of the energy system,

among others.

However, it must be borne in mind that even with the political will to

achieve carbon neutrality, China’s plan could be derailed by decoupling.

The scale of the challenge of achieving the 30/60 Goals demands an open

and collaborative approach – China cannot go it alone. The EU and China

must therefore remain open and committed to multilateralism and keep the

channels of bilateral communication and cooperation, as well as trade and

investment, fully open.

Guido D. Giacconi

Vice President, European Union Chamber of Commerce in China

4. Seizing the innovation opportunities in

China’s carbon neutrality journey

Recent energy crisis and power crunch have reminded us once again how

painful it can be to cut off dependency on fossil fuels while transitioning

towards a low-carbon energy economy. The shift brings about disruptive

changes to the way we supply, transmit, store and utilise our energy, and

creates unprecedented challenges to the overall planning and operation of

the existing energy system.

In the face of the ever increasing pressure to meet climate goals,

governments and enterprises are striving to overcome the pains of the green

energy transition while establishing new models to adapt to the changes. To

achieve climate neutrality, the pace at which we need to decarbonise is at

least six times faster than what has been realised globally so far. The main

strategies are to maximise the use of renewables and clean energy carriers,

and to improve energy efficiency[9].

Technological innovation, therefore, is needed more than ever to deliver the

required drastic changes, and is now increasingly the primary driving force

of the energy transition. Breakthrough technologies, along with the

penetration of existing advanced technologies, have the potential to reshape

the competitiveness of different fuels and energy sources, just as we have

witnessed in the solar and wind sector over the past decades.

Ever-increasing momentum for green innovation

THE ONGOING PANDEMIC and its aftermath, along with the current

regional conflict in Ukraine, have added more uncertainties to the energy

transition agendas. However, both the EU and China are firmly determined

to make innovation a focal point in the drive to deliver on long-term carbon

neutrality objectives and position themselves to take the lead in the global

value chains for clean transition.

This momentum is translated into concrete plans and actions as well as

increased funding for low carbon technology R&D. EU’s newly introduced

REPowerEU plan and China’s 14th Five-Year Plan for Energy Technology

Innovation both clearly signal an accelerated push for low carbon

innovation.

R&I main contributions to the REPowerEU objectives (Source: EU).

IN ADDITION TO POLICY support, research and innovation are critical

for delivering solutions and system transformations. Under Mission

Innovation, both the EU and China have pledged to double their public

clean energy R&D spending over five years. IEA’s recent tracking statistics

show that in the US and Europe, bigger budgets drove the growth of

spending on low-carbon energy research, development and demonstration

(RD&D), while China, with a relatively lower base, has seen a faster

acceleration in its spending on clean innovation. Between 2015-20, China’s

public low-carbon energy RD&D budget grew from USD 2.5 billion to

USD 4.1 billion, up 64%, while the EU’s RD&D budget increased by

26.5% to USD 10.5 billion[10].

There is good reason to believe that these spending commitments will inject

creativity into the transition towards a clean, sustainable and affordable

energy economy.

EU-China collaboration: crucial to energy

innovation growth

EVEN THOUGH UNPRECEDENTED decarbonisation efforts have been

made by individual economies, the world needs enhanced international

collaboration if it is to achieve the pace of green transition needed to avoid

climate disaster. The EU and China share broad common interests and goals

for the clean energy transition. These two major economies, which are

jointly responsible for one third of the world’s final energy consumption,

are both constructive forces and key contributors to the drive towards a

global low carbon transition. Moreover, EU and China have a lot of

common ground when it comes to advanced clean energy technologies and

industrial manufacturing capacity, which are a prerequisite for productive

collaboration in energy innovation and bringing innovative technologies to

the market.

In particular, China’s enormous market, as well as its diverse energy

conditions and application scenarios have provided rich soil in which

innovative technologies can be tested and flourish, sparking more cutting

edge breakthroughs.

The efforts required for China to move from carbon peaking to carbon

neutrality in 30 years has placed significant challenges on its existing

energy system. These include greening the power supply while phasing

down coal-fired plants, unlocking system and market flexibility to adapt to

the increasing share of renewables, as well as optimising energy use

through sector coupling and increased energy efficiency. However, every

challenge come opportunities. China’s push to reach carbon targets

represents the biggest single opportunity for those businesses who are ready

with innovative technologies and solutions to stand out in the low carbon

picture, and will ensure the best possible outcomes in an incredibly

competitive space.

Viktorija Kaidalova, Head of Section of Foreign Policy Instrument,

Delegation of the European Union to China, made this point in her opening

remarks in a recent innovation-themed online conference jointly held by

EU-China Energy Cooperation Platform (ECECP), EU Chamber of

Commerce (EUCCC) and EnergyPost at the end of May:

‘The 2019 EU-China statement on energy cooperation identifies four main

areas for joint activities, including boosting cooperation between innovative

businesses to accelerate clean energy. There is great potential for

cooperation between the EU and China in this respect. The EU is ready and

willing to share its industry-leading experience and cooperate with other

countries. This could include sharing our best practices and regulatory

approaches and developing joint projects.’

Where can EU innovation help China?

IN WHAT AREAS CAN INNOVATIVE EU technologies and experiences

help China to address its transition challenges and bring the most added

value to the low carbon endeavour? During the two days of online

conference centered on energy innovation, experts and analysts from the

EU and China engaged in extensive discussions and showcased examples of

how the deployment of some key clean technologies can contribute to

sustainable development and climate targets.

● Carbon technology

CHINA IS THE WORLD’S largest emitter of greenhouse gases, hosting the

majority of the world’s coal-fired power assets. The ambitious and

formidable 30/60 target has brought carbon technologies such as CCS,

CCUS, direct capture and carbon removal into the spotlight. That is because

alongside the rush to install renewable capacity, the replacement and

phasing-out of coal-fired power plants cannot happen overnight: carbon

technologies are still needed to reduce these residual emissions during the

transition period.

Unlike the EU, which is focusing on deployment of CCS to curb industrial

emissions, China’s current efforts are mostly centred on the power sector,

explains Xu Zhonghua, vice president of TotalEnergies R&D for Asia and

national chair of the Energy Working Group at the EUCCC. However, it is

engaging in various demonstration and pilot projects across different sectors

and showing greater interest in developing CCUS.

In fact, for some time CCS research has maintained positive momentum in

EU-China cooperation. A case in point is the Horizon 2020 project

CHEERS (Chinese-European Emission Reduction Solutions[11]). Launched

in October 2017, it is funded by the European Commission and China’s

Ministry of Science and Technology. It is the world’s largest chemical-

looping combustion (CLC) based carbon capture project, its aim being to

provide heat recovery steam generation with CO2 separation, demonstrating

the effective application of CCS in industrial operations. The innovative

CLC-CCS technology offers considerable potential for retrofitting

combustion processes and has the potential to remove 96% of combustion-

related CO2 while eliminating capture losses to almost zero[12].

But how can such innovative carbon technologies be shifted from pilot

projects to commercial scale deployment? According to energy and climate

analyst Simon Göss, regulatory certainty and suitable incentive instruments

are crucial for a commercial roll-out. ‘The best way is to integrate CCS into

carbon pricing, as is currently done in the EU ETS. Carbon prices are at a

level that creates a business case for CCS.’ However, in China, the national

carbon market was only established in 2021, and thus far there are no clear

price signals to guide business decisions. This represents a key challenge

for carbon tech commercialisation.

● Biofuels

MODERN BIOENERGY SUCH as biogas and liquid biofuels are integral

and strategically significant in the low carbon landscape. Bioenergy not

only offers a clean and sustainable fuel for transport sectors, but also offers

the opportunity to use organic waste. That is particularly relevant for an

agriculture superpower like China that is experiencing rapid urbanisation.

Despite abundant sources for biofuel production, China’s current level of

industrialisation in the sector is still low compared to Europe as a whole,

and to Sweden and Denmark in particular. However, the newly released 14th

Five-Year Plans on bioeconomy and renewables sent out stronger policy

signals in support of the spread and application of advanced biofuels in key

areas such as municipal administration and transport. They signal a boost

for China’s biofuel sector, and are likely to unlock more opportunities for

market-ready EU solutions.

Swedish truck manufacturer Scania advocates a process that creates biogas

from sludge, (a water treatment byproduct)[13]. Mats Harborn, CEO of

Scania China, believe biogas has a bright future in the Chinese market. The

company is working with the city of Rugao, in Jiangsu Province, to set up a

pilot project to prove the concept.

‘China today uses energy to dry the sludge and reduce the volume, and then

puts it into landfill. Instead, we could then digest it and make usable gas

that can go straight into the gas network, or can be fed into factories, or

upgraded to fuel gas. In Sweden, a water treatment plant takes water as a

raw material to produce gas, heat, electricity and fertilisers. We want to see

wastewater being used as a resource to be upgraded into something

commercially sellable. We’re on the doorstep of big developments of this

seemingly simple technology.’

Novozymes, a Danish biological solution provider, applies breakthrough

technology that uses cellulase enzymes and yeast strains to increase the

production efficiency of cellulosic ethanol from agricultural and forestry

waste. The company estimates that if E10 fuel regulation (10% ethanol

blending in gasoline) is fully implemented, G2 cellulosic fuel ethanol could

meet 5% of China’s annual gasoline consumption. The technology has the

potential to reduce CO2 emissions in China’s road transport by 37 million

tonnes, equivalent to the annual emissions of roughly 15 million vehicles.

● Flexibility solutions

TRANSFORMING AN ENERGY system into a highly electrified one with

high penetration of VRE comes with challenges of greater intermittency

which requires system flexibility solutions. Energy storage technologies

could help meet this requirement. They have the ability to manage

intermittency, enabling a greater share of VRE to be integrated into the

power system while increasing reliability and energy security. While

various energy storage innovation and deployment is under way across the

world, long duration grid scale battery storage systems are gaining

popularity. These systems, such as the flow battery, have the potential to

absorb excess renewable power and deliver flexibility that could extend

over a few days[14]. As promising as they should be, the business models

available for grid-scale energy storage projects in China remain rather

limited, presenting a major obstacle to development of such projects.

However, the country’s recent announcement that it intends to promote

energy storage in the electricity market as independent entities will open up

revenue channels that could help unlock the potential.

In addition to large stationary batteries, small batteries in people’s electrical

vehicles could also help mitigate the inter-day fluctuation of the new power

system when smart charging and vehicle to grid (V2G) technology come

into play. As the biggest EV market of the world, China has greater

potential to leverage the capacity of EV to balance the grid, although there

are still obstacles to be overcome. According to Anders Hove, project

director of Sino-German Energy Transition Project at GiZ, ‘In China, a

stronger grid company could offer greater incentives for smart charging.

Also, more batteries being located in commercial vehicles or in ride-sharing

vehicles could lead to more incentives for smart charging. But the lack of a

real wholesale power market, spot market and real time power prices

remain the major barriers.’

Although energy storage technologies, whether big or small in scale, have a

crucial role to play in providing the flexibility services we need, Anders

believes that they are secondary solutions. Much more flexibility potential

exists in the overall efficient operation of the power system itself, as is

evident in the German power system[15]. This not only includes the spot

power markets that link over a broad geographical area, but also the flexible

operation of the existing transmission system. Clearly, there is no one-size-

fits-all solution, and in fact, every possible source of flexibility will need to

be carefully planned and fully exploited, including demand response and

end-uses with sector coupling.

● Hydrogen and Power-to-X

WHILE INTRADAY IMBALANCES caused by VRE generation might be

better managed with batteries in economic terms, seasonal variations need

long-term storage solutions such as hydrogen.

Hydrogen has the potential to serve as a long-term storage medium in a

renewable-powered world. It can not only absorb the intermittency of

renewables and reduce curtailment, but also be used to produce other H2-

based carriers such as ammonia or methanol which can then be transported

long distances. According to Mickael Naouri, public affairs director of P2X

business in France’s Air Liquide branch, China enjoys key advantages in

developing P2X, with its abundant wind and solar capacity (a prerequisite

for large-scale production of green hydrogen). The company is engaging in

the hydrogen industrial chain, from renewable sourcing and hydrogen

production to transport and downstream, partnering with Chinese

companies Sinopec and Houpu to develop sustainable transport across

China.

‘While we have been focusing on transport sector, which is easy to start

with, the real game changer will be in China’s coal-dominated power sector,

in which hydrogen can be converted to ammonia to decarbonise coal-fired

power plants through co-firing,’ noted Naouri. In addition, hydrogen use in

hard-to-abate sectors such as the steel making industry also offers as yet

untapped potential.

● Floating offshore wind

FOR WIND POWER DEVELOPERS, the dream is to conquer the deep

seas: the stronger and more consistent wind in deep-sea water, further from

the shore, gives a better power yield. Floating offshore wind is emerging as

a key technology focus, allowing for installation of wind farms much

further from the shore at an affordable cost.

An IRENA study shows that depths of over 50 metres, floating offshore

wind may offer a economically and environmentally attractive option

compared to traditional fixed-bottom foundations alternatives, which is

associated with invasive activity on the seabed during installation[16]. This

innovative technology is capable of expanding the global offshore wind

power market to 13 TW[17], sharply up on the current figure of 55.7 GW by

the end of 2021[18]. Regions with large seabed drops like China and Europe

are set to benefit – though it should be noted that the technology is still in

the early stages of commercialisation.

China is poised to be a leader in global offshore wind generation, and its

burgeoning offshore sector is being driven by fast-growing demand. As a

late starter, compared to northern European countries, China can benefit

from the lessons already learned by European wind developers. A recent

UK-funded study suggests that China has the potential to develop 600 GW

of floating offshore wind, representing a multi-billion dollar market[19].

A key characteristic of developing offshore wind is the availability of cross-

sectoral knowledge and experience relating to the offshore oil and gas

sector. This is why energy superpowers like Shell are naturally focusing on

offshore wind and especially the frontier floating-based technology as a

handrail to realise their own net zero ambitions. Shell is actively seeking to

bring its experience, gathered from multiple floating designs with different

combinations of wind turbines in European test projects, into the Chinese

market to explore the technology potential with Chinese stakeholders.

According to Zhang Dongye, offshore wind country manager at Shell

China, the company sees an enormous potential for floating wind

technology in China, combining European innovation with China’s

quickfire approach to benefit both sides.

How to make the most of the opportunities

FOR THESE INNOVATIONS to succeed in China, it is crucial for

European technology providers to understand the differences in the

business, political and cultural conditions of the Chinese market, and most

importantly to embrace them. To that end, working closely with local

Chinese partners will help to adapt the product and solution to the local

market.

Meanwhile, even though some successful innovations in the European

market are very tempting to Chinese stakeholders, building real cases and

pilot projects will still be crucial when introducing Chinese customers to the

new technologies and preparing for market development.

In addition, building up a truly localised ecosystem, which involves getting

to know and working with local partners, from startups to major players, is

the recipe for foreign business to succeed in China, as experienced by

multinational electric business superpower Schneider Electric. According to

Luc Liu, general manager of corporate alliance and digital ecosystems at

Schneider Electric, the company attaches much emphasis on localised R&D

and startups, which helps them to seize early opportunities and thrive in the

Chinese market. Through its Green Energy Management Innovation

Program (an innovation acceleration initiative), Schneider Electric joins

Chinese startups to build solutions that address actual business needs.

‘A lot of disruptive innovations don’t come from powerhouses or

multinationals. Sometimes they come from the edge. So it matters how you

work with the startups from the beginning. They can help secure your

strategic position as early as possible and understand the market pulse. For

China, speed is critical, so you will want to be the first,’ noted Liu.

Looking ahead, clean energy innovation will play a crucial role in achieving

China’s carbon neutrality objectives. That creates countless opportunities

for European business which are ready to bring their groundbreaking

technologies and expertise to China in areas such as grid-scale battery

storage, energy efficiency[20], coal-fired power plant performance

optimisation[21], grid flexibility, floating wind, recyclable wind blades[22],

sustainable heating and cooling[23], as well as cross-cutting systematic

solutions.

Working with China to explore the potential of these innovative

technologies, and facilitating their diffusion across the bigger world, will

support success for both Europe and China, while bringing benefits to the

global community.

Daisy Chi

5. Social innovation for the energy

transition

Can social innovations bring about additional significant energy and cost

savings on the way to a clean energy transition? And how can citizens be

empowered to be the pivotal agents for a sustainable and equitable energy

transition? Horizon 2020, the EU’s research and innovation funding

programme, has funded four research projects on social innovation in the

energy sector between 2019-2022, namely COMETS, SONNET, SocialRes

and NEWCOMERS. Helena Uhde reports for ECECP from the hybrid

conference of the four sister projects, which took place in April 2022.

The recent announcement of the EU’s REPowerEU plan has given a new

impetus to the quest for energy independence and a climate neutral

transition.[24] The EC’s Fit for 55 package, launched in July 2021, aims to

reduce net greenhouse gas emissions by at least 55% by 2030 compared to

1990 levels. Today, the new geopolitical situation, in the context of Russia’s

aggression against Ukraine, calls for further action aimed at significantly

reducing the EU’s dependence on Russian fossil fuels while accelerating the

energy transition.

The REPowerEU plan includes actions on energy saving, diversification of

supplies, substitution of fossil fuels by accelerating Europe’s clean energy

transition and combining investments and reforms in a smart way.[25]

Member States, regional and local authorities, as well as all citizens and

businesses, are called upon to reduce Europe’s energy dependence on

Russian energy through the implementation of the REPowerEU plan.

Among other things, the plan proposes ‘to create regulatory sandboxes to

foster innovation in the sector’ as well as an innovation fund to cover 100%

of the costs of competitive bidding.

Technological innovation alone will not achieve

climate targets

THE TARGETS CANNOT be met through technological innovation alone.

For technical innovations to be adapted, they must be affordable and

accessible. Or as Bill Gates puts it: ‘Although it’s great that governments

are putting more money into green recovery programs and people are

becoming more willing to pay the green premium for, say, building

materials, innovation isn’t coming fast enough. Products aren’t getting

cheaper or better fast enough, and the market isn’t growing as fast as it

could—or needs to’.[26]

Solar photovoltaic (PV) modules are a case in point. Over the last four

decades, the cost of solar PV modules has fallen by 99%.[27] According to

research by the Massachusetts Institute of Technology (MIT), apart from

technological efficiency gains, economy of scale has been the main

contributor to cost savings. To be more precise, about 60% of the total cost

reduction can be attributed to policies that stimulated market growth. A

breakdown of costs from the National Renewable Energy Laboratory

(NREL) shows that hardware accounts for only about 35% of costs.[28]

Marketing, permitting and other administrative outlays account for the

majority of expenditure. These figures show that solar PV systems could be

made even more affordable and accessible.

This type of research, described as ‘new ideas that meet social needs, create

social relationships and form new collaborations’ is recognised by the

European Commission as social innovation. [29] Under Horizon 2020, the

EU’s research and innovation funding programme, four research projects on

social innovation in the energy sector were funded between 2019-2022,

namely COMETS, SONNET, SocialRes and NEWCOMERS. In April

2022, the four sister projects conducted a hybrid conference ‘Putting people

at the heart of the energy transitions’, in which they shared key findings of

the project. According to the project partners, social innovation in energy

fosters ‘people-centred changes in the ways of doing, thinking, and

organising energy’.[30]

Project identifies 18 types of social innovation in

energy

IN THE ENERGY SECTOR, examples of social innovation include energy

communities, local electricity exchanges and new forms of participation

and learning. The SONNET project aimed to identify the different forms of

social innovations in the energy sector.[31] The team analysed 500 examples

of social innovations in energy in Europe and derived a typology of social

innovations, categorised by the social relations and energy activities

involved. The 18 social innovation types include a wide range of models,

ranging from local energy production and consumption and collaborative

eco-efficient housing, to energy education and participatory energy

dialogues. For each of the types, the project provides case studies from

different European countries. Three examples are highlighted below.

Huge untapped energy transition potential

IN ANOTHER STUDY, SONNET’S project team surveyed 6 000 citizens

in France, Germany and Poland. Those canvassed showed a keen interest in

personal investment in decentralised renewable energy generation, but low

actual participation. This is a sign of the large untapped potential for

grassroots involvement in the drive for energy savings. The researchers

found that financial considerations such as return and risk, as well as low

minimum investment requirements, are particularly important when it

comes to getting consumers on board. Local governments can amplify

investment in social innovation in energy ‘by matching investments by

citizens’. Social innovations can contribute to a shift in the behaviour and

role of actors in the energy transition, e.g. the Swiss Energy City label has

turned passive municipalities into active players in the Swiss energy

transition, while campaigns against coal mining in Poland have turned

passive citizens into conscious consumers. Participatory experimentation

and education can thus contribute to a change in roles and a decentralisation

of responsibility for the energy transition.

The importance of local players, such as cities and citizens, in climate

action was also recently stressed by the European Committee of the

Regions: ‘cities and regions remain crucial to speed up the deployment of

renewable energies and improve energy efficiency while ensuring citizens’

engagement and support through open participatory processes’.[32]

What next for social innovation in energy?

While the four projects are ending in 2022, the next generation of

European-funded research projects on social innovation in energy has

already begun: EC², ENCLUDE, EnergyPROSPECTS, and GRETA are

working from different angles on energy citizenship and energy

communities. The timing seems to be just right. The current political focus

on energy transition and energy independence, as reflected in Fit for 55 and

REPowerEU, ‘presents a window of opportunity to move social innovations

in energy initiatives from the niche level into mainstream debate by offering

people simple avenues to get involved’.[33]

Helena Uhde

ECECP Junior Postgraduate Fellow

6. Will distributed renewable energy pave

the way for green electricity trading in

China?

A couple of months after the release of new green electricity trading rules in

the Southern China area by the Guangzhou Power Exchange (GPX),

Beijing Power Exchange (BPX) finally issued the Implementation

Regulations of Green Electricity Trading in the SGCC domain.

Distributed solar and wind participate in green

electricity trading

BOTH DOCUMENTS RECOGNISE ‘distributed new energy’ projects as

power sellers in the green electricity market. According to the BPX

version[34], aggregated distributed renewable projects are eligible to

participate in green electricity trading, while distributed renewable projects

in the Southern China region will be allowed to join subsequently[35]. The

regulation has not provided a definition of aggregated distributed renewable

projects or disclosed the implementation details. International players active

in the distributed power market advise that aggregation means managing

these decentralised assets as a single, large, and predictable power

source[36].

According to current green electricity trading rules, every MWh of green

power will be bundled with one Green Electricity Certificate (GEC).

Therefore, distributed wind and solar power will need to obtain GECs just

like utility-scale projects. This is good news for distributed new energy,

whose eligibility for GEC has been clarified and confirmed. According to

the rules set out on the Chinese GEC website, for the time being only

onshore wind and utility-scale solar can receive GECs, while the schedule

for distributed wind and solar has yet to be published.

Currently, distributed solar is developing far more rapidly than distributed

wind. According to the National Energy Administration (NEA), grid-

connected distributed solar capacity reached 107.5GW by the end of

2021[37], accounting for one third of total solar capacity in China and 60 per

cent of new solar power in 2021. Over 92 per cent of distributed solar is

concentrated in the provinces of the SGCC region[38]. According to SGCC’s

New Energy Development Report 2021, distributed solar’s total capacity

could reach 180GW in the SGCC domain by the end of 2025. There is no

doubt that distributed renewable energy is set to become an important

source of green electricity. Currently, it would achieve prices 10 per cent

higher on the green electricity trading market compared to the historical

grid offtake price. Can the inclusion of distributed new energy help the

green electricity trading market to take off?

But distributed new energy power market trading

still faces hurdles

AS PER GRID COMPANIES’ standards, distributed solar refers to solar

projects with a capacity below or equal to 6MW, which are usually installed

on the rooftops of private households or commercial and industrial (C&I)

buildings and factories. The aggregation (i.e. managing these decentralised

assets as if they were a single, large, and predictable source of energy) and

management of these small-scale installations is a critical technical and

commercial challenge facing the energy industry. Nevertheless, a solution

to the problem may be just around the corner: many provinces have already

started inviting distributed power aggregation operators (such as virtual

power plants) to participate in the ancillary services market.

Most distributed power cannot benefit from being located close to power

users. Unlike utility-scale wind and solar, which is usually situated far from

main power load centers, distributed new energy projects are mostly built

on the rooftops of industrial parks and households, adjacent to power users.

Under the current regulatory framework, when C&I users buy electricity

from rooftop solar projects without their own wired connection, they have

to pay the same power transmission and distribution fees for power

generated elsewhere in the province (except in certain pilot regions).

In 2017, the National Development and Reform Commission (NDRC) and

the NEA introduced the first batch of pilot projects with distributed power

market-based trading[39] (‘隔墙售电’). According to the pilot market

trading rules, under certain conditions (e.g. connection voltage level,

capacity, etc.), power projects can sign direct bilateral trading contracts with

nearby power users. This allows power users price advantages compared to

more distant power supplies, thus reflecting the cost savings associated with

transmission and distribution (T&D). Instead of being charged the full T&D

price, they are charged the price difference between two voltage levels (see

Figure 1 below). However, despite several efforts to promote this reform, its

success has been limited.

DISTRIBUTED POWER TRADING is still very controversial. Some

blame the grid companies for protecting their own interests. It is true that if

more projects start trading power without paying the standard T&D fee, the

status and profits of the grid companies would be weakened. Some argue

that a comprehensive market-based scheme needs to be implemented to

better balance grid companies’ rights and duties, given that they are

responsible for the supply security of all power users.

National and provincial governments appear determined to make progress.

In January 2022, the NDRC issued a guiding policy to ‘Improve the system,

mechanism and policy measures for green energy and low-carbon

transformation’. The policy notably provides the following guidance:

Under the premise of complying with the power planning layout and

the safe operation conditions of the power grid, renewable power

generation projects are encouraged to supply power to nearby

industrial parks or enterprises using innovative power transmission and

operation processes.

Industrial parks or enterprises are encouraged to purchase green

electricity through the power market.

On 25 May 25 2022, Zhejiang province issued the Zhejiang 14th FYP New

Power System Pilot Construction Plan[40]. The plan includes an innovative

scheme to pilot distributed power market-based trading that prioritises sales

to nearby power users.

Many market design questions remain. The inclusion of distributed new

energy in green electricity trading will unlock a large supply of green and

competitive electricity. However, successful implementation is likely to

require a fair, clear, and practical ‘toll fees’ model and comprehensive

ancillary service mechanisms:

● How to improve the ‘toll fees’ model

FIRST, A REVIEW OF the ‘toll fees’ model should ensure that it

effectively reflects the actual cost of the T&D service supplied to

distributed power users. Should the current ‘toll fees’ model cover the

additional costs of grid companies via cross-subsidies[41]? How can ‘toll

fees’ help fund the increasingly expensive power grid upgrades? How

should grid companies be compensated for their investment in grid

infrastructure?

For instance, according to the existing national regulations for the pilot

projects, the T&D cost should be zero if a power user buys new energy

from a power producer at the same voltage level. To the grid companies,

this arrangement appears unfair. The Jiangsu grid company has taken a

different route, and charges CNY 0.05/kWh for distributed power trading at

the same voltages but has not disclosed the calculation details[42].This

discrepancy between regulation and practice makes the introduction of a

fair and comprehensive ‘toll fees’ model more urgent.

● How should distributed power market participants engage in

the ancillary services market (ASM)?

GRID COMPANIES ARGUE against distributed power trading, citing its

potential negative impact on grid reliability. Due to the intermittency of

distributed wind and solar, the daily and intra-daily power deviation of

renewables would exert pressure on the local power grid. It is becoming

inevitable for distributed renewable sources to share the cost of ancillary

services or purchase services from the market. NEA subsidiary Henan

Energy Regulatory Office has released a consultative draft paper on peak

regulation service market rules, according to which distributed wind will

soon have to bear peak regulation costs[43]. Power users are also liable for

some of the cost of grid flexibility. In Jiangsu, even if power users buy

distributed power direct, they still need to pay capacity fees to the grid

company if they are under the two-part-tariff scheme[44] [45]. They also pay

a peak/valley time-of-use (TOU) price , which is the usual measure used by

the grid company for demand-side peak regulation11. According to the

NEA’s principle of ‘whoever provides the service will earn profit, whoever

benefits will bear the cost’ (‘谁提供、谁获利；谁受益、谁承担’), it is

anticipated that in future distributed new energy projects and power users

will need to bear these costs and consider them in their financial modelling.

On the other hand, how can distributed power contribute to the grid

resilience and earn revenues from the ASM? An emerging solution to

increase grid flexibility is to include distributed energy resources in the

wholesale power market, ancillary service market, and capacity market (if

any). One example of this is in Germany, where Next Kraftwerke, a

German VPP operator, uses digitalisation to aggregate 5 000 energy-

producing and energy-consuming units. With a total capacity of over 4 100

MW, the VPP trades the aggregated power on different energy spot markets.

The VPP contributes substantially to grid stabilisation by intelligently

distributing the power generated and consumed by individual units at times

of peak load.[46]

Many more questions remain. The inclusion of distributed new energy in

green electricity trading will unlock a large supply of green and competitive

electricity for customers if the ‘toll fees’ model is accepted by the market

players, operators, and regulators. With a long-term strategy, and fair and

innovative mechanisms, the Chinese wisdom of ‘crossing the river by

feeling the stones’ will pave the way to success.

Sharon Feng

Director of Research and Advisory Service of Azure International

Azure International is a well-known consulting and advisory firm that provides services in support of

investment and strategic decision-making in the renewable energy industry in China. It has

successfully supported a large number of firms to establish presence, secure projects and partners in

China since the company’s establishment in Beijing in 2003.

7. News in Brief

EU records 34% drop in emissions between 1990

and 2020

The European Union slashed greenhouse gas emissions 34% below 1990

levels by 2020, overshooting the bloc’s target of 20%, according to a 961-

page inventory report submitted on 31 May 2022 by the European

Environment Agency (EEA) to the UN Framework Convention on Climate

Change (UNFCCC).

Over the past 30 years, cuts to EU emissions have been driven mainly by

the growing use of renewables and replacing coal with gas in electricity

generation. The report shows an unprecedented drop in coal use, which was

three times lower in 2020 than in 1990. An additional role was played by

warmer winters, which led to a reduced demand for heating. Although most

manufacturing industries recorded an overall drop in emissions, transport

and refrigeration & air conditioning were notable exceptions, showing a rise

in emissions of 53 and 80 million tonnes of CO2 equivalent respectively.

Almost all EU countries recorded a drop in emissions, but the sharp

decrease was mainly due to the UK and Germany, which together accounted

for 47% of total net reductions over the past 30 years.

+ More

EHB identifies five potential hydrogen supply

corridors to meet EU 2030 targets

THE EUROPEAN HYDROGEN Backbone initiative has identified five

potential hydrogen supply corridors that could help meet the 2030 demand

and supply targets set by the newly-published REPowerEU plan. Five large-

scale pipeline corridors are envisaged, spanning both domestic and import

supply markets. They are consistent with the three import corridors

identified by the REPowerEU plan, and will play a key role in the cost-

effective transport of large volumes of hydrogen to demand centres. They

include proposals to repurpose existing gas infrastructure.

Corridor A: North Africa & Southern Europe

Corridor B: Southwest Europe & North Africa

Corridor C: North Sea

Corridor D: Nordic and Baltic regions

Corridor E: East and South-East Europe

MEMBERS OF THE EHB initiative recommend that the EC should

consider establishment of these corridors as a political objective, in order to

ensure the fulfilment of REPowerEU targets. Streamlining the planning and

permitting procedures, unlocking financing for fast-track projects, as well

as integrated energy system planning, are among the suggested priority

actions.

+ More

UK launches first CO2 storage licensing round

ON 14 JUNE 2022 THE UK launched its first carbon storage licensing

round. The 13 licence areas include saline aquifers as well as disused oil

and gas fields in the Irish Sea and off the east coast of Scotland and

England.

Carbon capture and storage involves the capture of CO2 from industrial

processes which is then transported via ship or pipeline and stored in

subsurface geological formations.

There are already six carbon storage licences on the UK continental shelf,

capable of storing a maximum of 40 million mt/yr of CO2 by the mid-2030s.

However, this would meet just one fifth of the country’s overall storage

needs. According to the North Sea Transition Authority (previously the Oil

and Gas Authority), the UK is aiming to store 20 to 30 million tonnes of

CO2 annually by 2030.

This licensing round is likely to be the first of many. Up to 100 CO2 stores

could be required to meet the UK’s net zero target by 2050. The regulator

anticipates strong competition for licences, with applications due to close

on 13 Sept 2022 and licences to be awarded in 2023.

The UK is trying to balance its need for oil and gas against a background of

declining domestic production alongside the goal of net-zero emissions by

2050. The upstream oil and gas sector argues it has the skills to make the

country a world leader for dealing with industrial emissions.

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Spain and Portugal to lower power prices

ON 14 JUNE 2022, SPAIN and Portugal launched an EUR 8.4 billion

scheme to subsidise fossil fuel-based power generation in order to bring

down electricity prices for consumers and industry.

The measure, which will be implemented by lowering the input costs for

fossil fuel-fired power stations, has been approved by the EU in recognition

of the serious disruption experienced by both economies due to the soaring

prices of fossil fuels.

The scheme is expected to cost Spain EUR 6.3 billion and Portugal EUR

2.1 billion. Funding for the scheme will come partly from a charge on

Spanish and Portuguese buyers benefiting from the measure, and partly

from so-called ‘congestion income’, i.e. the income obtained by the Spanish

Transmission System Operator as result of cross-border electricity trade

between France and Spain.

Calculation of the daily payment will be based on the difference between

the market price of natural gas and a gas price cap set at an average of EUR

48.8/MWh (CNY 343).

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Germany provisionally turns to coal-fired power

for energy security

ON 6 JUNE 2022 THE German government announced short term

measures to keep additional coal-fired power plants on stand-by for almost

two years. The move is in response to rising energy prices and the

possibility of future shortages. The government is clear that its decision will

not affect Germany’s long-term plan to phase out coal-fired power by 2030.

A draft law agreed by Cabinet would ensure that coal-fired plants in

Germany previously scheduled for closure remain in functional condition.

Germany already has several other coal and oil-fired plants on stand-by that

can be activated in an emergency.

Despite Germany’s difficult situation, its government has ruled out turning

to nuclear power to fill the energy gap. Chancellor Olaf Scholz reaffirmed

the government’s commitment to phasing out nuclear power plants while

embracing renewable energy.

Germany shut down half of its six nuclear plants in December 2021 and the

remaining three are due to be taken offline at the end of 2022. According to

Germany’s Ministry for Economic Affairs and Climate Action, nuclear

power currently provides only 5% of the country’s electricity.

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China targets 3 300 TWh annual renewable

generation by 2025

ON 1 JUNE 2022, CHINA released its 14th Five-Year Plan for renewable

energy, a key policy document in support of China’s target for non-fossil

energy consumption to reach about 20% by 2025.

The plan also outlines national and regional development strategies for

renewables such as wind, solar, biomass and geothermal energy, and for the

promotion of green hydrogen in sectors such as chemical production, coal

mining and transportation.

In addition, China will expedite the construction of storage facilities and

work to introduce smart upgrades to its power grids, thereby facilitating

clean energy development.

Key renewable targets mentioned in the plan:

RE consumption: Overall renewable energy consumption to reach

about 1 billion tons of standard coal by 2025; over 50% of the primary

energy consumption growth will be met by renewables during 2021-

2025.

RE generation: 3 300 TWh of annual renewable energy generation by

2025; incremental renewable power generation will supply over 50%

growth of the overall power consumption.

RE integration: 33% of power consumption will come from renewable

sources (including hydropower) by 2025, and 18% from non-hydro

renewables.

Non-electricity utilisation of RE: renewable consumption in non-

electricity sectors such as heating supply by geothermal and biomass,

biofuels, and solar thermal, will reach 60 million tons of standard coal

equivalent.

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China introduces market reforms to boost new

energy storage

CHINA’S NDRC AND THE NEA issued a circular on 7 June 2022 to

promote new energy storage in the power market and dispatching

applications.

According to the circular, new energy storage assets (excluding pumped

hydro storage) with independent measurement, control and other technical

conditions, access to the automated dispatch system and capable of being

monitored and dispatched by the power grid, can be regarded as

independent energy storage systems serving as standalone entities in the

electricity market. Energy storage projects that are bundled with renewable

power projects can choose to participate in the power trading market as

independent entities through certain technical means, but are encouraged to

participate in tandem with relevant power generation projects. The

document also proposes measures to encourage the establishment of

independent energy storage providers that can provide auxiliary services

and peak shaving in the power market.

These measures aim to tackle some of the biggest hurdles currently holding

back development of new energy storage projects by further clarifying the

positioning, market mechanisms and price mechanisms that would allow

energy storage assets to participate in the power market. The circular sets

out a trajectory for energy storage to achieve market-driven growth and

secure economic returns, which will help unlock its potential in the new

power system.

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China launches measures to reduce carbon

emissions and pollution

ON 10 JUNE 2022, CHINA’S Ministry of Ecology and Environment, the

NDRC, and a further five ministries jointly published a wide-ranging

implementation program that aims to reduce pollution and carbon

emissions. It integrates emission reduction requirements in key areas such

as air, water, soil, solid waste and greenhouse gases.

Some of the key actions and targets are as follows:

build up recycling infrastructure, encourage full utilisation of

resources, and promote the construction of ‘waste-free cities’.

utilisation rate of new bulk solid waste to reach around 60%; bulk

solid waste stock to be reduced.

promote the recycling and utilisation of new types of waste such as

exhausted power batteries, decommissioned PV modules and wind

turbine blades.

impose a strict ban on new steel, coking, oil refining, electrolytic

aluminium, cement and glass production projects in key pollution

control zones.

promote the greening of energy supply systems and electrification of

end-use energy sectors

implement strict controls on new-coal-fired generation projects; limit

overall coal consumption in the 14th FYP period, and phase it down

further in the 15th FYP period.

electric arc furnace-based steel production to account for more than

15% of total steel output in 2025 and 20% in 2030.

output of recycled aluminum to reach 11.5 million tons in 2025;

renewables to meet over 30% of energy consumption in electrolytic

aluminum production by 2030.

explore the demonstration, application and commercial operation of

medium and heavy duty electric and fuel cell trucks; new EVs to

account for around 50% of total car sales by 2030.

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China tightens controls on floating inland wind

and solar projects

THE MINISTRY OF WATER Resources (MWR) issued a guiding opinion

on 25 May 2022 to strengthen the space management of inland waters,

including shores and river banks. The document states that solar and wind

energy projects must not be built on rivers, lakes and reservoirs, and those

built in the vicinity of such bodies of water should be strictly regulated.

The MWR clarified in an interpretation document that the new guiding

opinion is not a ‘one-size-fits-all’ ban on inland floating wind and solar

projects, so long as such projects ‘do not obstruct the steady flow of water,

damage river banks and dykes, nor affect shipping’. All new constructions,

as well as existing projects built after 2018, are now required to undergo

flood risk assessments, and those that fail to pass the assessment will be

forced to take rectifying action or close down.

The new policy document has prompted debate across the solar sector.

There is widespread concern that it will put the brakes on development of

PV projects on inland water, including floating solar, and that projects

might be limited to smaller areas such as pit-ponds. Solar PV projects

located on inland bodies of water have been popular in China as they do not

occupy land and can reduce evaporation. PV power generation and fishery

projects are particularly favoured.

The full impact of the new policy is yet to be felt, but two such projects are

already reported to have been dismantled and more are likely to shut down

under the new requirements.

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China’s energy intensity fell 26.2% over the past

decade

OFFICIAL STATISTICS show that China has significantly improved its

energy utilisation efficiency since the end of 2012. In that time, the country

has maintained an annual 6.5% economic growth alongside just 3% annual

growth in energy consumption. The country’s energy intensity has been

reduced by 26.2%, which is equivalent to saving about 1.4 billion tons of

standard coal equivalent or about 2.94 billion tons of CO2 emissions.

Adaptation of industrial and energy infrastructure has accelerated to achieve

further emissions reductions. Notably, China has renovated over 1TW of

existing coal-fired capacity to meet ultra-low emission standards, and now

has more renewable energy capacity than anywhere else in the world,

exceeding 1TW.

Energy saving in key economic sectors has also seen noticeable progress.

Energy consumption per unit of added value in industrial enterprises above

a designated size has been reduced by 36.2%. More than 8.5 billion square

meters of green buildings have been built, and about 1.7 billion square

meters of existing buildings have been upgraded to be energy-efficient. By

the end of 2021, China had introduced 7.84 million EVs into the transport

sector as part of its efforts to accelerate the green transition.

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