Also by EU-China Energy Cooperation
Platform Project
2020
EU China Energy Magazine Spring Double Issue
EU-China Energy Magazine Summer Issue
中欧能源杂志夏季刊
EU-China Energy Magazine Autumn Issue
中欧能源杂志秋季刊
EU-China Energy Magazine 2020 Christmas Double Issue
中欧能源杂志2020圣诞节双期刊
2021
EU-China Energy Magazine 2021 Spring Double Issue
中欧能源杂志2021春季双期刊
EU-China Energy Magazine 2021 Summer Issue
中欧能源杂志2021夏季刊
EU China Energy Magazine 2021 Autumn Issue
中欧能源杂志2021秋季刊
EU China Energy Magazine 2021 Christmas Double Issue
中欧能源杂志2021圣诞节双刊
2022
EU China Energy Magazine 2022 February Issue
中欧能源杂志2022年2月刊
EU China Energy Magazine 2022 March Issue
中欧能源杂志2022年3月刊
EU China Energy Magazine 2022 April Issue
中欧能源杂志2022年4月刊
EU China Energy Magazine 2022 May Issue
中欧能源杂志2022年5月刊

EU China Energy Magazine 2022 June Issue
中欧能源杂志2022年6月刊
EU China Energy Magazine 2022 Summer Double Issue
Joint Statement Report Series
Electricity Markets and Systems in the EU and China: Towards Better
Integration of Clean Energy Sources
中欧能源系统整合间歇性可再生能源 - 政策考量
Supporting the Construction of Renewable Generation in EU and China:
Policy Considerations
中欧电力市场和电力系统 - 更好地整合清洁能源资源
支持中欧可再生能源发电建设: 政策考量
ENTSO-E Grid Planning Modelling Showcase for China
ENTSO-E 电网规划模型中国演示
Accelerating the Incubation and Commercialisation of Innovative Energy
Solutions in the EU and China
加速中欧创新能源解决方案的孵化及商业化
Comparative Study on Policies for Products’ Energy Efficiency in EU and
China
中欧产品能效政策比较研究
欧盟和中国的能源建模报告
Integration of Variable Renewables in the Energy System of the EU and
China: Policy Considerations

Table of Contents
Also By EU-China Energy Cooperation Platform Project
Letter from the Team Leader
1.  Call for participation - EU Energy Innovation Virtual Expo 2022
2.  Hydrogen – the second-best option for energy independence on the
climate neutrality pathway
3.  Hydrogen reality check: We need hydrogen — but not for everything
5.  CBAM: An incentive for low carbon technologies
6.  From academia to industry: Thoughts on the status quo of the new power
system construction
7.  Rebooting China’s carbon credits: What will 2022 bring?
8.  Open innovation: The trajectory for smarter energy technology in
Europe and China
9.  Prosumerism in the age of smart grids: a sociotechnical study
10.  Monthly News Round-Up
11.  Featured Publication
Also By EU-China Energy Cooperation Platform Project

Letter from the Team Leader

Dear All,

At the time of writing, many parts of Europe and China are burning under

record breaking summer heat. It shows no one can escape the impact of

climate change – we are all in the same boat.

It has been two and half years since face-to-face business exchanges

between EU and China were paused by the COVID pandemic. The need

remains for innovative energy solutions in order to reach China’s climate

targets . ECECP is therefore organising a live virtual exhibition (Expo

2022) to support EU companies who wish to introduce their services and

products to the Chinese market. From 27 – 29 September 2022, ECECP is

offering 20 selected EU companies the opportunity to take part free of

charge. The companies will be selected by a specially appointed Expo 2022

panel. The call details are available in the magazine and on our website.

In other news, two of our Junior Fellows are moving on into new roles.

Susanna Farrell will be working at Hertfordshire Council while they

sponsor her for the Chartered Public Accountant qualification. Polly James

will start the competitive UK civil service fast stream in September and her

first placement is in the Ministry of Defence in Bristol. We are sad to see

them go but are excited for their future endeavours.

We would also like to welcome two new interns for the summer: Christina

Hadjiyianni and Lale Anjani Asteraki, who will be assisting with the

preparation of EXPO 2022 and will also be involved in the magazine. We

look forward to working with you both!

Once again, I would like to say a big thank you to our editors Daisy Chi and

Helen Farrell, who has recovered fully from COVID, for their hard work in

delivering this issue of the magazine under extreme heat and pressure.

Flora Kan

ECECP Team Leader

1. Call for participation - EU Energy

Innovation Virtual Expo 2022

Expo 2022, 27-29 September

Dear Partners and Friends of the EU China Energy Cooperation

Platform,

It has been two and half years since face-to-face business exchanges

between EU and China were paused by the COVID pandemic. The need

remains for innovative energy solutions in order to reach China’s climate

targets. ECECP is therefore organising a live virtual exhibition (Expo 2022)

to support EU companies who wish to introduce their services and products

to the Chinese market.

From 27 – 29 September 2022, ECECP is offering 20 selected EU

companies the opportunity to take part free of charge. The companies will

be selected by a specially appointed Expo 2022 panel. Participation will

include:

● subtitle provision for a video provided by the company (up to 15

minutes) introducing their clean energy solutions and services.

● hosting of the video on a Chinese video-sharing platform that is

accessible freely in China.

● copywriting support and translation for one short case study (up to 1,000

words).

● publication of the case study on the ECECP WeChat account.

● inclusion in the EU China Energy Magazine special edition on EU

Innovative Energy Solutions, to be published in December 2022.

● inclusion on a list of EU innovative energy solution providers on the

ECECP website.

● Interpreting services.

● introduction to EU funded, free of charge advisory on IPR issues related

to doing business in China and support to SMEs.

During Expo 2022, the mornings will be taken up with live online events

streamed from Europe. In the ‘main meeting room’, journalists from the

online energy news forum EnergyPost will conduct live interviews with end

users, CEOs of exhibiting companies and so on.

Additionally, Expo 2022 will host five separate virtual exhibition halls,

focusing on renewables, energy efficiency, energy storage, power grids and

buildings. We invite our partners to propose innovative energy solution

providers from the EU. Companies should contact ECECP by 5 August to

We have four main selection criteria:

● Energy savings / carbon emissions reduction potential.

● Distinctive USP.

● Business readiness.

● Business potential.

Key dates

How to apply

Email expo-application@ececp.eu. This should include:

● A brief justification for your company’s inclusion in Expo 2022

(maximum 1,000 words).

● An introduction to your company’s products / services (to include

technology readiness, business readiness); emission reduction / energy

saving potentials; USP; number of existing or planned installations;

company information (number of employees, turnover in the last three

years) and contact details.

● A case study (maximum 1,000 words).

● A video introducing your technology and services (if available).

● If more than 20 companies apply to exhibit at Expo 2022, a selection

panel will review the material submitted and select the companies based on

the four criteria listed above.

The selection panel of five industry specialists (to be confirmed) will

include:

● Team Leader of EU China Energy Cooperation Platform

● Chair of the Energy Working Group of the EU Chamber of Commerce in

China

● Representative from EU Delegation to China

Your sincerely,

Dr Flora Kan

Team Leader

EU-China Energy Cooperation Platform

Note - www.EnergyPost.eu is an online publisher of energy news website, aimed at government,

policymakers, business, influencers and strategic thinkers. It has a significant reach (40,000 monthly

readers, 80,000 monthly website article impressions, 12,000 newsletter subscribers, 20,000 social

media followers) into relevant sectors at a senior level.

2. Hydrogen – the second-best option for

energy independence on the climate

neutrality pathway

Helena Uhde of ECECP met with Erik Rakhou, Associate Director at Boston

Consulting Group and co-editor of the book ‘Touching Hydrogen Future:

Tour around the globe’, to discuss what actions are needed for hydrogen to

develop as a fuel in Europe as the continent searches to diversify away from

the volatility of Russian oil and gas supplies.

EU policy makers face a difficult dilemma: how to manage energy security

and independence without losing sight of the climate neutrality target. With

the launch of REPowerEU (which maps the bloc’s plans to increase its

energy security), they are signalling their determination to end the bloc‘s

dependence on Russian gas and to accelerate the transition to clean energy.

According to the plan, by the end of 2022 100 bcm of gas imports from

Russia will be replaced by means of various strategies, including more LNG

and pipeline imports from other countries, doubling the sustainable

production of biomethane, increasing the production and import of

renewable hydrogen, while accelerating renewable energy generation.[1]

It is a massive undertaking that requires a fundamental change in energy

supply, production and consumption structures. In 2020, 83.5% of the EU’s

demand for natural gas was covered by imports; 15 EU Member States even

had an energy dependency rate for natural gas of over 90%. Russia has

hitherto been the largest, though not the only, source of imports of crude oil,

natural gas and solid fossil fuels into the EU.[2]

Reshaping the European energy system and ending the dependency on

Russian fossil fuels requires a radical acceleration of efforts, leaving policy

makers faced with difficult choices. At the press conference on REPowerEU

on 8 March 2022, European Commission’s Executive Vice-President Frans

Timmermans was blunt: ‘It is hard, bloody hard. But it is possible, if we are

willing to go further and faster than we have done before.’[3]

High hopes for hydrogen

One energy source that is receiving more attention in the REPowerEU plan

is hydrogen, along with its derivatives, such as ammonia, methanol, e-

kerosene, and e-petrol. While the 2030 target for renewable hydrogen in Fit

for 55 is set at 5.6 Mt, the new REPowerEU strategy has increased the target

to 20 Mt, with a view to replacing 50 bcm of Russian gas.

Figure 1:Hydrogen use by sector in 2030.

Source: European Commission (2022): Implementing the REPower EU Action Plan: Investment

Needs, Hydrogen Accelerator and Achieving the Bio-Methane Targets.

The enormous change becomes particularly clear in the planned use of

hydrogen by 2030 (see Figure 1). The use of hydrogen in industrial heat, for

example, is planned to increase 4.5-fold compared to the already ambitious

Fit for 55 targets. A more than 2.5-fold increase is envisaged in the transport

sector. But even if the targets seem huge, they are not enough to meet the

targets set by the 2015 Paris Agreement. A recent article by Boston

Consulting Group (BCG) concludes that 565 Mt/year of low-carbon

hydrogen and derivatives will be required to meet the Paris Agreement target

for the mean global temperature to rise 1.5°C above pre-industrial levels;

achieving the more achievable 2°C target would require least 380 Mt

production per year globally.[4] The REPowerEU target of 20 Mt is only one-

nineteenth of that, with half of that set to be imported into the EU.

The second-best option

Critics denounce hydrogen as energy-intensive and expensive.[5] Elon Musk

dismissed hydrogen storage as ‘the most dumb thing’ as recently as in May

2022.[6] While Erik Rakhou, Associate Director at BCG and hydrogen

expert, does not agree based on latest global hydrogen technology

developments, he believes that hydrogen should not be the first choice.

‘Never use hydrogen first! It always comes second. Normally, you would

always prioritise energy efficiency and electrification, and only if that is not

possible, you would use hydrogen. It is a net zero tool, the second-best

option. Secondly, on efficiency: yes, you lose energy in transport, in

conversion, so you just have to look at the economics.’

The focus of hydrogen deployment should be on hard-to-abate sectors, such

as the chemical industry, steel or ammonia production. ‘For me personally,

hydrogen is a fantastic means of transporting renewable energy, where we

cannot transport it in the form of electrons. Energy is transformed into

molecules and can thus be used in sectors that are difficult to abate, because

some of the processes require molecules’, says Rakhou.

Tomorrow starts today

Recently announced large-scale projects using green power or otherwise net-

zero compliant that aim to produce hydrogen or its derivatives, such as the

HIF global eFuel plants in Chile, ACWA Power consortium’s green

ammonia production plant in Saudi Arabia, or Shell’s hydrogen plant in the

Netherlands, could take up to six years from public announcement to

planned opening.[7]

But it is not only the electrolysers that need time. The construction of wind

and solar plants, as well as transmission lines, also take years. ‘It can take up

to eight years to build transmission lines, if electrolysers are in places where

there is no production,‘ states Rakhou.

Projections for hydrogen in the European Hydrogen Strategy 2020, which

had less ambitious hydrogen targets than REPowerEU, assume that sectors

that are difficult to decarbonise will be largely powered by hydrogen from

2030 onwards.[8] Rakhou does not consider it realistic to achieve this goal

any earlier, given how long it takes to develop projects. For industrial

processes, the changeover could take just three years. 'If you make the

decision today and hydrogen is available, like in the Netherlands, you can

start using hydrogen in industrial processes as early as 2025,’ says Rakhou.

Supporting the development and scale up of

hydrogen

The development and scale-up of hydrogen must therefore be accelerated.

‘We need to strengthen three areas: funding, infrastructure, and various

enablers,‘ urges Rakhou, referring to the study ‘How to Meet the Coming

Demand for Hydrogen‘, which was recently published by BCG.[9]

In terms of funding, the roll-out of carbon contracts-for-difference was

signalled within the framework of REPowerEU. These could create Europe-

wide incentives for the development of green hydrogen, with electricity

sourced from renewable energy facilities. In order to ensure that the

development of renewable hydrogen complies with emission reductions, the

European Commission published two delegated acts on 23 May 2022 that

specify how renewable fuels of non-biological origin (RFNBOs) and their

emissions are to be defined.[10] Increasing the innovation budget for cases

where electrification is not possible, and conducting demonstration projects,

could further encourage development.

In terms of infrastructure, Rakhou supports the expansion of electrolyser

gigafactories. Examples include the 1 GW electrolyser project for a green

hydrogen production complex in Esbjerg, Denmark, and a gigafactory in

France to produce solid oxide electrolysers.[11] Other important actions to

expand the infrastructure include increasing the availability of land at

offshore sites for local renewable energy production, accelerating permitting

processes and developing cross-border hydrogen infrastructure, which will

be crucial for managing flexibility.

General enablers for hydrogen include other supporting factors such as the

Hydrogen Accelerator and hydrogen support by means of recognition as an

Important Project of Common European Interest (‘IPCEI'). These are

strategic funding projects that contribute to economic growth, employment

and competitiveness for the EU‘s industry and economy. This signalling

effect and financial support reduces the risk to investors. Certification is

another enabling factor that could be introduced in order to distinguish

renewable hydrogen from other commodities.

● Important Project of Common European Interest in the hydrogen

technology value chain (‘IPCEI Hy2Tech’) [12]

On 15 July 2022, the European Commission approved the project ‘IPCEI

Hy2Tech’ which supports the development of the hydrogen value chain,

including generation, fuel cells, storage, transport and distribution of

hydrogen and end-user applications, especially in the field of mobility, in

line with the objectives of key EU policy initiatives such as the Green Deal,

the EU Hydrogen Strategy and REPowerEU.

The project will receive up to EUR 5.4 billion of public support from 15

Member States: Austria, Belgium, Czechia, Denmark, Estonia, Finland,

France, Germany, Greece, Italy, the Netherlands, Poland, Portugal, Slovakia

and Spain, and is expected to unlock an additional EUR 8.8 billion in private

investments.

List of direct participants, the Member States that support them and the

different technology areas:

International hydrogen cooperation

Under the 1.5°C global warming scenario, IRENA predicts that a quarter of

total global hydrogen demand of about 150 Mt per year could be met

through international trade, while the remaining three quarters would be

produced and consumed domestically. Half of the targeted hydrogen volume

of 20 Mt by 2030 is to be imported under the REPowerEU plan. This is well

below today's oil trade volumes in the EU, where about 74% is traded

internationally, yet it is above the current gas market, where cross border

trade accounts for just 33% of consumption.[13]

Rakhou suggests that the hydrogen market could develop in a similar way to

the market for LNG: ‘Hydrogen is a globally tradable commodity because

we have means of transport, be it as ammonia, as methanol, be it through the

development of e-fuels, of liquid hydrogen or of pipeline systems,’ he says.

In order to evaluate the economic viability of trade, transport costs must be

taken into account in addition to production costs at the site. ‘That is why we

are already thinking about building a hydrogen backbone connecting the

production centres with the demand centres. Here, it is very important that

the policy makers sign MoUs, so that private actors, based on initiatives like

H2Global, can match the supply outside Europe with the demand in Europe

using the right incentive mechanisms,’ adds Rakhou.

Acceleration of efforts required

The upcoming COP27 climate conference in November 2022 in Egypt will

show whether policy makers worldwide are ready to take the necessary steps

to reach net zero by 2050. According to Rakhou, prioritisation is needed

above all to push hydrogen as the second-best option. ‘I think net zero can

be achieved, but we need to radically accelerate our efforts. My top three

priorities for policy makers are i) enabling infrastructure, ii) demand targets,

and iii) incentives. And then the market will work together to accelerate,’

summarises Rakhou.

By Helena Uhde

ECECP Junior Postgraduate Fellow

3. Hydrogen reality check: We need

hydrogen — but not for everything

The myth: Hydrogen is a no-regrets solution for

every sector

Hydrogen’s versatility as a decarbonization solution has created a lack of

consensus and clarity as to where it is truly needed. Hydrogen is sometimes

described as the ‘Swiss Army knife’ of decarbonization, with a role to play

in nearly every sector, as it can be burned to generate electricity or heat,

serve as a carbon-free input to produce ‘green’ steel and fertilizer, and

power everything from passenger vehicles to deep-sea cargo ships.

The reality: Hydrogen should be prioritized for

heavy industry and heavy transport

In theory, hydrogen can indeed be used to decarbonize almost every sector.

But just because it can, doesn’t mean it should. As one of several tools in

the decarbonization toolbox, hydrogen should be prioritized in uses where

energy efficiency and direct electrification are not possible. In particular,

hydrogen’s potential to decarbonize the heavy industry and heavy transport

sectors quickly and cost-effectively makes it a necessary part of the clean

energy transition.

One of the factors constraining global decarbonization is the scarcity and

value of renewable electricity, of which is used to produce ‘green’

hydrogen. Already the world needs vastly more clean electricity

infrastructure, as power consumption in 2050 is expected to double from

population and economic growth alone — and only 10 percent of electricity

today comes from solar and wind. Add in the electricity required to make

green hydrogen to decarbonize heavy industry and transport, and power

consumption could triple. Given this backdrop, at a macro level it is

important to prioritize reducing electricity consumption and using

renewable electricity most efficiently. As such, many of today’s micro-level

business cases of hydrogen for heating buildings, generating power, or

fueling light-duty vehicles are better suited for investments in energy

efficiency or direct electrification (see Exhibit 1 below).

However, there are several applications where energy efficiency and direct

electrification are cost prohibitive, impractical, or simply impossible. Enter

hydrogen. Given its flexibility, technological maturity, and relative low

cost, hydrogen is one of the primary solutions to decarbonize heavy

industry and heavy transport such as steelmaking and shipping.

The best tool for a difficult job

The specific applications where hydrogen shines can vary by geography,

especially as several developed economies are land-constrained and limited

in their ability to build out renewable capacity. But even before considering

real-economy constraints, there are several no-regret, high-priority

applications of hydrogen that should be a core focus of policies and

investment today: fertilizer production, petrochemicals and refining, steel

production, maritime shipping, and, in some markets, long-distance heavy-

duty transport via both rail and trucks. These sectors all need hydrogen to

decarbonize, are technology-ready to transition, and contribute substantially

to global emissions. In time, hydrogen is likely to expand beyond these core

applications.

Exhibit 1 illustrates the carbon abatement per kilowatt-hour (kWh) of zero-

carbon electricity, either used directly in electrified end uses or indirectly

through the creation of hydrogen. This quantitative assessment validates the

governing philosophy of hydrogen’s priority applications: use hydrogen

where you can’t electrify. Using electricity directly whenever possible

provides the greatest emissions abatement potential, largely given the low

round-trip efficiency of hydrogen’s use in these applications (building heat,

power generation, and light-duty transport).

Exhibit 1: Emissions reduction potential per kWh of electricity input

Note: Building heat compares a heat pump with a coefficient of performance of 2.92 and a hydrogen

furnace of 80 percent efficiency to natural gas combustion. Power generation compares direct

electrification and a 60 percent efficient hydrogen turbine to natural gas combustion. Light-duty

vehicles compares a 50 percent tank-to-wheels efficient fuel cell electric vehicle and 70 percent tank-

to-wheels battery electric vehicle to a 30 percent tank-to-wheels gasoline internal combustion engine,

inclusive of electricity for hydrogen compression. Hydrogen replaces coking coal for steel, steam

methane reforming–produced hydrogen for fertilizer, and diesel for trucking. Ammonia replaces

heavy fuel oil in a 39 percent efficient internal combustion engine for maritime shipping.

Source: Emissions intensity values from EIA

No-regret applications today

Hydrogen is already in wide use today — the problem is that so much of it

is emissions-intensive hydrogen derived from fossil fuels. Hydrogen

production for fertilizer and oil refining presently contributes ~2 percent of

global emissions. Using clean hydrogen to decarbonize these present-day

uses of carbon-intensive hydrogen is a necessary application, and the EU

has committed to replacing all ‘gray’ hydrogen derived from natural gas by

2030. Given the 1:1 swap between the clean and conventional hydrogen

feedstocks, these sectors could serve as the locomotive in scaling up the

supply chain and driving cost reductions for clean hydrogen technology.

Hydrogen is a top priority for steelmaking as well, given the magnitude of

the sector’s emissions and the limited alternatives for decarbonization. Steel

manufacturing is responsible for ~8 percent of global emissions today,

primarily due to the use of coking coal to remove the oxygen from iron ore

to create pure iron, a chemical process called “reduction.” Replacing coking

coal with hydrogen in this reduction process is the most promising and

mature solution to decarbonize steel manufacturing.

Similarly, maritime shipping — ~2.5 percent of global emissions and

growing — has few decarbonization options for deep-sea voyages beyond

hydrogen-based feedstocks. Electrification is possible for regional voyages,

but for long-distance shipping, which accounts for most of the sector’s

emissions, hydrogen or its derivatives (i.e., ammonia or methanol) will be

necessary. Biofuels do present an alternative to hydrogen-based fuels, but

feedstocks are limited and are largely being prioritized for use in aviation

rather than in the maritime shipping sector.

Heavy-duty trucking, representing roughly ~4.5 percent of global

emissions, is likely to see a need for hydrogen for the heaviest of vehicles

covering long-distance routes, given limitations of battery energy density

and long charging times coupled with the distances required for travel.

Longer-term applications for hydrogen

Aviation boasts several decarbonization options, with the feasibility varying

based on size of aircraft and distance to travel. For shorter routes,

electrification is an option. For longer routes, biofuels, synfuels, or

hydrogen emerge as core solutions. However, there are technological,

design, and regulation hurdles that must be met before hydrogen is ready

for use in the sector; until then emissions-free aviation is restricted to use of

‘drop-in fuels’ that do not require a change in aircraft. To help expedite

aviation’s decarbonization once plane-side technology is ready, hydrogen

infrastructure today should be built with an eye to providing a future supply

to airports come 2030.

As grids look to fully decarbonize, they will require clean, firm power to

move from 80 percent to 100 percent carbon-free electricity. Hydrogen is

one of many options for filling this need, in the company of solutions

including demand response, batteries, carbon capture and storage, and

geothermal. Although the jury is still out on the winning economical

solution, hydrogen’s ease and flexibility —particularly as a seasonal storage

resource — provides core advantages. When these resources will be needed

to enable further power-system decarbonization varies grid-to-grid, but in

general renewable electricity today should be added to the grid directly

rather than used to make hydrogen to turn back into electricity.

Where direct electrification likely wins

Heating buildings and transporting passengers in light-duty vehicles are

applications likely better suited for direct electrification than for hydrogen,

as seen in Exhibit 1. Heat pumps are a commercially available, lower-cost,

and more efficient solution for building decarbonization in temperate and

warm climates. The efficiency and availability of battery electric vehicles

for passenger transport similarly often make direct electrification the

preferred solution. However, there are likely to be instances where

hydrogen could be a viable solution, such as in renewables-constrained

locations or instances where an infrastructure swap for electricity is

incredibly difficult.

In addition to directly using hydrogen for building heat and electric power

generation, blending natural gas with hydrogen has received some attention.

Blending hydrogen with natural gas does not require upgrades of pipelines,

turbines, or boiler infrastructure, which are all different in a pure hydrogen

system. However, the emissions reduction from blending hydrogen with

natural gas is limited. Blending as much hydrogen as most pipelines can

handle before degrading (~20 percent by volume) translates to only a 7

percent emissions reduction, given the lower volumetric energy density of

hydrogen compared to the methane in natural gas.

Hydrogen is key to reaching our climate goals, but deploying hydrogen in

instances where energy efficiency and direct electrification are better

options will hinder our ability to quickly and cost-effectively decarbonize

our energy system. To maximize the system-wide efficient use of valuable

clean electricity, hydrogen should be used when these solutions are not

possible. Fertilizer, oil refining and petrochemicals, steel manufacturing,

and long-distance heavy-duty transport are no-regrets applications of

hydrogen today, which may in time be joined by aviation and long-duration

energy storage.

By Tessa Weiss and Thomas Koch Blank

Republished with permission from RMI.

5. CBAM: An incentive for low carbon

technologies

The primary goal of the Carbon Border Adjustment Mechanism – the EU’s

proposed new carbon fee for importers of carbon-intensive goods – is to

address carbon leakage. Given its increasingly ambitious climate policies,

the EU wants to deter European emitters from moving to jurisdictions with

less stringent climate regulations. One thing is clear: exporting highly

climate-polluting products to the world’s largest market is set to become

more challenging. With 23% of the EU’s imports coming from China,

CBAM could impact trade flows. However, it also offers opportunities.

Exporters could gain a competitive advantage by applying innovation to

reduce carbon intensity in sectors ranging from steel to aluminium.

CBAM as part of Fit for 55

In the midst of the Covid pandemic, the EU raised its climate ambitions. In

July 2021 the European Commission published its proposals for the EU’s

green transition, the so-called Fit for 55 package. Its overall goal is to

achieve at least 55% emissions reductions by 2030, up from the 40% that

was already planned. If achieved, Europe will be on the way to becoming

the first climate-neutral continent by 2050, thus living up to its Paris

Agreement commitments. In addition to decarbonisation, the package aims

to make the European economy stronger, more innovative, and resilient.

The Fit for 55 package consists of a number of legislative and non-

legislative actions, as well as other initiatives. Its overall goal for

renewable energy in Europe is for it to account for 40% of energy by 2030

(not just electricity). It strengthens Europe’s carbon pricing mechanism, the

EU Emissions Trading System. Energy efficiency is also part of the

package, ‘making it compulsory for the EU as a whole to reduce energy

consumption, compared with consumption projections for 2030’. In

addition, Fit for 55 envisions stricter emissions standards for cars and vans,

including a phasing out of combustion engines by 2035, alternative (i.e.

cleaner) fuels for aviation and maritime, a reform of energy taxation that

would bring environmental attributes into focus, and capturing more CO2 by

restoring and preserving forests and soils.[18]

Even as it introduces ambitious climate policies, the EU is trying to

dissuade Europe-based emitters from relocating to jurisdictions with less

stringent regulations. For example, a company might face higher carbon

prices, or more stringent requirements for energy efficiency, in its plants in

the EU. It could therefore decide to move its production into a market with

less restrictive climate policies, or none at all, in order to circumvent strict

EU regulation, and then export products back into the bloc. This practice is

referred to as ‘carbon leakage’. The European Commission has said that

avoiding carbon leakage is one of the core reasons for introducing

CBAM.

Ukraine conflict sparks energy sanctions

Much has happened since the European Commission introduced CBAM as

part of the Fit for 55 package back in July 2021. The Commission’s

proposals were debated in the European Parliament and Council of the EU

(or simply Parliament and Council), but this political and legislative

processes was overshadowed by the outbreak of hostilities in Ukraine in

February 2022. In response, Europe immediately imposed sanctions on

some Russian fossil fuel imports, amongst other measures. In May 2022 the

European Commission presented its formal energy-related response to

the conflict, the REPowerEU Plan.

REPowerEU is the EU’s ‘response to the hardships and global energy

market disruption caused by Russia's invasion of Ukraine’. It is based on

three pillars. First, energy savings. Measures include raising the Fit for 55

energy efficiency target from 9% to 13%, as well as behavioural changes to

reduce energy wastage. Second, diversifying supplies, for example through

the establishment of partnerships to import fossil gas from other markets.

Third, an acceleration of clean energy. The renewable energy goal has risen

from the Fit for 55 target of 40% to 45% by 2030. Further, measures have

been adopted that will facilitate the permitting and acceleration of large-

scale renewables buildout as well as rooftop PV, heat pumps, renewable

hydrogen, and biomethane.[19]

At the same time, further progress was made on the Fit for 55 package. The

Parliament’s position on CBAM was adopted with 450 votes in support, 115

against, and 55 abstentions.[20] The Council adopted its position on CBAM

while France held the presidency (January-June 2022). Emmanuel Macron

had defined CBAM as one of the early priorities when France took over the

helm.[21]

The next step in the EU process for CBAM (and Fit for 55 at large) will be

for Parliament and Council to reach an agreement between their respective

positions – the so-called interinstitutional negotiations. CBAM will then

need to be adopted in the two institutions and passed into law. Both

Parliament and Council have backed and even extended the Commission’s

proposals. Accordingly, it is likely that CBAM will be passed into law by

2024.

What are the details on CBAM?

As yet, there is no detailed outline of how CBAM will look, because the

EU’s legislative process is ongoing. Nevertheless, Parliament and Council

seem to agree with the majority of the proposal published by the

Commission in July 2021. Therefore, the Commission proposal provides

a helpful guide when trying to determine the implications of CBAM.

The scope of CBAM would initially be limited. It would apply only to five

categories of goods: aluminium, fertilisers, electricity, cement, and iron and

steel. In terms of geographic scope, it would cover goods originating from

all countries and territories outside the EU customs union. The proposal

also leaves room for bilateral agreements and linked carbon prices. So,

exemptions could possibly be granted to countries with strong climate

commitments.

The Commission proposal foresees that only direct emissions would be

covered, at least initially. These are defined as ‘emissions from the

production processes of goods over which the producer has direct control’.

In a steel mill, for example, blast furnace emissions would be covered,

while emissions from electricity used at the plant but sourced from the grid

would not. However, the proposal gives leeway for the Commission to

determine relevant calculation factors such as ‘system boundaries of

production processes, [or] emission factors’ at a later stage.[22] The proposal

envisions the inclusion of indirect emissions some time in the future,

although stakeholders such as the European Parliament, think tanks and

NGOs maintain there would be strong advantages in including indirect

emissions from the start.[23]

The fact that carbon border adjustment is a new policy tool means CBAM

might be operationally and administratively complex, at least at the outset.

In the EU, each Member State would need to designate a competent

authority to administer CBAM certificates, authorise declarants (authorised

importers), and impose penalties. CBAM certificates would be based on the

average weekly ETS price. In exporting countries, operators of installations

(for example, an aluminium smelter in China) would calculate and report

embedded emissions. Where actual emissions could not be verified, default

values – based on average emissions intensities – would be used. The

operator would be verified by an accredited national body in the third

country. At the border, declarants would provide CBAM certificates equal

to embedded emissions in their imports on a yearly basis. Customs

authorities would prevent imports from non-authorised declarants.

A transitional period would apply from 2023-25, during which the importer

would be obliged to report embedded emissions in the form of quarterly

reports. The EU-based importer could be penalised for insufficient or

incorrect reporting. However, during the transitional period 2025-35, free

allocation of ETS allowances to EU-based emitters will be phased out

gradually (10% per year). As the free allocation will be deducted from the

CBAM fee, this effectively means that the importer will pay the full price

only after 2035.

During the transitional period, the European Commission plans to present a

report on extending the scope of CBAM. It would assess a possible

extension to include indirect emissions and ‘embedded emissions of

transportation [and] goods further down the value chain’ as well as other

categories of goods and services.[24] Furthermore, the Commission proposal

contains several references to so-called Delegated Acts and Implementing

Acts. This means that there is plenty of scope for the Commission to further

shape and interpret its original proposal once it is operational.

CBAM implications in China

The EU and China are strong trade partners. In 2021, the EU imported

goods from China worth close to EUR 500 billion – that is 22.4 % of the

EU’s total imports – making China by far the bloc’s largest importer.[25]

More than 90% of China’s exports to the EU are machinery and

manufactured goods (e.g. telecommunication equipment, data processing

machines, and electrical apparatuses). These are unlikely to be covered by

CBAM. In fact, the July 2021 proposal, if implemented, would cover less

than 2% of China’s total exports to the EU[26] (see graph). Therefore, the

immediate impact of CBAM on China’s exports will be limited.

Amount of Chinese exports to Europe covered by CBAM (according to

2019 figures)

Source: Sandbag, E3G, and Energy Foundation (2021): A Storm in a Teacup.

The fees that importers of Chinese goods would have to pay depends on a

few factors, including the emissions intensity of the product, the EU ETS

price, and to what extent free allowances would be deducted (rising from

10% in 2026 to 100% by 2035). Climate thinktanks Sandbag, E3G and

Energy Foundation[27] have taken the Commission proposal as their starting

point, using China’s average carbon intensity and an ETS price of EUR 60

per ton, to calculate the impact of CBAM. They found that CBAM fees in

the year 2026 would range from 1.7% of the total traded value for iron and

steel, around 5% for aluminium and cement, and over 11% for fertilisers. In

the year 2035, the figure for iron and steel would be around 6%, for

aluminium and cement around 12%, and for fertilisers, 37%. According to

the authors, ‘for import volumes equal to those recorded in 2019, the total

CBAM payable for imports of Chinese goods in 2026 would be EUR 174

million, increasing to EUR 485 million in 2035 when free allocation is

reduced to zero’.

Estimate of CBAM fees charged in 2026 and 2035

Source: Sandbag, E3G, and Energy Foundation (2021): A Storm in a Teacup

Looking at fees alone does not give the full picture, because the net CBAM

cost will be lower. In the words of Sandbag ‘as free allowances are phased

down, the full carbon costs will be transferred to EU producers, who will

then aim to pass those costs through to consumers’. Accordingly, CBAM

net costs in 2035 (when free allowances are fully phased out) would be

EUR 209 million (43% of total fees). Overall, the effective cost of CBAM

as a share of total EU-China trade volumes is very low.

A green business opportunity

CBAM offers opportunities to Chinese producers in the five sectors

affected. Operators of installations in China would have two options to

report the emissions embedded in their goods. The first would be to rely on

default values, which will likely be set on the average emissions intensity of

an exporting country and for each good, increased by a mark-up to be

determined by the European Commission at a later stage. The second option

would be to quantify and report the actual emissions embedded in the goods

they produce. Given that default values are based on averages plus a mark-

up, they will often be higher than actual emissions. Moreover, both mark-up

and calculation methodology are yet to be determined, leading to

uncertainty risks for businesses that plan to rely on default values.

According to Byford Tsang, Senior Policy Advisor at E3G and co-author of

the Storm in a Teacup report,[28] quantifying and accurately measuring

emissions will enable producers to reduce their exposure to CBAM. In

addition, becoming better at measuring and understanding the emissions at

a production site would be helpful for compliance with China’s national

emission trading system (as well as regional pilots). This will become

especially relevant once these apply to more sectors and carbon prices go

up.

Measures to reduce emissions are also important to reduce CBAM fees.

Producers who have already, or plan to, apply advanced energy efficiency

measures, or use new green technologies or circular economy concepts, will

have substantially lower carbon intensities than peers that rely on fossil

fuels and energy intensive equipment. Companies that quantify and reduce

emissions will reduce the costs for CBAM fees, the resources needed for

reporting and compliance, and the regulatory risk associated with

uncertainties surrounding CBAM’s implementation. As a result, companies

that actively measure and reduce their carbon emissions will benefit

from a competitive advantage.

● Steel case study

The steel sector is the second largest emissions emitter in China,

accounting for roughly 17% of total emissions, second only to power

generation. Over 60% of global emissions from steel come from China,

which is by far the world’s largest producer. In 2021, China’s government

released a draft paper stating the Chinese steel sector would ’reach its

carbon peak as early as 2025’. However, in early 2022, the final guidelines

pushed the date for peaking back to 2030.[29]

Still, China harbours ambitious plans to decarbonise steel. Several

Chinese producers have committed to be carbon neutral by 2050, including

Baowu Steel, HBIS and Baotou Steel – which together account for over

15% of the country’s total production. In May 2021, the China Steel

Association launched the China Steel Environmental Product Declaration

platform for iron and steel in order to better understand and manage the

full-lifecycle carbon footprint.[30]

There are two pathways for decarbonisation of steel production. One

focuses on the currently predominant production method: blast furnaces

(BF) and basic oxygen furnaces (BOF), where steel is made from iron ore

using coal as a reductant. Energy efficiency, biomass, or carbon capture can

be applied, but full decarbonisation will not be easy to achieve. The other

option is the electric arc furnace (EAF) route, which uses scrap steel or

direct reduced iron (DRI) (which can be produced with hydrogen) as the

main raw material.[31] If powered and electrolysed by 100% renewables,

‘the H2-DRI approach has the potential to drive carbon emissions down to

near zero.’[32]

CBAM fees are lower for steel producers using less carbon-intensive

technologies. About 1.8 tons of CO2 are emitted for every ton of steel

produced through the BF/BOF route in China. If BFs are particularly energy

and material efficient, carbon intensities could be around 1.4-1.7 tons of

CO2, and even lower if other mitigation technologies such as biomass or

carbon capture was used. The figure for EAF is around 0.5 tons of CO2.

However, as explained above, renewables-powered EAF using scrap steel

or H2-DRI can achieve carbon intensities close to zero.[33]&[34] Looking into

current commodity prices, we can assume a price of roughly EUR 700 per

ton of exported Chinese steel (both flat and long products). For carbon, we

can assume an ETS price of EUR 85 per ton, which reflects the average

price since April 2022.

Using the above carbon intensities and commodity prices, we can calculate

that the CBAM fee per ton of BF steel could be around EUR 150, which is

roughly 20% of the price at which one ton of Chinese-exported steel

currently trades in global commodity markets. High-intensity EAF and low-

intensity BF might incur fees in the range of EUR 60-120, while there

would be no CBAM fee imposed on renewables-based EAF. However, the

boundary definitions of the above carbon intensities include activities such

as coke making, pelletising, casting, hot rolling, processing and electricity

use which involve indirect emissions. Thus, the emissions coverage is likely

broader than the coverage defined by CBAM. If we assume a more limited

coverage*, we can expect CBAM fees of roughly EUR 100 for BF, EUR

40-80 for BFs using energy efficiency and other forms of mitigation,

and EUR 0 for all forms of EAF.

As described above, cost increases are expected to largely trickle down to

the consumer level. Accordingly, part of the fees paid will be recuperated.

Technologies with low carbon intensities would pay a substantially

lower CBAM fee but could still benefit from raised prices. Sandbag,

E3G, and Energy Foundation have compared CBAM fees and additional

revenues from price increases. They estimate a price increase of EUR 82

per ton of steel by 2035 (once CBAM is fully implemented). According to

their calculations, an average Chinese BF/BOF would pay CBAM fees of

EUR 126 per ton of steel, therefore facing an effective loss of EUR 44 per

ton. However, the relatively less polluting DRI pays an estimated CBAM

fee of EUR 66 and would therefore be able to monetise EUR 16 of the price

increase. Zero-emissions steel technologies, which wouldn’t pay CBAM

fees, could even pocket the total price increase of EUR 82.[35]

So, one opportunity for low carbon technologies is to capitalise on higher

prices and pay either lower or zero CBAM fees. In addition, more

sustainable producers can benefit from strategic competitive advantages.

Given that both Europe and China have committed to reach net zero, the

market for carbon-intensive steel will decline sharply. Therefore, companies

which place an early focus on lower carbon technologies will set

themselves on the path towards becoming the leaders of tomorrow’s net-

zero steel world.

Invest in low carbon technologies now to reap

dividends later

In July 2022, the European Parliament, the Council of the EU and the

European Commission came together for initial talks on CBAM. Paolo

Gentiloni, the European Commissioner for Economy, said there was a

‘broad convergence of views [hoping that the three EU institutions would

reach an agreement] before the end of this year in order to start applying

CBAM from early 2023’.[36]

While this suggests that Chinese exporters may soon be indirectly exposed

to a fairly high carbon price, the number of sectors affected will be very

small. Moreover, the initial obligation will only be to report emissions, with

no payment of fees. Nevertheless, Chinese exporters will need to keep a

sharp eye on developments, as the EU has given itself latitude to adjust and

extend the CBAM once it has become operational.

That means companies investing in emissions reductions now are likely to

reap dividends in the future. Producers that demonstrate their use of low-

carbon technologies during the reporting-only phase will be well-positioned

to benefit from lower (or zero) CBAM fees and increased prices once the

scheme is fully implemented.

By Markus Fischer

ECECP Junior Postgraduate Fellow

6. From academia to industry: Thoughts

on the status quo of the new power system

construction

It is mid-summer and the demand for electricity is peaking once again.

According to monitoring data from the State Grid Corporation of China

(SGCC), the electricity load in Shandong, Henan, Shaanxi and Xinjiang hit

a record high on 24-26 June after consecutive days of scorching heat. Since

June, the electricity load of seven provincial-level grids in Hebei,

Shandong, Henan, Shaanxi, Gansu, Ningxia and Xinjiang, as well as the

grid of northwestern China, have set a new record.[37] As the hot weather

continues and more places lift Covid-induced restrictions and resume work

and production, the grid in many parts of China will face greater pressure

from the tight supply-demand balance.

On the one hand, energy security and supply have become the dominant

theme in the development of the power industry since September 2021,

when over 20 Chinese provincial regions resorted to power rationing. Now,

in the wake of the Russia-Ukraine conflict and soaring energy prices

worldwide, China is prioritising expansion of the power supply and

stabilisation of energy prices, and has vowed to ‘resolutely prevent power

rationing’ from happening again.[38] On the other hand, China remains

committed to the national strategy of peaking CO2 emissions by 2030 and

achieving carbon neutrality by 2060 (commonly known as ‘the carbon

peaking and carbon neutrality goals’). At the 36th group study session of

the Politburo of the 19th CPC Central Committee on January 2022, Chinese

President Xi Jinping noted that ‘the carbon peaking and carbon neutrality

goals were not something imposed on us, but what we believed we must

accomplish, for peaking carbon emissions and achieving carbon neutrality

is imperative for China in this new stage of development to adapt to

technological advancement and promote the structural transformation and

upgrading of the Chinese economy’.[39]

In addition to rolling out effective measures to guarantee power supply in

the short term, China’s energy and electricity-related authorities need to

figure out how to balance the need for short-term power supplies with the

requirement for low-carbon transition and development in the medium and

long term. They need to build a solid foundation for long-term power safety

and security, and create a new power system in a more stable, rapid and

scientific manner.

The twin targets of building a new power system and achieving peak carbon

emissions and carbon neutrality serve the same higher purpose and have the

potential to harmonise with each other. Systematic thinking is required in

order to understand and solve the power supply problem, rather than

criticism of or reliance on a particular power source. Meanwhile, the ‘Plan

for Building a Modern Energy System during the 14th Five-Year Plan

Period’ (hereinafter the Plan) makes it clear that the period 2021-25 is a

critical window for laying the foundations for realising the carbon peaking

and carbon neutrality goals.[40] It urges China to persist in vigorously

developing a diverse mix of green flexible resources, effectively improving

the flexibility of power systems, and laying the foundations for a new

power system that can gradually incorporate an increasing proportion of

new energy.

Leveraging both renewable energy and coal-fired

power and applying systematic thinking to ensure

supply

The highly-anticipated Plan was issued in March this year.Unlike previous

five-year energy plans, it spells out the logic guiding the development of

China’s energy and power system in the new era, placing an emphasis on

‘modernisation’ and systematic thinking.

The reference to systematic thinking signals that China’s energy and power

system is intended to shift from a single-energy (coal-fired power) system

to a multi-energy one ‘that can adapt to large-scale and high-proportion new

energy, and values the integration of source, grid, load and storage’. To this

end, the Plan proposes a demand-side response target, and for the first time

sets a specific power system flexibility target. It also specifies a new

positioning for coal-fired power, suggesting that it should shift from being

the main power source to being a basic and system-modulating power

source that provides reliable capacity, peak load and frequency modulation

and other auxiliary services.

High-quality development of renewable energy and the repositioning of

coal power are both key to the future development of China’s power

systems: both are set to contribute to and benefit from a new generation of

safe and stable power systems.

A changed mindset, and rapid institutional reform, will be needed in order

to accelerate the development of renewable energy. Renewable energy will

be the main power source of the new power system, and will see a gradual

increase in its share of installed capacity and electricity amount. According

to a study conducted by SGCC, renewable energy was scaled up during the

13th Five-Year Plan period (2016-2020) and is now ready to transition to a

new stage where sustainability, safety and efficiency of the entire power

system should be taken into consideration.[41]

For high-quality development of low-carbon, green renewable energy, we

should first recognise its key role in peaking carbon emissions and

achieving carbon neutrality in the power industry. China needs to accelerate

the development of renewable energy, so as to better meet the growing

demand for electricity and facilitate the ‘decoupling’ of socio-economic

development and carbon emissions.

Secondly, we need to acknowledge the complex technical and non-technical

challenges that variable renewable energy brings to China’s current power

system, and actively deploy solutions for scenarios with large shares of

renewable energy.

According to research by SGERI, renewable energy is about to enter an era

of grid parity, but for end-users, cost parity includes not only the cost of

power generation, but also that of transmission and distribution, as well as

the rising costs of system safety. In terms of system safety, if renewable

increases its share in the energy mix, it could lead to a system that is more

vulnerable to variations in supply, and where the grid cannot be adequately

regulated. Such issues need to be resolved.[42]

Therefore, to build a safe, efficient and low-carbon power system, China

needs in advance to develop technologies, business models, market systems

and mechanisms suitable for a power system with large shares of renewable

energy, systematically reduce the utilisation cost and promote the

integration of renewable energy.

Meanwhile, there is still a lack of policy and financial support for the

transition of coal power plants. The existing operating rules, systems and

mechanisms of China’s electric power system are all grounded in a reality

where coal power is the main energy source. If coal power is to be

repositioned as a basic and system-regulating power source, these systems

need to be reformed.

According to a study conducted by the School of Environment and Natural

Resources of Renmin University of China, there are several technological

and policy options for the transition and high-quality development of

existing coal power plants, but to a varying degree each faces hurdles on the

ground. Given the size of China’s existing installed coal power capacity,

decommissioning ahead of schedule may result in a loss of coal power

assets worth trillions of yuan. If installed coal-fired capacity continues to

expand, the potential loss will also increase. Meanwhile, without a mature

auxiliary service market, no one is likely to pay for the flexibility value of

coal power plants.[43] Another research paper by the Institute of Climate

Change and Sustainable Development of Tsinghua University (ICCSD) and

the Tsinghua-BP Clean Energy Research and Education Center (THCEC)

finds that the development of carbon capture and storage (CCS) is greatly

affected by the slowing cost reduction, while the potential for bioenergy

with carbon capture and storage (BECCS) could be hampered by the limited

availability of biomass resources.[44]

An opinion piece from Professor Yuan Jiahai of North China Electric Power

University also stresses that ‘the high-quality transition of coal power plants

needs systematic institutionalised efforts’.[45] He believes that the current

temporary funding and short-term pricing policy support are not enough to

sustain the transition of the coal power industry. His op-ed calls for the

establishment of a power market mechanism and the electricity pricing

policy as soon as possible, including a capacity cost recovery mechanism

and a sound market mechanism for auxiliary services, to support the re-

positioning of the coal power industry using market-oriented and systematic

methods.

Any new development should be repeatedly tested and piloted before it is

delivered on the ground and promoted at a larger scale. Like the reform of

operating rules, mechanisms and systems, determination of the technical

path for the power system cannot be rushed, but needs piloting and rigorous

logic. This requires policy makers and enforcers to give plenty of notice of

new arrangements, to move faster to launch pilot projects and institutional

reform and build various power markets, and to produce market-oriented

and systematic solutions as soon as possible, in order to promote the high-

quality development of renewable energy and the repositioning of coal

power.

Developing a diverse mix of low-carbon flexible

resources is the long-term solution

Besides promoting the high-quality development of renewable energy and

coal power, in order to build a safe, efficient and low-carbon new power

system and adapt to a future power system with large shares of renewable

energy, academics and business insiders generally agree that improved

system flexibility is one of the keys to the development of China’s power

system.

According to an industry-specific research paper by Sealand Securities,

insufficient peaking capacity is now the main factor limiting the integration

of electricity generated from renewables. Based on analysis of statistical

data provided by the Northwest China Energy Regulatory Bureau of

National Energy Administration (NEA) on the reasons for wind and solar

energy curtailment in major provincial regions, the paper finds that

compared with 2015, when limited transmission capacity was the main

factor, in 2020 insufficient peaking capacity caused a much higher share of

curtailment, with the figure exceeding 90% in Ningxia, Qinghai, and

Xinjiang.[46]

By the end of 2020, the proportion of flexible power sources in China

reached 18.5%,[47] according to China Energy News, well on the way to

the goal of 24% by 2025.

In China, it is often the case that a target announced in a policy document is

exceeded in practice. As of May 2022, the installed capacity of China’s

renewable energy had exceeded 1.1 billion kilowatts, while that of new

energy sources such as wind power, PV power and biomass power,

excluding conventional hydropower and pumped storage, had exceeded 700

million kilowatts.[48] Taking into account the targets for installed renewable

capacity set by many subnational and provincial governments for the 14th

Five-Year Plan period, many experts predict that the Chinese government’s

aim to raise wind and solar installed capacity to over 1.2 billion kilowatts

by 2030 is likely to be reached ahead of schedule, or even by the end of

2025. This means that the flexibility of the power system needs to improved

faster.

Both academics and business insiders agree that a multi-pronged approach

should integrate source, grid, load and storage. According to Professor Yuan

Jiahai and Zhang Kai, in the near to medium term, current plans for

development of energy storage and demand response is insufficient to

support a power system with large shares of renewable energy. The

conversion of coal power plants to allow more operational flexibility could

provide the necessary stability to the power system during the transition

period of 2021-2030 as it moves toward decarbonisation.[49] The NEA

proposes vigorously promoting the retrofitting of coal power plants for

energy-saving and low emission, for peak-shaving and for

cogeneration(heating) over the next five years. By the end of 2022, it

envisages that more than 220 million kilowatts of coal-fired power capacity

will have been retrofitted.[50]

It should be noted, however, that increasing the flexibility of the coal power

plants alone is not enough to meet all the flexibility or responsiveness

demands of the future new power systems. The above-mentioned research

by the ICCSD and THCEC finds that when the share of variable renewable

energy is relatively small, the power system can effectively accommodate it

simply by means of deploying retrofitted coal-fired units and interregional

grid connectivity, but as the share continues to rise, a large number of

energy storage facilities will need to be built in order to solve the system

flexibility problem. In the study, analysis of multiple scenarios shows that

when variable renewable energy reaches around 30% of generating

capacity, it will be at a critical point for large-scale application of energy

storage technology. This is likely to occur around 2030-35, according to the

research group.[51]

Policy recommendations

Energy policy makers need to seize the window of the 14th Five-Year Plan

period to lay the foundations for a new power system that is aligned with

China’s carbon peaking and carbon neutrality goals.

During 2021-25, China should move fast to develop a diverse mix of low-

carbon flexible resources and promote the high-quality development of

renewable energy to meet the growing demand for electricity. Priority also

needs to be given to establishment of power market mechanisms and

various institutional reforms, so as to lay a good foundation for a new

power system that can accommodate a growing share of renewable energy.

The authorities responsible for energy oversight must remain on their guard

against the conventional coal-dependent mindset, and solve the power

supply problem in a systematic and holistic way. While building and

improving relevant mechanisms such as the auxiliary service market and

the capacity market, China needs different implementation paths and

mechanisms for the transition of coal power plants at different levels and of

different types as soon as possible so that coal power can be repositioned

within the power system.

By Wenwen XIE

Greenpeace Climate & Energy Campaigner

Republished with permission from Energy Magazine (China) wechat post

7. Rebooting China’s carbon credits:

What will 2022 bring?

The return of carbon credit trading is eagerly awaited, but there are several

challenges ahead

Carbon market players are watching closely to see how China’s version of

carbon credits, the China Certified Emission Reductions (CCER) scheme,

will be rebooted.

Like carbon allowances, carbon credits are a tradeable item. They are

essential for the operation of carbon markets and carbon pricing because

they make profit possible via buying and selling.

China’s national carbon market opened in July last year, and the first

implementation period for allowance trading is already complete. However,

market players eager to see the CCER scheme up and running again are still

waiting.

This article looks at the scheme’s history and explores some of the

opportunities and challenges linked to bringing it back.

Why China set up its domestic carbon credit

market

China’s targets to peak emissions before 2030 and reach net zero before

2060 have brought the attention of more Chinese people to carbon markets

and the profit-making opportunities they provide. While the national carbon

market is new, many don’t realise that China has already been running such

trading platforms for over 10 years. The country started issuing CCERs in

2012 before suddenly halting them in 2017.

CCERs are China’s version of the Kyoto Protocol’s Certified Emission

Reduction or CER – a carbon credit that can be traded under the protocol’s

Clean Development Mechanism. A typical carbon market is made up of

trading in both carbon allowances and carbon credits. Allowances, also

known as quotas, limit the emissions a company can make: what the

company does not use of these allowances, it can sell. Meanwhile, credits

are earned by a broader range of economic actors for reducing emissions.

Activities to reduce emissions can be profitable because credits can be sold

on carbon markets.

In 1997, the Kyoto Protocol established the first three international carbon-

trading mechanisms: Joint Implementation (JI) projects, Emissions Trading

(ET) and the Clean Development Mechanism (CDM). Following on from

the CDM, several parallel carbon credit standards appeared, including the

Voluntary Carbon Standard (now called the Verified Carbon Standard) and

the Gold Standard, each corresponding to different trading systems. These

competed globally. In 2009, China’s Beijing Environment Exchange

proposed the Panda Standard at the Copenhagen climate talks.

China’s first experience of carbon trading was under the CDM, which saw

developing nations sell carbon emission credits to the developed world. The

first of China’s CDM projects was the Huitengxile wind farm in Inner

Mongolia, registered in June 2005. But since June 2017, when the Beijing

Haidian Beibu gas-fired cogeneration project was registered, China has

seen no new CDM projects.

Development and trading of CDM projects in China peaked between 2007

and 2009, with a top price of 30 euros per tonne of carbon. In comparison,

trading on China’s regional trial carbon markets was at around 20 yuan a

tonne, while the price on the new national market has held steady at about

50 yuan a tonne. Good carbon prices caused a boom in CDM projects, with

1,478 Chinese projects registered from June 2005 to June 2017, producing

900 million tonnes of carbon assets and trading worth hundreds of millions

of dollars. Figures from the World Bank show that over 18,000 carbon

credit projects were registered between 2002 and 2020, covering 4.3 billion

tonnes of carbon. Half of those were under the CDM system, the remainder

under other international standards.

One of the reasons for the drop in CDM projects was that in 2009 China

announced its own climate action targets for the first time. These required

domestic emissions reduction mechanisms and marked the start of a

domestic market in carbon credits. In 2012, the National Development and

Reform Commission (NDRC) set up the framework for CCER markets,

issuing documents on project certification and trading in greenhouse gas

reductions.

The missing piece in the carbon market

In 2013, and to great fanfare, China launched seven regional carbon market

trials, with each trying different approaches. As CCERs could be offset

against carbon allowances or traded on the market, corporate groups with

renewable energy interests set up carbon asset firms. There was a wave of

innovation in low-carbon business ideas. One example was ‘carbon sink

fisheries’ – the theory that commercial marine aquaculture of kelp, shellfish

and even fish can create viable carbon sinks – of which several trials were

soon up and running.

Between 2012 and 2017, the carbon price on regional exchanges ranged

from 10 to 40 yuan a tonne, with most at around 20 yuan. CCER prices

were linked with allowance prices. But the regional markets couldn’t play a

full role in price discovery because they were fragmented and had small

trading volumes, so the carbon price remained low. As the number of

CCER projects grew, unhealthy competition on price became a problem. In

March 2017, the NDRC announced that due to low trading levels and

irregularities in some projects, no new CCER projects would be approved,

although existing projects would continue to trade.

According to data from Refinitiv Carbon Research, the State Council

approved 80 million tonnes worth of CCERs between 2012 and 2017, but

only 32 million tonnes were sold. The glut kept carbon prices low, industry

lost interest, and the oversupply of carbon assets got worse.

But credits are essential for a complete carbon market. To stimulate

emissions cuts and help China achieve its dual carbon targets, more market

actors need to get involved, not just those receiving carbon allowances. But

they will only do so if there is profit to be made, hence the need for carbon

credits such as CCERs, which they can sell. So, everyone is watching for

when and how the CCER scheme may restart.

Getting ready for the reboot

In 2018, responsibility for combatting climate change shifted from the

NDRC to the Ministry of Ecology and Environment (MEE). In February

this year, reports appeared that the MEE was expected to support the city of

Beijing in setting up a national CCER market. Work to develop a CCER

trading system is almost complete and industry rumour was that it would

start operating in the first half of 2022. Allowances for China’s 2021

national carbon market were not in short supply, but there was still an

appetite for CCERs. By early 2022, CCERs were trading at about 45 yuan a

tonne. But in the spot market, CCERs were in short supply, and negotiations

focused on carbon futures for the year after CCER restarted. This indicates

strong demand for CCERs, but little supply.

Under current rules, CCERs can cover up to 5% of compliance obligations.

During the first implementation period of the national carbon market, firms

covered by the rules used 33 million tonnes worth of CCERs in this way,

more than the total for 2012–2017. According to the Refinitiv data

mentioned above, there were around 40 million tonnes of CCERs on the

market when approvals were halted in 2017, but the bulk of those have now

been used.

In the almost 11 months since the national market started, policymakers

have borne in mind lessons learned from over-supply and made adjustments

to avoid this happening again.

Globally, the sectors earning carbon credits are usually forestry, agriculture,

carbon capture and storage, energy efficiency, fuel transitions, fugitive

emissions, industrial gases, manufacturing, renewable energy, and

transportation, with forestry being the most common.

In September 2021, the General Office of the Chinese Communist Party and

the General Office of the State Council issued a document on reforms to

ecological compensation mechanisms, shrinking the range of CCER

projects to three core areas: forestry, renewable energy and methane

utilisation. That document has had a far-reaching impact on the market’s

expectations for CCERs and investment choices. It signals that

policymakers want to see high-quality CCER projects and avoid another

over-supply. These areas are also key concerns for China as it moves

toward its dual carbon targets: renewable energy is the foundation of a new

electricity system; forestry is the most typical carbon sink, and China has

targets on forest stock to meet; while methane utilisation will be necessary

for China’s vast agricultural sector and to help the natural gas industry

move in a greener direction.

Meanwhile, the status of CCERs as multi-purpose financial assets has been

strengthened. In July 2021, the People’s Bank of China’s standard for

environmental equity financing tools (JR/T 0228-2021) came into force,

backing the market trading of CCERs and other environmental assets. And

on 12 April this year, the China Securities Regulatory Commission issued

JR/T 0244-2022 on carbon financial products, setting out implementation

processes for typical carbon finance products. Carbon credits are more

financial in nature when compared with carbon allowances and can support

the development and circulation of more derivative products. A more active

carbon financial market, with a wider range of products, will attract more

capital and positive feedback into the primary carbon emissions market.

Those newly issued standards are part of the financial sector’s preparations

for the return of the CCER scheme.

Challenges ahead

Preparations may seem complete, but some challenges have worsened over

the last five years.

First, there have been significant changes in the renewables sector, a major

part of the CCER scheme. Current CCER methodology requires projects to

prove ‘additionality’ in their emissions reduction: the project should not be

profitable or would not obtain financing without the sale of carbon credits.

But in 2021, subsidies for sales of renewable energy in China were ended.

In other words, the sector is now, in general, profitable. That leaves a

question mark over the additionality of its emissions reductions. Ordinary

renewable energy projects will therefore not necessarily qualify as CCER-

suitable, meaning the CCERs which could potentially be provided by large

numbers of proposed renewable projects may not materialise. With CCER

status restricted to projects in the renewables, forestry and methane sectors,

we may see shortages as the market expands.

Fortunately, in February, the city of Shanghai reduced the default emission

factor – the coefficient for calculating emissions when real-time monitoring

is not possible – for purchased electricity and heat, while in March the MEE

reduced the emission factor for the national grid. Those changes reflect

reduced emissions in the energy system as a whole. If mechanisms for

dynamic adjustments to emissions factors can be implemented, demand for

CCERs will hold steady, reducing concerns about supply and demand

problems.

Another issue is the quality of reported emissions data. In 2021, Inner

Mongolia’s environmental authorities exposed a typical case of fraudulent

reporting. And in early 2022, the MEE reported on another four cases. It is

rare for a light to be shined on the third-party service providers calculating

and reporting on emissions in this way. Some of those firms will massage

data for their customers’ benefit. The problem is linked to fierce price

competition for carbon-consulting businesses. In response, the MEE has

called for a crackdown, launching an initiative to oversee and improve the

quality of carbon emissions reporting in the power sector, with working

groups spending ten days or more inspecting each of 264 power firms

across ten key cities. The fact that a central government ministry felt the

need to intervene directly at the corporate level indicates how serious the

problem is. Work to oversee and improve emissions reporting is set to

continue. A review of data from the previous two years is also underway.

Alongside those two issues, many energy firms are calling for pricing

mechanisms for ‘green electricity’ – generated from renewables, currently

only solar and wind, to be expanded to include hydro, but unlikely to

include nuclear – and carbon to be combined in a single system. Power and

carbon are closely linked, yet in practice, they have separate pricing

mechanisms and markets, and prices for both assets are disconnected. In

guidelines for emissions reporting in some sectors, green electricity from

renewable sources cannot be deducted from total power use. That means

covered businesses which opt to buy green electricity end up bearing extra

costs – which naturally makes them less likely to do so. It is also more

expensive to run two markets than one, increasing overall social and

economic costs.

There are signals that the CCER scheme is about to return. Since it was

halted last year, policymakers have approached defining the future CCER

project pool cautiously but have still sent some clear signals. The market

has been attentive and responsive to those signals, and there is already pent-

up demand – if not a land rush – in CCER investments and financing. It

remains unclear when CCER approvals will restart, but the authorities and

market actors have a rough sketch of the rules and prices.

And now, the stock of CCERs has been significantly consumed, and some

experience with carbon allowances trading has been acquired. Clear

warnings have also been sent about the importance of data quality. The

national market presents new challenges for the CCER scheme, but

everyone is keen to see it return.

All that remains is to wait and prepare.

By Xu Nan

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

licence.

8. Open innovation: The trajectory for

smarter energy technology in Europe and

China

The concept of open innovation was first proposed by Henry Chesbrough of

the University of California, Berkeley. It refers to the process by which an

enterprise integrates commercialised resources with internal and external

innovations in one structure for technological research and development.

This includes the commercialisation of internal technology using external

channels, in contrast with the traditional closed innovation model. Open

innovation opens the door to an improvement in user innovation, innovation

networks, and collaborative innovation. As a management concept, open

innovation has been applied in practice in large enterprises in Europe and

the United States since the end of the 20th century, but it has only recently

appeared on the horizon of management practice in China.

Today, open innovation has gradually become more widespread. No longer

confined to large enterprises, it is now present in small and medium-sized

enterprises, and is even evident in individual entrepreneurs and industrial

clusters, from high-tech industries to traditional industries, thus driving the

progress of research in the whole field of innovation. In the context of

carbon peaking and carbon neutrality, the progress of energy technology

also needs to break free from the traditional closed and linear innovation

path and adopt an open innovation approach so that internal and external

innovation resources can be integrated to promote the transformation and

development of the energy industry.

With the further development of energy technology cooperation between

China and Europe, a number of leading enterprises and R&D institutions

have emerged, which are taking the lead in experimenting with open

innovation, building a distinctive innovation ecology, and jointly promoting

the transformation and development of China-EU energy technology

innovation.

Due to the differences in market mechanism, enterprise culture and

development stage, there are obvious differences between China and

Europe in the field of open innovation. Europe had a head start, and its

market-based innovation mechanism is relatively mature, with a number of

well-established large enterprises rooted in the process of economic

globalisation. Open innovation in Europe is characterised by a corporate-

driven approach.

China’s market-based innovation mechanism got under way later and has

shallower foundations.

Europe: Enterprise-driven open innovation

practice

The open innovation network of enterprises consists of competitors,

research institutes, governments, suppliers, customers, exhibitions, etc.

Major enterprises have already successfully adopted the open innovation

model. For example, US- based Tesla made all its technology patents open

source to improve the universality of its technology. Eventually, the entire

EV industry will be compatible with Tesla's standards, at which point Tesla

will effectively control the industry’s core resources, driving the

development of the industry ecosystem and promoting innovation in the

industry.

Apple integrates open innovation deep into its production and marketing

activities, covering all subjects in the value chain, in order to internalise

external resources and commercialise internal resources. On this basis, it

establishes and develops a customer-centric business model, which can

foster high customer loyalty and achieve a sustained competitive advantage.

The same innovation model is widely used by large global companies in

Europe, and more energy companies are introducing open innovation,

hoping to open up the boundaries of corporate and institutional innovation

activities and unleash more momentum for energy technology innovation.

● Case 1. Open innovation boosts Shell’s transformation

In the context of the energy transition, Shell, a traditional oil and gas giant

that has long ranked among the Fortune 500, has developed a

comprehensive open innovation organisation model. The company has

created an open innovation ‘toolkit’ that covers all aspects of innovation

and is operated by Projects & Technology, one of Shell's three business

units.

The P&T Department has three key responsibilities: Innovation and R&D,

Technical Solutions and Deployment, and Project Implementation. The

operation mode of the P&T Department fully reflects Shell's concept of

technology integration, not just in terms of upstream and downstream, but

also in terms of management, from R&D to application. In this organisation

model, technology extends further than R&D. It represents the full range of

technical system engineering, where R&D, engineering and construction

are closely integrated.

Shell's open innovation tools extend to a variety of organisations and

contributors, including internal R&D teams, global university students,

universities, research institutes, industrial partners, external technology

holders, etc., in order to meet the need for technological achievements over

a wide range of stages, external units and cooperation purposes, to obtain

more support from inside and outside the company, and to discover more

innovation possibilities that can complement Shell's independent R&D

activities.

Source: Tsinghua Sichuan Energy Internet Research Institute Research Team.

● Case 2. Schneider Electric's Open Innovation Practice

Schneider Electric SA, a global leader in energy efficiency management and

automation, is committed to promoting an open ecosystem of technologies

and partners. Schneider Electric makes full use of innovative technologies

and adopts different ways of thinking, design and construction to seize

opportunities and address energy dilemmas in the new energy world. As a

practitioner of open innovation, Schneider Electric aims to leverage its

expert resources, industry insights and practical experience to share the

world's leading energy technologies and innovation trends with university

students and entrepreneurs worldwide.

Schneider Electric has hosted the ‘green energy efficiency global innovation

case challenge’ for the past 11 years. It is one of the world's largest student

competitions, and its aim is to discover the innovative power in the

transformation of green energy. The competition, which is held to be an

‘incubator for sustainable talent and projects’, is open to university students

worldwide. It aims to stimulate young talent to contribute to the sustainable

development of society, while looking for green, intelligent and innovative

solutions that can enhance people's lives. Some of the ideas from the

competition have already been transformed from innovation research

projects to real-life practice, such as the GoGreen 2022 award winner

Energy System Optimisation of Low-carbon Community project by Tongji

University of China which has been implemented in a business district in

Shanghai.

With the support of the China-EU Energy Technology Innovation

Incubation Cooperation Demonstration Platform, Schneider Electric now

plans to launch the Double Carbon Challenge, in collaboration with its

Chinese and European partners. The winning solutions from the

competition will have the opportunity to have innovation eco-partners and

be ‘incubated’ into real products and applications.

Schneider also co-organises the ‘Green Intelligent Manufacturing Win-Win

Plan’ with Contemporary Amperex Technology and Star Charge. Tsinghua

Sichuan Energy Internet Research Institute and Rocky Mountain Research

Institute participate in it as partner organisations, uniting ecosphere partners

and integrating innovative technologies to provide manufacturing

enterprises with a series of achievable and reusable joint creation solutions.

The program will incubate a number of small and medium-sized enterprise

eco-partners, allowing innovative technologies to realise the huge potential

of industrial productivity and efficiency. The ‘Green Intelligent

Manufacturing Win-Win Plan’ accelerates the digitalisation, intelligence

and innovation capabilities of the entire green smart manufacturing

ecosystem. Shortlisted enterprises will receive all-round empowerment

through training, certification and project incubation in terms of technology,

market and investment, and the final customer-ready solutions will be

matched with commercial enterprises.

China: Open innovation practices led by new

research institutions

In the context of dual carbon, energy technology innovation requires the

participation of many players. In addition to enterprises, new R&D

institutions such as university institutes and innovation centres are often

important promoters of energy technology innovation. Emerging R&D

institutions tend to focus on the technological innovation needs of the

leading regional industries, and are mainly engaged in scientific research,

technological innovation and R&D services. They are capable of diversified

investment, international construction, market-oriented operation and

modern management, and are independent legal organisations with

sustainable development capabilities. New R&D institutions are responsible

for integrating market demand, scientific and technological resources,

funds, talents and industrial technology development inside and outside the

system. Through open innovation, they can allow resources to flow, and

solve problems that cannot be solved in traditional organisations with well-

defined boundaries.

● Case 3. Open innovation ecological development of Tsinghua

Sichuan Energy Internet Research Institute

Founded by Tsinghua University and the Sichuan Provincial Government,

Tsinghua Sichuan Energy Internet Research Institute relies on the

interdisciplinary resources of Tsinghua University to carry out cutting-edge

research and industry cultivation on the energy Internet, and is committed to

promoting the construction of a clean, low-carbon, safe and efficient energy

system. Since its establishment in 2016, Tsinghua Sichuan Institute has

explored an open innovation system that integrates innovation resources

from government, industry, academia, research, application, finance and

services, system construction, industry cultivation and other aspects.

By integrating the advantages of Tsinghua University's multidisciplinary

cross-fertilization academic resources, the Institute has gradually formed a

team structure with Tsinghua technology as the main body, alumni

technology as the support, and external technology as the supplement. It has

created 10 interdisciplinary production and research integration research

centres, including the new energy and energy storage research centre, the

power carbon neutralisation research centre, and the energy source digital

research centre, with more than 30 high-level R&D teams. Tsinghua

Sichuan Energy Internet Research Institute has built a platform for talent

convergence and entrepreneurship, and promoted the deep integration of

scientists and entrepreneurs in scientific and technological innovation and

industrial development, so as to jointly promote development.

Capitalising on its generous funding, Tsinghua Sichuan Institute has

vigorously promoted international industrial technology innovation in the

field of the energy Internet by building the Energy Internet International

Innovation Center and other propitious platforms. Based on projects such as

Energy Internet International Entrepreneurship Summit, EXCEL Innovation

Acceleration Camp and X Plan Innovation Incubator, the Institute is

committed to providing one-stop services such as investment and

incubation, technology trading, resource matching, entrepreneurial training

and intellectual property operation for startups, helping scientists and

entrepreneurs to build the innovation chain from idea to sample, from

sample to product and from product to commodity. At present, Tsinghua

Sichuan Institute has accumulated more than 20 internally incubated

enterprises and has worked with 39 external enterprises. Total financing has

reached over CNY 5 billion.

Source: Tsinghua Sichuan Energy Internet Research Institute Research Team.

● Case 4. Open innovation system of the National Smart

Sensor Innovation Center

The National Smart Sensor Innovation Center is located in Jiading District,

Shanghai, and was established in June 2018. Through its open industrial

innovation ecosystem, it provides a platform that supports common

technologies for small, medium and large enterprises in the industry chain

such as smart sensor design, materials, manufacturing, equipment,

packaging and testing.

By establishing R&D platforms for new sensor materials, processes, device

structures, process manufacturing, testing, design services, and engineering

services, the National Smart Sensor Innovation Center develops core

technologies in materials, manufacturing processes, packaging, and device

integration for a new generation of sensors, and promotes the

industrialisation of key common technologies.

In addition, the National Smart Sensor Innovation Center also launched the

China Sensor and IoT Industry Association (SIA) under the guidance and

support of the Ministry of Industry and Information Technology (MIIT),

which promotes the standardisation of the IoT industry’s core technologies

and their applications through joint association members as well as

provincial and municipal IoT associations, sensor alliances, and other

relevant industry organizations with industry-university-research

cooperation and integration of resource advantages to accelerate the

development of core technologies for sensors, smart hardware and IoT

applications.

Implications For Energy Innovation in China and

Europe

Open innovation is the inevitable direction for the future transformation and

development of the smart energy industry in China and Europe. Energy

technology innovation involves breaking the barriers imposed by

geographical, industrial, disciplinary and other restrictions, and this process

needs not only scientific and technological innovation with smart energy at

its core, but also the encouragement of institutional and mechanical

innovation of various market roles.

Talent is the foundation of energy innovation; China needs to innovate its

mechanisms for the discovery and cultivation of talent, tap the potential of

innovative talents through various channels, and promote the opening of the

whole chain from idea generation to innovation development. Talent is the

driving force of innovation, and energy innovation enterprises in both China

and Europe should fully open up talent tapping channels, actively attract

talent, and build talent interaction platforms that will foster internal and

external innovators.

Technology is the driving force of energy innovation. The world needs an

open technology cooperation ecology, bringing together universities and

institutes, investment institutions, industry associations, government units,

industry leaders and other parties to jointly incubate innovative technology

solutions. By assembling an ecosystem that includes the top players in the

energy innovation industry and integrating innovative technologies, the

world can develop a whole series of feasible and reusable co-creation

solutions for manufacturing enterprises, and empower them with training,

certification and project incubation in all aspects from technology, market

and investment. Energy innovation companies in China and Europe need to

create an open energy innovation ecosystem, share innovation resources,

and jointly discover, incubate and cultivate energy technology innovation

solutions with growth potential.

By Miaoqiang DAI and Weizhi HE

with support from Yuanlin ZHANG (intern)

Tsinghua Sichuan Energy Internet Research Institute

9. Prosumerism in the age of smart grids:

a sociotechnical study

A recent report, ‘Prosumerism and Energy Sustainability’, by the EU’s Joint

Research Centre (JRC) explored several sociotechnical aspects of the

development of prosumers as a market-shaping force, with a focus on the

energy sector.

The term ‘prosumer’ stems from combining two words: producer and

consumer. It first appeared in Alvin Toffler’s 1985 novel ‘The Third Wave’

, which prophesied a return to an economy based on individuals and small

groups of people operating as both producers and consumers of basic

goods. A more contemporary use of the term appears on social media and

video-sharing platforms such as Twitter, Facebook, and YouTube, where

users are both producers and consumers of the digital content provided.

In the context of energy production, prosumers are becoming ever more

important players. As the number of people installing solar panels on their

properties increases, so does the share of renewable energy providing for

our electricity needs - but also the challenges associated with managing an

ever more complex grid.

Typical tools in the arsenal of a modern energy prosumer are photovoltaic

(PV) panels, smart meters and home energy management systems. As

technology improves, other larger-scale elements may be added, including

large batteries in basements and other parts of a household, or connection of

a household’s electric vehicle’s battery to the smart mini-grid. The concept

of prosumerism in the energy field is being extended to include heating, not

just electricity production. The adoption of electrified heating devices, such

as highly-efficient heat pumps and other low-carbon heating systems like

heat networks and biomass-based heating, has seen significant growth. The

list of energy-related prosumer technologies and techniques is now fairly

extensive (see Table 1).

Table 1: Summary of different prosumer technologies in energy.

Early research into prosumerism in the context of energy production was

focused on how adoption of such technologies (e.g. solar panels) in

individual, private accommodation affected prosumers’ personal perception

of general large-scale adoption. However, given the growing public support

for the adoption of renewable technology for energy production on a large

scale, the need for research around this particular socio-technical subtopic

has abated.

Subsequently, the research has focused on developing a more accurate

personal and psychological profile of individuals who choose to become

prosumers, as well as how this choice has affected their behaviours around

energy. It has been shown that becoming a prosumer does not significantly

affect total energy consumption. However, the installation of rooftop PV

cells does have a significant impact on behaviour, by raising the likelihood

of choosing to run domestic appliances at times of peak solar energy

production (around the middle of the day). This is an important behavioural

change: shifting patterns of consumption at different hours of the day is

relevant if energy planners wish to ensure that the excess electricity

produced at peak times can be absorbed into the system and used

productively, at least until a full-blown energy storage infrastructure is

developed to deal with the fluctuations of electricity production and

consumption.

Another fruitful avenue for investigation into the sociotechnical aspects of

energy prosumerism has focused on studying the preferences and levels of

technical knowhow among prosumers. When utilities design smart grid

structures and applications, they often assume the consumer is interested in

technical data about the energy consumption of the household, in technical

gadgetry and in generally having a pro-technical mindset and bias. Yet

while this ‘tech-savvy person’ is certainly representative of a subgroup of

the utilities’ customers, it is in a minority. For the long-term success of

utilities’ strategies in developing a smart grid, it is very important for more

typical consumers to be made the focus of a company’s policies for

expansion and development. As corporate strategy and sociotechnical

analysis merge to create a realistic profile of the average prosumer, this will

allow all stakeholders to adopt the utility company’s planned innovations

more smoothly.

Another productive intellectual debate has focused on the distinction

between ‘sufficiency’ and ‘efficiency’ when it comes to energy needs.

While a typical fridge today is more efficient than past models efficient, it is

also larger. This development is evident in a number of appliances and

goods, including cars, demonstrating our increased levels of comfort and

affluence, which come at the expense of increased energy consumption.

Consider, for example, the size of a domestic fridge. If environmental

considerations are prioritised, alongside a more rigorous scrutiny of the

consumer’s personal needs, a typical fridge is likely to be smaller compared

to current fridges. ‘Sufficiency’ is therefore a concept that is just as

important as efficiency when it comes to reducing the amount of energy and

resources we consume as individuals and as a society. The social constructs

that equate ever-increasing production and consumption with a better life

pose a challenge to a rigorous analysis of one’s needs based on ‘sufficiency’

(this is ‘enough’). However, as we move forward in the future, a

sufficiency-based assessment of needs and purchasing decisions is going to

be increasingly important. In another example, looking at the indoor

temperatures to which apartments, offices and other buildings are heated

during winter, a decrease of just 1˚C or 1.5˚C would lead to substantial

individual and national energy savings.

The JRC report concludes with a set of recommendations for policymakers,

including:

● Applying sociotechnical rather purely technical or purely social

perspectives when devising strategies for prosumers in the energy sector.

● Extending initiatives such as deployment of smart meters and PV cells to

encompass disadvantaged areas, including social housing projects.

● Introducing policies that encourage the adoption of a ‘sufficiency’

principle as well as an ‘efficiency’ principle for utilisation of resources.

(For example, houses above a certain size could be required to be climate-

neutral.)

By Lucio Milanese

ECECP Junior Postgraduate Fellow

10. Monthly News Round-Up

ECECP highlights the key energy news headlines from the past month in the EU and China

European News

● EU: Parliament backs green labeling for gas and nuclear

The European Parliament votes to include gas and nuclear power plants in

the EU ‘taxonomy’ rulebook from 2023. This is likely to become law unless

a super-majority of states veto the move.

+ More

● EU: Lawmakers support mandatory use of green jet fuel

The EU has approved targets that will require kerosene to be substituted

with sustainable alternatives by 2025.

+ More

● EU: Commission proposes gas demand reduction plan

Gas use in Europe should fall 15% by spring 2023, according to a new

European Gas Demand Reduction Plan. The plan is intended to prepare the

bloc for potential gas supply disruption this winter.

+ More

● Europe struggles to fill storage as Russia squeezes gas

supplies

Russia's Gazprom has announced it will cut natural gas supplies to Europe

via Nord Stream 1 to 20% of capacity, citing technical issues. The

announcement leaves Europe struggling to fill its gas storage facilities in

the run up to winter.

+ More

● EU: EUR 1.8 billion in clean tech decarbonisation projects

The EU plans to invest in 17 large-scale innovative clean-tech projects,

following a third round of awards under the Innovation Fund.

+ More

● EU: EUR 5.4 billion hydrogen project

The European Commission has approved a Europe-wide IPCEI Hy2Tech

hydrogen programme. By bringing together 35 partners from 15 member

states, the project aims to support research and innovation and initial

industrial deployment in the hydrogen technology value chain.

+ More

● G7 to set up Climate Club

The G7 intend to set up an open, cooperative international Climate Club by

the end of 2022, according to a statement released after the leaders’ meeting

in Ellmau, Austria on 28 June 2022.

+ More

● UK: 25% windfall tax on oil and gas producers

British lawmakers have approved a 25% windfall tax on oil and gas

producers that will earn the government nearly USD 6 billion in its first

year. The money will be used to offset surging consumer energy bills.

+ More

● Germany: 10 GW of new wind farms per year from 2025

The German parliament has adopted a new onshore wind law (WindLandG)

which aims to expand onshore wind by a massive 10 GW a year from 2025,

and requires states to set aside 2% of territory for onshore wind generation.

+ More

● Italy: New national guidelines for Agri-PV plants

Agri-PV received a boost on 27 June 2022, when Italy’s Ministry of Ecological Transition published

its Guidelines for Agrovoltaic Plants to clarify the minimum characteristics and requirements for a

photovoltaic system to be considered Agrovoltaic. Agri-photovoltaics combines croplands with the

generation of energy produced by a photovoltaic plant.

+ More

● UK: Britain exports electricity to Europe

In April 2022, the UK switched from being a net importer to a net exporter

of power to France, Belgium, and the Netherlands for the first time since

2017, following on from ramped-up LNG supplies to the UK and reduced

nuclear power output in France.

+ More

● Germany: Berlin set to benefit from country’s largest heat

storage facility

Heating in Berlin will be secured by Germany’s largest thermal energy

storage facility, a 56 million litre hot water tank of 200MW-rated storage

capacity. The facility will feed hot water into Berlin’s district heating

network from the start of 2023, offering the city increased security of

supply.

+ More

● France: Hot summer could limit nuclear output

France faces tightened power supply this winter: EDF may be forced to

reduce nuclear output because of anticipated prolonged high temperatures

over the summer months.

+ More

● France: EDF to be nationalised amid energy crisis

On 19 July 2022, France's government outlined plans for a EUR 9.7 billion

buyout that will give it full control of EDF. The move will give it a free

hand in the running of Europe's biggest nuclear power operator as it

grapples with a continent-wide energy crisis.

+ More

● UK: Renewables subsidy auction secures 11GW of new

capacity

A fourth UK ‘contract-for-difference’ auction round has secured 11GW of

new renewables capacity at a record low price. Tidal stream and floating

offshore wind projects are included for the first time.

+ More

● Finland: Sand battery offers solution for renewable energy

storage

Finnish companies Polar Night Energy and Vatajankoski have built the

world's first operational ‘sand battery’, which stores heat converted from

renewable electricity for weeks or even months.

+ More

● Germany: World’s first underground laboratory for deep

geothermal energy research

Research on deep geothermal energy is to receive a boost with the world’s

first underground laboratory, a interdisciplinary research platform called

GeoLaB, established by the Karlsruhe Institute of Technology and its

research partners.

+ More

● Denmark: New international sharing platform for offshore

wind

Offshore wind operators worldwide will benefit from a new international

platform designed to share Denmark’s extensive experience of offshore

wind development. www.offshorewindtour.org has been launched by the

Danish Energy Agency and the Ministry of Foreign Affairs.

+ More

● Italy: World’s first CO2 battery nears commercial

production

Italian startup Energy Dome has begun commercial development of the

world’s first long-duration CO2 battery in Sardinia, Italy. The battery, which

uses carbon dioxide to store renewable energy on the grid, is ready for rapid

global deployment.

+ More

● Netherlands: Shell takes lead on Europe’s largest hydrogen

project

Shell has announced a final investment decision on a 200MW green

hydrogen plant in the Netherlands, which will likely be Europe's largest

when operations start in 2025. The plant’s capacity could rise to 400 MW.

+ More

China News

● Carbon peaking plan for urbanisation

China’s carbon peaking and neutrality plan for urbanisation and rural

development was released on 13 July 2022. It promotes a wide range of

energy-saving technologies and includes a number of targets including 50%

rooftop solar coverage of new-build factories and public buildings by 2025.

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● Targets set for industrial energy efficiency

An ‘Action Plan for Industrial Energy Efficiency Improvement’, published

on 29 June 2022, maps out key actions and targets for promoting green

power consumption and energy efficiency in key industries including steel,

petrochemicals, data centres, and the building sector.

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● Details published on measures to boost green consumption

In a public response, China’s Ministry of Industry and Information

Technology has detailed plans and focal points for the promotion of green

consumption, particularly relating to EV, green building materials and home

appliances.

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● Energy import value leaps 53.1% in Jan-Jun 2022

China’s General Administration of Customs Statistics shows that the gross

import value of energy products, including crude oil, gas and coal,

increased by 53.1% in the first half of 2022 as commodity prices surge,

amounting to CNY 1.48 trillion.

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● Renewables account for 29.7% of power output in 2021

RES supplied 29.7% of China’s overall power production in 2021,

according to figures in a newly released report by China Renewable Energy

Engineering Institute.

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● ULE technology reaches 93% of coal-fired capacity

China’s ultra-low emission (ULE) coal-fired capacity reached 1.03 TW by

the end of 2021, representing 93% of the current coal installations,

according to a recent published annual report by the China Electricity

Council, which reviews the power industry development in 2021.

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● Pressure on power industry builds as summer temperatures

peak

China’s summer peak power load is expected to reach over 1.3 TW in 2022,

up 10% since 2021, with some provinces facing a power gap of over 3 000

KW at peak times, warns the China Electricity Council. Coal output

remains lower than the 12.6 million tons per day that is required in order to

stabilise power supplies.

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● Surge in number of pumped-storage plants in push for green

energy

With more than 200 pumped-storage hydro stations scheduled for

development, total installed capacity will reach 62 million kW by 2025,

representing a CNY 100 billion market, according to a recent industry

report.

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● Record-breaking new energy vehicle sales leap 115%

Defying the economic headwinds, new energy vehicle (NEV) sales soared

to 2.6 million in the first half of 2022, up 115% since 2021. The Chinese

NEV fleet exceeded 10 million at the end of June, representing 3.23% of

the country’s automobile fleet.

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● CNEEEX to develop ETS price benchmark

Development of a Chinese carbon price index, offering a benchmark price

for China’s ETS, is now under development. Shanghai Environment and

Energy Exchange (CNEEEX) announced it had begun work on the

benchmark on the first anniversary of China’s national carbon emissions

trading scheme.

+ More

● Hydrogen exchange facility to be launched in Shanghai

Shanghai Electric, CNEEEX and two other partners have signed a MOU on

establishment of a Shanghai Hydrogen Exchange, a move that may help

Shanghai to become an international hydrogen hub.

+ More

● China leads hydropower installation in 2021

China is the only market that is keeping pace with the net-zero pathway for

the hydropower sector. The country accounted for 21 gigawatts (GW) out of

the 26 GW of new capacity that came online globally in 2021, according to

the International Hydropower Association (IHA). China has 391 GW of

installed capacity, followed by Brazil with 109.4 GW.

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● Construction begins at world's biggest hydro-PV project

On 8 July 2022, work began on the world’s largest hydro-PV hybrid project, Yalong Hydro Kela

Solar Power Station, Sichuan Province. With over 1 GW capacity, it could produce 2 TWh green

power per year.

+ More

● Trina Solar claims record 24.5% efficiency for 210mm

PERC cells

Chinese company Trina Solar has achieved an efficiency of 24.5% for

210mm p-type monocrystalline silicon PERC cells, breaking the world

record for the 24th time.

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● Refinery throughput falls for first time in 10 years

Throughput in China’s refineries fell for the first time in more than a decade

during the first half of 2022. It dropped by 6 per cent to 13.4 million bpd,

with domestic demand impacted by Covid lockdowns and fuel export

restrictions.

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● Sinopec ushers in new era for China’s sustainable aviation

fuel industry

Sinopec Group has kickstarted China's sustainable aviation fuel (SAF)

industry following a successful test run at the country's first large-scale

biojet plant. The plant in Zhejiang province has the capacity to make 100

000 metric tons per year of on-spec biojet fuel from used cooking oil.

+ More

● Air Liquide to open 75 GWh biomethane facility

French industrial gases supplier Air Liquide has unveiled plans to build its

first biomethane production facility in China, aiming to bring it online by

the end of this year, building on European biogas activity in China, led by

Germany.

+ More

● China’s Envision partners with Spain on carbon neutrality

China green tech firm Envision entered an umbrella partnership agreement

with the Spanish government on 18 July 2022, to establish Europe’s first

zero-carbon industrial park in Spain. It is set to include a gigafactory for EV

batteries, a digitalisation centre for renewables, a green hydrogen

production plant, a wind power plant as well as an assembly line for smart

turbines.

+ More

This month, ECECP is trialing a new formula for our news section. We aim to highlight key energy

news headlines in Europe and China over the past month, which means we can provide a wider

selection of news for our readers. Please let us know how you feel about the change by emailing:

magazine@ececp.eu

11. Featured Publication

Securing Clean Energy Technology Supply Chains

This special technical report by International Energy Agency assesses

current and future supply chain needs for key technologies – including solar

PV, batteries for electric vehicles and low emissions hydrogen – and

provides a framework for governments and industry to identify, assess and

respond to emerging opportunities and vulnerabilities. The IEA highlights

five key strategies to build secure, resilient and sustainable supply chains:

Diversify, Accelerate, Innovate, Collaborate and Invest.

The IEA’s report contains data from two separate reports that provide a

detailed examination of the EV battery and solar PV supply chains from raw

materials all the way to the finished product, highlighting key vulnerabilities

and risks at each stage.

+ More

Renewable Power Generation Costs in 2021

This latest version of the annual renewable power generation costs report,

published by the International Renewable Energy Agency, reveals that the

global weighted average cost of renewable power continued to fall in 2021,

as supply chain challenges and rising commodity prices have yet to

demonstrate their full impact on project costs. The LCOE of onshore wind

fell by 15%, offshore wind by 13% and solar PV by 13% compared to 2020,

while the LCOE of CSP plant rose by 7%.

High coal and fossil gas prices in 2021 and 2022 have further undermined

the competitiveness of fossil fuels, making solar and wind even more

attractive. The report shows that in the G20 countries, almost two-thirds or

163 GW of newly installed renewable power in 2021 had lower costs than

the cheapest available coal-fired option.

As to supply chains, IRENA’s data suggests that not all materials cost

increases have yet been passed through into equipment prices and project

costs. This suggests that price pressures in 2022 will be more pronounced

than in 2021 and total installed costs are likely to rise this year.

+ More