Also by EU-China Energy Cooperation
Platform Project
2020
EU China Energy Magazine Spring Double Issue
EU-China Energy Magazine Summer Issue
中欧能源杂志夏季刊
EU-China Energy Magazine Autumn Issue
中欧能源杂志秋季刊
EU-China Energy Magazine 2020 Christmas Double Issue
中欧能源杂志2020圣诞节双期刊
2021
EU-China Energy Magazine 2021 Spring Double Issue
中欧能源杂志2021春季双期刊
EU-China Energy Magazine 2021 Summer Issue
中欧能源杂志2021夏季刊
EU China Energy Magazine 2021 Autumn Issue
中欧能源杂志2021秋季刊
EU China Energy Magazine 2021 Christmas Double Issue
中欧能源杂志2021圣诞节双刊
2022
EU China Energy Magazine 2022 February Issue
中欧能源杂志2022年2月刊
EU China Energy Magazine 2022 March Issue
中欧能源杂志2022年3月刊
EU China Energy Magazine 2022 April Issue
中欧能源杂志2022年4月刊
EU China Energy Magazine 2022 May Issue
中欧能源杂志2022年5月刊
EU China Energy Magazine 2022 June Issue
中欧能源杂志2022年6月刊
EU China Energy Magazine 2022 Summer Double Issue
中欧能源杂志2022年夏季雙刊
EU China Energy Magazine 2022 September Issue
中欧能源杂志2022年9月刊
EU China Energy Magazine 2022 October Issue
中欧能源杂志2022年10月刊
Digest of the Handbook on Electricity Markets - China Edition
Digest of the Handbook on Electricity Markets - International Edition
电力市场手册 （精华版）- 中国发行
电力市场手册 （精华版）- 国际发行
EU China Energy Magazine 2022 November Issue
中欧能源杂志2022年11月刊
EU China Energy Magazine 2022 Christmas Double Issue
中欧能源杂志2022年12月刊
2023
EU China Energy Magazine 2023 February Issue
中欧能源杂志2023年2月刊
EU China Energy Magazine 2023 March Issue
中欧能源杂志2023年3月刊
EU China Energy Magazine 2023 April Issue
Joint Statement Report Series
Electricity Markets and Systems in the EU and China: Towards Better
Integration of Clean Energy Sources
中欧能源系统整合间歇性可再生能源 - 政策考量
Supporting the Construction of Renewable Generation in EU and China:
Policy Considerations
中欧电力市场和电力系统 - 更好地整合清洁能源资源
支持中欧可再生能源发电建设: 政策考量
ENTSO-E Grid Planning Modelling Showcase for China
ENTSO-E 电网规划模型中国演示
Accelerating the Incubation and Commercialisation of Innovative Energy
Solutions in the EU and China
Table of Contents
Also By EU-China Energy Cooperation Platform Project
Letter from the Team Leader
1. How new business models are boosting momentum on CCUS
2. Why China’s renewables push fuels coal power investment
3. Pairing up PV and heat pumps in China
4. ESG of EV batteries
5. Energy transition’s new industrial landscape
6. News in Brief
7. Featured Publication
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Also By EU-China Energy Cooperation Platform Project
Letter from the Team Leader
Dear All,
As we continue to explore the complex dynamics shaping the global energy
landscape, I am delighted to introduce the April 2023 issue of the EU-China
Energy Magazine, which features a diverse range of original and curated
articles that have been chosen to shed light on the latest developments in the
energy sector.
In this issue, we begin with an analysis of how breaking up the CCUS value
chain can stimulate new business models, which are boosting the
momentum for CCUS technology deployment around the world. Given that
CCUS is an effective solution that can save our planet from pressing
climate change challenges, it is crucial that facilitating polices are in place
to keep up with the evolving sector.
The second article takes a closer look at China’s renewables push and how
it relates to coal power investment. Despite the country’s ambitious
renewable energy targets, more coal power is still planned. This article
analyses the factors contributing to this paradox and the impact it has on the
country’s energy transition.
Next, we feature an article contributed to ECECP by Anders Hove at the
Oxford Institute for Energy Studies, which explores China’s Whole County
PV program and its synergies with rural clean heating. The program offers a
unique opportunity to combine the clean energy impact of heat pumps and
PV to offer increased energy efficiency and reduce emissions.
The magazine also offers an account of the ESG considerations in the EV
battery industry, discussing how the upcoming European new rules on EV
batteries will impact on auto makers and their battery suppliers and
recyclers, as they will be required to disclose information about the
sustainability of their mineral supply chains.
Our coverage of clean industries continues with an examination of the
evolving landscape of clean technology manufacturing investment and the
global competition for subsidies, and what challenges the EU will face
when meeting the ambitious targets set by Net Zero Industry Act.
Importantly, don’t forget to follow the latest key news developments and
reports picked out by our editors.
Just a little advance information: on 20 June 2023, ECECP and the Center
of Science and Technology & Industrialisation Development, Ministry of
Housing and Urban-Rural Development will co-host the first EU-China
symposium on ‘Achieving carbon neutrality in building sectors: policies,
solutions and opportunities’ during the 20th China International Exposition
of Housing Industry & Products and Equipment of Building
Industrialisation. Save the date!
Last but not least, I would like to say a big thank you to our demanding
editors, Daisy Chi and Helen Farrell for once again delivering a very
informative issue. We hope you enjoy reading it!
Flora Kan
ECECP Team Leader
1. How new business models are boosting
momentum on CCUS
2022 was a strong year for carbon capture, utilisation, and storage (CCUS).
More than 140 new projects were announced, increasing planned storage
capacity by 80%, and capture capacity by 30%. CCUS projects were
announced in seven additional countries, in central and southern Europe,
the Middle East, and Southeast Asia, bringing the total number of countries
with plans to develop CCUS to 45.
Around 15 final investment decisions were taken across applications in
industry, power, fuel transformation and direct air capture since the
beginning of 2022, up from eight in 2021. This signals an increasing
confidence in the industry, driven in part by CCUS-specific policy
incentives in the United States, Canada, and the United Kingdom; by
strengthened climate pledges; and by rising carbon prices in compliance
and voluntary carbon markets.
These details and more on operating and planned large-scale CCUS projects
around the world can be found in the CCUS projects database, which the
IEA has released for the first time. Alongside the CCUS handbooks
released in 2022, the database is intended to be a tool that governments and
companies can use to continue to drive growth on CCUS.
The storage gap is closing as plans for CCUS hubs
multiply
Along the CCUS value chain, the most significant growth is observed in the
development of CO2 transport and storage infrastructure, particularly in
North America, Europe, China, the Middle East, and Australia. In 2022
over 210 Mt of new CO2 dedicated storage capacity was announced, up
from 100 Mt CO2 in 2021, and 70 Mt CO2 in 2020. Similar capacities for
connecting infrastructure, including collection terminals, pipelines and
shipping, also entered into planning. This means that planned storage
capacity currently outweighs planned capture capacity by 2030, but a
continued and sustained push is nonetheless needed to ensure enough
storage sites are developed and capacity is available to meet mid-century
climate targets.
Governments and companies are increasingly recognising that deploying
CCUS to meet decarbonisation goals hinges on the timely roll-out of CO2
management infrastructure and governments around the world have
committed over USD 6 billion in the development of CO2 transport and
storage infrastructure since 2021, including in the United States, the
European Union, and Australia. Funding is supporting important milestones
in infrastructure development: this month, CO2 captured in Belgium was
transported to Denmark for injection in a depleted oil field in the North Sea.
This growth signals an important shift in the CO2 management sector. With
a few exceptions, most CCUS projects to date have operated on the same
business model: they are ‘full-chain’ projects where CO2 is transported from
one capture facility to one injection site, typically involving a single
operator. While this was a natural model for first-of-a-kind projects, full-
chain projects suffer from high investment, cross-chain risks and liabilities
born by a single developer. Breaking up the CCUS value chain can help
mitigate these hurdles as CCUS scales up. We are now seeing this happen,
with part-chain projects focused on capture, transport or dedicated storage
developing in connection to emerging shared infrastructure within CCUS
hubs. In total, over 140 CCUS hubs are in development, more than three
times as many as in 2021.
Breaking up the CCUS value chain is allowing
new players to emerge
Historically, oil and gas companies have been leaders in CCUS
development. They operate five of the eight dedicated CO2 storage projects
in operation and most of the existing CO2 pipelines. Together, Exxon Mobil,
Occidental, Petrobras, and Chevron are involved in over half of current
operational capture capacity. Oil and gas companies remain heavily
involved in CCUS projects, and CCUS is likely to be an important
component to support the transition of producing economies. This and other
considerations will be explored this year in the upcoming IEA publication
on the Oil and Gas Industry and COP28, which will help to frame the
discussions at COP28 by providing guidance about the role of oil and gas
producers in a net zero pathway.
Alongside oil and gas companies, new specialised players are emerging as
the CCUS value chain is being broken into its constituent components.
These include existing companies expanding their portfolio to CO2
management, such as gas infrastructure developers who are increasingly
involved in building and operating CO2 pipelines as part of their portfolio,
sometimes retrofitting existing gas assets. Liquefied natural gas carriers and
shipping companies are expanding into CO2 shipping. Chemical companies
have leveraged their technical know-how to develop proprietary capture
technologies, both to reduce emissions from their own facilities and to
provide capture solutions to third parties. Engineering companies have also
developed proprietary capture solutions, with modular capture skids for
third-party emitters.
New companies specialising in one part of the chain are also emerging.
Carbon Clean, Svante, ION clean energy, and Entropy Inc. are all examples,
with proprietary capture solutions offering capture-as-a-service to emitters,
either as developers, owners and operators of the unit or through technology
licensing. Companies such as Storegga, Summit Carbon Solutions and
Horisont Energi are also developing CO2 transport and storage
infrastructure solutions. This increasingly specialised corporate landscape
can bolster innovation and boost cost reductions in parts of the chain, as
well as enable easier access to decarbonisation solutions for emitters.
CCUS hubs provide stronger incentives to capture
emissions
The CCUS hub model spreads infrastructure costs between emitters, and
generates economies of scale to reach emitters that are smaller-scale or
further away from identified CO2 storage sites. In Europe, the 5th list of
energy Projects of Common Interest includes CO2 networks and terminals
connecting Poland and France to storage in the North and Baltic seas. In the
United States, Summit Carbon Solutions proposes to build a 3 200 km CO2
pipeline spanning five states to connect more than 30 small-scale bioethanol
plants with a capture capacity averaging 0.3 Mt CO2 per year.
The development of CCUS hubs can also send a positive signal to operators
of emitting facilities seeking to reduce their emissions: should they invest in
CO2 capture, the required CO2 management infrastructure will be available.
In the United Kingdom, the number of capture projects in development has
more than tripled since the announcement of the GBP 1 billion Carbon
Capture and Storage Infrastructure Fund in 2020. The Northern Lights
transport and storage project in Norway is considering a third expansion
phase to meet the demand from emitters who have expressed interest in
connecting, which is currently over six times greater than planned capacity
of the first two phases.
Governments need to keep up with CCUS
business model changes
To ensure that policy makers can keep up with an evolving CO2
management sector and support the growth required to meet
decarbonisation goals, policies should proactively leverage opportunities
and tackle challenges that may arise from new CCUS business models:
● Governments have a key role in network planning, co-
ordinating hub development, and accelerating lead times for
storage permitting. CCUS hubs can involve higher counterparty
risks related to the cancellation, unavailability or failure of part of
the chain. Efforts to mitigate these risks are already underway in
Canada, the United States, and the United Kingdom.
● There is a need to develop comprehensive legal and regulatory
frameworks with considerations specific to CCUS hubs, including
third-party access to storage, multi-modal transboundary transport
and regulatory obligations under the London Protocol. This is true
for emerging frameworks around the world, as well as existing
regulation, which must be fit for purpose. For example, the
European TEN-E regulation on energy networks was revised in
2022, but still does not fully support all modes of CO2 transport.
● International collaboration is instrumental in exporting these
models to other regions exploring CCUS, such as Southeast Asia
and the Middle East, as first-of-a-kind hubs are firing up in
Europe and North America.
By Mathilde Fajardy, Carl Greenfield, Rachael Moore
Republished from IEA under CC BY 4.0 licence
2. Why China’s renewables push fuels
coal power investment
Power from renewable energy bases is combined with substantial coal
power and transmitted via long-distance lines that lack the capacity for
flexible dispatch between regions.
Shichengzi photovoltaic power station in Hami, Xinjiang. Quite a lot of China’s wind and solar
expansion through its new energy bases is in the country’s western regions, which are less populated,
less economically developed, and have less demand for power. (Image: Zhao Ge / Alamy)
The expansion of renewables in China has maintained an impressive pace
over the last 10 to 15 years. In 2005, the introduction of the Renewable
Energy Law established feed-in-tariffs (FiTs) to encourage renewables
development. Since then, annual growth of wind and solar power in China
has accounted for half, if not more, of the global total. For some time after
2010, China saw annual wind power capacity expansion of 20 –35 gigawatts
(GW), while solar grew even faster, with 30–50 GW added annually. In the
five years from 2015, the two combined added 50–60 GW annually.
Despite the impact of Covid-19, strong renewables growth has continued
since 2020, with over 100 GW of wind and solar added annually. In 2022,
150 GW of new renewable capacity, including hydro, wind, solar and bio
power, was added, according to figures released by the National Energy
Administration (NEA) in February. Wind and solar accounted for 125
gigawatts of the total new capacity and for 13% of all generated electricity.
Globally the proportion is 10%.
According to the NEA figures, renewables generation in 2022 avoided
about 2.26 billion tonnes of carbon dioxide emissions. Using the benchmark
for coal power generation of 300 grams of coal per kilowatt hour, this
would mean a kilowatt hour of renewables generation reduces carbon
emissions by 837 grams. But we believe the reduction in emissions from
renewables has been overestimated, particularly considering the operational
and investment impacts of China’s ‘new energy bases’ – large-scale
renewable energy development projects, primarily located in the country’s
remote western regions. These bases are spurring additional investment in
coal power, with the renewable and fossil sources of power bundled
together for transmission to eastern provinces. Furthermore, there are issues
with how such installations are integrated into the grid.
Renewables and coal, advancing side by side
The extent to which renewable energy substitutes for traditional electricity
generation and so reduces greenhouse gas emissions is a topic of
deliberation by academics, policymakers and the electricity industry.
Emissions vary according to the characteristics of the power system, but the
main variable is the form of power that is ‘crowded out’ by new wind or
solar.
Around the world, systems designed to minimise costs typically use an
‘economic dispatch’ approach that ranks generation facilities by marginal
cost, prioritising the cheapest. So, when new renewable energy generation
comes online it competes with existing facilities and squeezes out any
generation that’s more expensive – along with the associated emissions.
If, as can be the case in Scandinavia, the most expensive facility is
hydropower, the emissions reductions may be practically zero. But if the
most expensive generation is gas-fired power, the reductions in carbon
dioxide per kilowatt hour will be somewhere between 400g and 600g. This
would have been the case in most of western Europe during 2022, as gas
prices were so high.
What about in China or India where coal accounts for 50% and above of all
generation? If a coal-fired plant is outcompeted by new renewable
generation, the reduction in emissions can be even higher, at around 700–
1,000g per kilowatt hour depending on the energy efficiency of coal
conversion. The above NEA figures assume 100% substitution for coal,
which represents the biggest impact under ideal circumstances. However,
the economic dispatch approach is not currently used in China.
In China, a significant part of new generation capacity is not connected to
the local grid so does not substitute for existing generation. Quite a lot of
China’s wind and solar expansion through its new energy bases is in the
country’s western regions, which are less populated, less economically
developed, and have less demand for power. Renewable generation is
bundled with new or existing coal power and sent via dedicated ultra-high-
voltage (UHV) transmission lines to eastern coastal provinces. Provisions
for renewable energy development in the 14th Five Year Plan, China’s
policy blueprint for 2021–25, required that renewables account for no less
than 50% of the ‘hydro, wind, solar and coal’ mix. And as there are some
hydropower-only transmission lines that provide 100% renewable
electricity, even a coal power contribution of 70% through other lines may
be able to meet that average requirement. Those arrangements meant
investment in renewables triggered a net expansion in coal power; in other
words, without that wind and solar investment, the associated coal power
construction and generation would not have happened. The two are
complementary. Records for existing transmission lines (for 2021, 2020 and
2019) confirm this: wind and solar accounts for 20–40% of power sent by
most cross-regional transmission lines. A new line planned to run from
Hami in Xinjiang to Chongqing will come with 10 GW of renewable
generation and 4–6 GW of coal power.
Does renewable energy generation in the west of China reduce investment
in and operation of coal power assets in the east? It certainly doesn’t reduce
investment. Electricity systems use an ‘N-1 Criterion’ to ensure safe
operation. This means the system should be able to maintain normal
operation if any one part fails, so eastern regions must ensure they can meet
local power demand if an entire transmission line goes down. They do this
in part by using coal power to act as backup in case of emergency. Given
that coal power facilities have a lifespan of 35–40 years, compared to
around 20 years for wind and solar, there is a risk that investment in coal
power to meet N-1 and backup requirements will lock in long-term
emissions.
And in actual operations, the substitution of coal by renewables is nowhere
near a 1:1 ratio. Instead, 70% of coal power produced in western China and
30% of wind and solar is used to substitute for fossil-fuel generation in the
east of the country. Most often this means one coal power facility
substitutes for another. Even if the incoming facility is more efficient and so
embodies less carbon, those benefits are undercut by significant long-
distance transmission losses, local units in the east running less efficiently
because they must adapt to inflexible imports of power, and local
transmission losses.
So increased renewables capacity does not necessarily replace fossil fuel
generation as might be expected. We did some calculations for the long-
distance transmission line between Hami in Xinjiang and Zhengzhou in
Henan, which has been in operation for some years. The line is 2,200
kilometres long, is rated for 8 GW, and sees transmission losses of 7.2%.
Associated generation capacity includes 8 GW of wind, 1.25 GW of solar
and 6.6 GW of coal power, for a total of 15.85 GW. We found that the
emissions reductions from the policy of requiring renewables to account for
no less than 50% of the hydro, wind, solar and coal mix were cut by 360g
of CO2 per kilowatt hour, compared to the ideal case. In actual practice,
further addition of coal power (the percentage is commonly 70% or even
higher) reduced the emission reduction effects by almost 100g.
Transmission efficiencies cut reductions further, by over 50g. Even ignoring
further contraction in efficiency at the destination, actual emissions
reductions are around 356g per kilowatt hour – about 40% of a straight
coal-to-renewables substitution, and approximately equivalent to a coal-to-
gas switch.
Source: Draworld Environment Research Center (Beijing)
In terms of climate and emissions, renewables are more like natural gas.
Moreover, this leads to extra coal power investment that risks locking in
emissions for longer. Of course, someone may argue that the extra coal
power is temporary and will be withdrawn when emissions need to peak
and start to fall. The capacity will therefore not necessarily mean the
proportional coal consumption and carbon emissions. In theory, this is
possible. Yet it is more likely that coal power will continue to be used as
currently, if not more so. China’s electricity system still lacks a mechanism
for competition based on short-term marginal cost – in other words, it does
not use the economic dispatch method – and the increasing percentage of
renewables hooked up to transmission lines also means lower utilisation
rates, due to intermittency of renewables. Keeping current transmission
prices will further delay investment pay-back for the transmission lines. But
if prices are raised, the electricity delivered will become less competitive or
prices paid to the generators in western regions will decrease. Whatever
happens will be in conflict with the political and economic interests of
various powerful stakeholders.
How much of China’s renewable energy is
bundled with coal?
Figures are incomplete, but there are over 20 projects that are similar to the
Hami–Zhengzhou transmission line. One third are dedicated hydropower
lines in the south-west of the country. About 50% of the generating capacity
for the other lines is coal power. That allows us to estimate that 35–40% of
the wind and solar power capacity built in the last five years has been
bundled like this with coal power.
If wind and solar power fail to have the expected impact on emissions, there
will be obvious consequences for global power generation data and our
understanding of renewable energy development. The Intergovernmental
Panel on Climate Change’s Sixth Assessment Report identified wind and
solar power as the most promising of the cost-effective mitigation options,
with a particularly important role to play up to 2030, as other options are
either impractical, hard to scale up, or too expensive. According to
International Energy Agency calculations, the solar power sector is already
on course to be aligned with a 1.5C global warming scenario as of 2030, if
already-announced solar power plans are included. Figures compiled by
Bloomberg found that 85% of power generation capacity added in 2021
came from renewables, primarily solar and wind. MCC, a Berlin-based
energy and climate think tank, included this on its 2022 climate good news
advent calendar. But all these are based on the assumption that renewable
energy would replace fossil fuels and so reduce emissions sufficiently.
Despite China’s accelerating growth in renewable energy, the increase in
the proportion of renewables in the power mix has not been so prominent.
Meanwhile, coal consumption and emissions continue to grow, perhaps
even rapidly. A major factor in this is coal–renewables complementarity.
Non-official calculations for 2021 show that China’s greenhouse gas
emissions were up 5.9% on 2019. In 2022, generation from renewables
grew significantly, by almost 2%. That year saw pricing distortions reduce
generation from coal power and a resulting two-week power rationing in
Sichuan. The fall in coal power generation ‘exaggerated’ renewable
generation in percentage terms. Preliminary figures for 2022 indicate that
coal consumption went up 3% or more compared to 2021, to a new high.
Emissions, meanwhile, may have gone up by more than 1.5% despite the
impact of strict Covid lockdowns.
Why are renewables bundled with coal?
The bundling of wind and solar power with coal makes no economic sense.
Existing long distance transmission lines have no interconnection function
along the way that would allow for flexible dispatch of power between
regions. In terms of balancing supply and demand, the most stable, practical
and cost-effective approach is to generate, distribute and consume power
more locally. For example, connecting the Northwest China Grid and the
North China Grid would require a connection of only 500kV or lower,
stretching no more than a few hundred kilometres at most. That means
shorter, lower-capacity requirement and cheaper transmission lines than in
the new energy base approach, which takes no account of local need. So
why the long-distance inflexible transmission model? It may be down to
political-economic issues, in particular how central and local governments
interact and share fiscal revenue.
The Baihetan to Jiangsu ultra high voltage transmission line is a key part of China’s ‘west–east
power transmission’ strategy (Image: Alamy)
Recently, signs have emerged of changes to this approach to expand
renewables. The long-distance transmission model does not take account of
changes in supply and demand across the generation and consumption ends,
making it harder to make operational adjustments and ensure energy
security. Given the rapidly changing international environment, this is
definitely a weak point in China’s energy and power security. In November
2022, a grid executive speaking at the annual meeting of the China
Electricity Council said it would: ‘insist on the localised balance
(prioritising local resources and infrastructure), and help maintain regional
balance when necessary, work to resolve a lack of capacity to help respond
to peak emergency demand, and ensure safety.’ At the National Energy
Administration press conference mentioned earlier, the role of ‘Chinese-
style’ distributed solar was highlighted. However, we do not think that
distributed or centralised generation is the issue at hand. It is the need for a
single market, flexible grid integration, and developing wind and solar
while taking into account the nature of those power sources.
China’s new energy bases are not inherently problematic, as they offer a
valuable resource in the form of cheap and abundant renewable energy.
However, to maximise the benefits of this resource, these bases should be
built without accompanying coal power generation and without the
installation of high-cost and inefficient transmission lines that do not
account for dynamic demand. Instead, these bases should be recalibrated to
facilitate normal grid connections or re-purposed for the production of e-
fuels, such as hydrogen, ammonia, or methane. This approach would help
address the emissions issue associated with the current approach while also
enhancing competitiveness. Given recent dynamics mentioned above, we
find cause for optimism.
A similar situation, with renewables capacity not leading to emissions
reductions, could be found outside China when economic dispatch
principles are not applied, for example in Southeast Asia, Central and
Western Asia, and India. Analysis of specific cases is needed to come up
with practical solutions.
Electricity system reforms and climate security
must go hand in hand
We have wind and solar power generation which is generally cheaper than
traditional sources of power. This is necessary for quick and affordable
decarbonisation of the power sector, but it is not sufficient. In most
developing nations, flexibility improvements associated with the integration
of renewables to the grid (rapid stop-starts, quicker ramp rates, minimum
output level) and operational reforms (more granular economic dispatch),
and market coordination mechanisms (for example, bigger, faster and
shorter market segments) need to evolve in parallel.
In China, significant electricity curtailment (wastage) issues were seen
when the grid started to integrate wind and solar power. This was due to a
lack of flexibility in the grid and the system operation, which meant the
additional capacity could not always be used. This has been resolved by a
regulatory focus on curtailment rates. Yet, despite the huge additional
generation of new renewables achieved, emissions reductions are not
always fully realised due to system-level factors that impede their
translation into tangible environmental benefits.
3. Pairing up PV and heat pumps in China
China’s Whole County PV program offers a unique opportunity to combine
the clean energy impact of heat pumps and PV to offer increased energy
efficiency and reduce emissions, writes Anders Hove, Senior Research
Fellow at the Oxford Institute for Energy Studies.
Too often, heat pumps and photovoltaic power (PV) are treated as two
entirely separate fields: PV is energy production, and heat pumps are
building energy efficiency. We treat them as different policy areas, assign
them to different ministries, offer different incentives, and set separate
targets.
Today, however, it is important that we start to think more about how to
combine new energy technologies, as part of China’s policies calling for
integration of supply, grid and load.
There are various grid integration issues associated with centralised, utility-
scale PV, which receive extensive attention in the media and from policy
makers. In China, where the wholesale power market and transmission
system is fairly inflexible, the centralised PV power stations require
investment in transmission. As China seeks to overcome the variability of
renewable power generation, it is building new coal generation facilities
alongside its clean energy bases, locking in future carbon emissions.
However, in recent years, distributed energy has started to take off,
especially in rural areas. Distributed energy works better when there is local
electricity demand, otherwise it just creates the same integration issues
faced by other solar and risks curtailment of excess generation. Household
electricity load is fairly small and is usually unable to absorb peak solar
power generation around midday. However, under the right conditions, heat
pumps can help increase consumption of locally produced solar power. At
the same time, the use of heat pumps negates the need for the main fossil-
fuel-based heating alternative. It is well known that burning of fossil fuels
creates greenhouse gas emissions, has a negative impact on local air quality,
and leads to issues with indoor air quality.
The Whole County PV program is a relatively new distributed solar
program that has so far not caught media attention. In a new paper published
by the Oxford Institute for Energy Studies, I suggest expanding the scheme
to cover heat pumps, and so find an outlet for the huge amounts of
distributed solar that will be generated under this program. Such a move
could help resolve some of the barriers that have bedevilled both heat pumps
and distributed PV.
The Whole County PV program
The Whole County PV pilot program was initiated by the National Energy
Administration in June 2021. By September 2021, the NEA had published a
list of 676 participating counties and other administrative units (such as new
development districts)—representing roughly half of China’s counties.
The counties participating in the program are not all rural, but they are more
rural than average, reflecting the goals of the program. Together, they
represent 24% of the country’s population. The program calls for
participating counties to add PV to 20% of residential rooftops, along with
other targets for commercial, industrial, and government rooftops. The
primary innovation contained in the program is to enable counties to
conduct a single auction to cover all the rooftops, which can substantially
reduce the soft costs (expenses that are not directly connected to
construction, such as engineering, finance, marketing and legal fees) —
especially for smaller systems that might not otherwise be profitable.
Combining PV with heat pumps
That same innovation could also be used to encourage installation of heat
pumps. Heat pumps face many of the same barriers as distributed solar: low
awareness, high capital cost, low returns, and small individual project size.
If a house already has solar, it makes sense to use the cheap electricity to
power a heat pump, so improving the economics of the combined system.
Electricity in China is relatively inexpensive, but heat pumps still offer a
better payback for households or villages that can generate their own
electricity, compared to feeding PV power back into the grid at midday.
This is all very well in the heat of summer, but how do the numbers look
when thinking about winter? Does it still make sense to combine heating
with solar PV, given that heating is needed at night in the winter?
Surprisingly, the answer is a qualified ‘yes’. First, China experiences much
sunnier winters than most other countries. In Shandong, a household solar
panel might produce 76% as much electricity over the whole winter
compared to summer—comparable to Phoenix, Arizona. Contrast that with
London or Munich, where wintertime PV output will average only
20%-25% of summer levels.
Of course, without storage, heat pumps still won’t cover the electricity load
at night., PV can meet 25% and 32% of the total household electricity load
over the year in China’s ‘Cold’ climate zone and its ‘Hot Summer Cold
Winter’ climate zone, respectively. Adding two hours of storage—possibly
in a unit that serves an entire village community rather than installing units
in each individual household, for safety reasons—would enable PV to meet
42% and 56% of the household load in these regions.
Adding heat pumps can also increase the amount of PV-generated electricity
that the household can absorb, from well below 10% without heat pumps to
20%-30%, depending on the climate zone. With storage added, self-
consumption can reach more than 40%.
Most importantly, the economics of adding heat pumps to existing solar
households is economically compelling, despite their high initial capital
costs. In most of central and eastern China, adding heat pumps to existing
PV households offers paybacks of between three and six years, versus a new
resistance heating or gas boiler. The best payback is evident in a comparison
with gas heating. However, even when compared to adding a new clean coal
stove, payback periods are attractive in several parts of central and eastern
China. The addition of storage, however, substantially lengthens payback
periods, even assuming fairly wide time-of-use pricing ranges.
Figure 1: Payback period for Air Source Heat Pumps versus resistance heating, gas heating and
coal heating by province
Source: OIES, 2023.
Figure 2: Payback period of PV and Air Source Heat Pumps versus gas and coal, with and
without energy storage in Shandong
Source: OIES, 2023.
Overcoming multiple barriers
The low-carbon energy transition affects all parts of society, and in recent
decades China has given increased attention and investment to rural areas,
aiming both to improve the quality of life through reducing indoor air
emissions, and to benefit rural households economically by promoting clean
energy. But rural areas face specific barriers, especially when it comes to
adopting heat pumps.
The most obvious barrier is public awareness. In urban China, the building
of heating systems is largely a matter for building owners and local heating
enterprises, while rural residents tend to view building energy efficiency and
clean heating as a government responsibility. In rural China, there is low
awareness of the potential cost savings from adopting clean heating. Rather,
there is widespread acceptance of fossil fuel heating as a historic practice in
rural areas, and little awareness or concern about indoor air quality.
Capital costs are a second barrier, given near universal consumer resistance
to spending more upfront on efficient devices that save money over time. As
in other countries, Chinese consumers’ unwillingness to upgrade building
energy systems is connected to a lack of understanding of the factors driving
home energy costs, inaccurate estimates of potential savings, and a tendency
to base energy decisions on perceptions rather than actual savings. The
Whole County PV program could help alleviate this concern by pooling
program capital costs with commercial and industrial customers, which may
be better able to finance such investments through energy services
companies or commercial loans.
Administrative capacity and coordination represents a third barrier.
Historically, energy efficiency and clean energy policies in rural areas have
suffered from unclear responsibilities, fragmentation among different
government bodies, as well as contradictory incentives that lead to poor
enforcement and lack of motivation at the local level. Often, policies apply
mainly to new buildings, while long-term enforcement and monitoring is
lacking. Again, the design of the Whole County PV program could at least
help resolve some of these coordination issues.
An opportunity to scale up heat pump adoption
Our research shows that there is significant potential for building on the
success of the Whole County PV program. With a combined population that
matches the entire population of the US, the participating counties could
contribute a huge amount of solar generation in the coming years, even if
many counties could fall short of the initial targets. It will be important to
look at the Whole County PV program as a model for policies in China and
elsewhere as a way to address the economic and other barriers to distributed
energy and energy efficiency. Small customers or energy users otherwise see
little reason to invest time and energy—let alone money—in changing how
they power, heat, or cool their homes.
A move now to scale up heat pump adoption in China could be very
important not only to reduce emissions in its own right, but to boost
installation of low-cost heat pumps in the developing world, where cooling
demand is likely to grow incredibly rapidly in coming years as the planet
warms. In China, policy makers mainly focus on clean heating, but demand
for cooling is also contributing to power shortages, as demonstrated during
the Sichuan outages in 2022. Pairing PV and heat pumps makes sense,
because while the main benefit is still cleaner heating, PV paired with
cooling also helps with the summertime load peaks.
Given the clear benefits offered by pairing heat pumps with PV, it is
important to track the progress of the Whole County PV program closely,
and build upon its innovative policy design by being open to incorporating
other technologies on the demand side.
By Anders Hove
Senior research fellow at the Oxford Institute for Energy Studies (OIES)
The author is the former project director of the GIZ-implemented Sino-German Energy Transition
project. A portion of the research described here was completed as part of the project. The full
analysis will be available on the website of the China Energy Programme of the Oxford Institute for
Energy Studies.
4. ESG of EV batteries
Mineral supply chain now firmly in the cross-hairs
New European rules for electric vehicle (EV) batteries are on their way.
What will they mean for auto manufacturers and their suppliers around the
world?
On Dec 9 2022, the European Council and Parliament provisionally agreed
the new EU Batteries Regulation. This will replace the current Batteries
Directive. Formal approval is expected later this year.
Due diligence is the key new feature of the updated rules. Companies
placing batteries on the EU market, including EV batteries, will need to
undertake due diligence on the sourcing, processing and trading of four key
raw materials: cobalt, natural graphite, lithium and nickel.
Prevention and mitigation are key elements of the new requirements.
Battery manufacturers will need to identify and address actual or potential
risks in order to prevent or mitigate adverse impacts of the mineral supply
chain in relation to a list of specific categories. Risk categories to be
assessed include air pollution, water use, soil protection and biodiversity
(environmental) as well as health & safety, labour rights, human rights and
community life (social).
Importantly, verification is also required. An approved independent body
will need to check that due diligence procedures have been followed.
Battery manufacturers must also, on an annual basis, publicly report as
widely as possible the steps they taken to comply with the due diligence
requirements – including any findings of significant adverse impacts in any
of the risk categories listed in the Regulation, and how these impacts have
been addressed.
EV auto manufacturers will, in turn, need to check that the batteries they
use – all of which are currently supplied by third parties – are compliant
with the Regulation. As these new rules would apply 24 months after the
Regulation comes into force, they may need to start doing so as soon as
2025.
No matter where those manufacturers are based, their supply chain is likely
to touch on certain key geographies. A large portion of the named mineral
supply currently derives from sources with significant ESG issues. The
Democratic Republic of Congo is a major supplier of cobalt, for instance.
Indonesia is a key supplier of nickel.
Meanwhile, China dominates the refining and processing of each mineral,
as well as the recycling of EV batteries in general. Indeed, as of 2021, more
than 80% of global EV battery recycling capacity was located in China.
This geographic concentration further complicates the challenge of meeting
the new requirements. Nonetheless, we think the pressure for companies to
make the shift towards more sustainable battery supply chains is strong. We
note that civil society was vocal during the consultation period for the
Regulation. We therefore think consumer, as well as investor, pressure will
drive companies to act.
The impacts of the new requirements will be felt all along the value chain.
Those companies who have not already done so will need to undertake
detailed assessments of their EV battery supply chains going all the way
back to mineral extraction. Battery makers and auto manufacturers who
have already done such an assessment, and have responsible sourcing in
place, could benefit.
The rules are also likely to have an impact on the battery recycling industry,
as the due diligence requirements also apply to recycled versions of the
named minerals. One potential consequence is that battery recycling
capacity could shift from China to Europe. Indeed, as battery cell
production increasingly shifts location to the EU, the incentive to build out
European recycling infrastructure to handle the waste from these production
plants (as well as the recovered raw materials from end-of-life batteries)
will rise.
One final point is that the EU is far from the only jurisdiction taking an
interest in EV battery supply chains. For example, COP15 last December
saw the launch of the Sustainable Critical Minerals Alliance, with founding
members Canada, Australia, France, Germany, Japan, the UK and the US.
The aim of the alliance is to promote environmentally sustainable, socially
inclusive and responsible mining, processing and recycling practices, as
well as responsible critical mineral supply chains. So where the EU is
leading in terms of policy today, it is possible that others could follow in the
future.
By Linnet Cotterill
This article is contributed by HSBC Global Research. It must be read along
with disclosures and disclaimers accessible through here.
5. Energy transition’s new industrial
landscape
Energy transition investment exceeded USD 1.1 trillion dollars in 2022, and
for the first time equaled investment in upstream oil and gas and unabated
fossil fuel-based power generation. Investment increased more than 30%
year-on-year, with investment in renewable energy up 17% and investment
in electrified transport up more than 54%.
One aspect of the energy transition is growing even faster than that rapid
topline – investment in the factories producing the solar modules, wind
turbines, batteries, and electrolyzers that are installed in grids and networks
worldwide. Investment in clean technology factories reached just under
USD 80 billion in 2022, up 44% year on year, and a four-fold increase since
2018. Recent global industrial policy developments suggest that last year’s
figure is only the beginning of a years-long capacity expansion in the
world’s biggest economies.
Today’s clean energy manufacturing investment is highly concentrated in a
few sectors. Two products, batteries and solar modules, were 88% of total
investment in 2022, down from a high of 95% in 2019. Offshore wind
investment has grown from USD 800 million to USD 5.8 billion in five
years, onshore wind from USD 900 million to USD 2.6 billion, and
electrolyzers from zero in 2020 to USD 800 million in 2022, but these
sectors represent a very small share of total capacity expansion investment.
If clean technology manufacturing expansion has expanded around just a
few sectors, it is even more concentrated by geography and focused on a
single market – China. Five years ago, China took in more than 77% of
total manufacturing investment dollars; last year, it received more than 90%
of investment in a market four times larger than a half-decade earlier. The
substantial disruptions of Covid-19 dropped China’s share significantly in
2021, with Europe receiving nearly a quarter of investment that year. But
with that exception, China’s investment in clean technology manufacturing
capacity in recent years is between eight and 10 times more than North
America and Europe combined.
With the passage of the Inflation Reduction Act, US clean technology
manufacturing has been supercharged. The US automotive and battery
sectors have announced USD 52 billion in planned new factories since the
IRA passed in August of 2022, with half of that outlay for battery
production alone. That is more than 20 times the amount announced in
2021. As the CEO of Volkswagen’s Scout brand said in March when
announcing its USD 2 billion factory in South Carolina, ‘there’s never been
a better time to build a factory in America.’
The IRA (and the CHIPS and Science Act, aimed at enhancing US
competitiveness in semiconductors) have not just re-written policy. They
have changed where, and how, companies invest. The long timelines of the
IRA’s support mechanisms have given manufacturers confidence to expand
on multi-year timelines, and the total addressable markets for clean power
generation equipment, hydrogen electrolyzers, and electric vehicles are
large enough to support major expansion.
US industrial policy largesse, and the speed with which it has spurred
investment commitments, has not gone unnoticed, particularly in Europe.
As of January of this year, European Union officials were concerned that
the IRA essentially discriminated against EU firms. The EU has, though,
constructed its own policy response.
Last month, the European Union announced its Net Zero Industry Act,
which BloombergNEF head of trade and supply chains analysis Antoine
Vagneur-Jones describes as the bloc’s ‘rallying cry for onshoring clean
energy manufacturing.’ The NZIA sets a minimum goal that EU factories
be capable of meeting 40% of demand for key products such as solar
modules, wind turbines, batteries, and hydrogen electrolyzers. The
legislation must now pass through year (or more) of EU legislative process.
The NZIA is a substantial announcement, but at the moment it is more a
goal than a support mechanism. Vagneur-Jones identifies a set of challenges
that will make reaching the EU’s 40% goal difficult. Some are inherent in
the nature of the EU’s fragmented governance, where countries themselves
still have a significant say in support mechanisms and planning. The US, in
contrast, has coordinated federal tax credits, valid in any domestic location.
Others are structural. In particular, the NZIA adheres to World Trade
Organization law, a stark contrast to the IRA. WTO adherence complicates
efforts to set local content requirements.
And importantly, meeting the EU’s goals will incur a cost. Meeting 40% of
the EU’s demand for batteries, solar, and hydrogen electrolyzers will
require more than USD 70 billion of manufacturing capacity investment
between now and 2030, with more than USE 50 billion of that just in the
battery supply chain.
It will also incur additional costs for deployment thanks to structurally
higher costs for equipment manufactured in the EU: an additional USD 12
billion a year for batteries and USD 3 billion a year for hydrogen
electrolyzers.
Batteries provide a clear illustration of the opportunity cost in building
substantial EU battery manufacturing capability. Today, battery packs made
in Europe are 33% more costly than those made in China. Even with the
assumption that battery costs decline in line with their historical 17%
learning rate, meeting all of EU battery demand with batteries manufactured
within its borders would cost an additional USD 11.9 billion a year in 2030.
That additional cost cannot be wished away. Higher equipment costs also
mean a higher cost for stored electricity in stationary applications, and a
higher price for automobiles. Those costs will be distributed across millions
of vehicle buyers and hundreds of millions of electricity ratepayers, but
they will be real.
The major industrial policy moves underway in the US and EU have the
potential to remake each country or bloc’s clean technology manufacturing
landscape. Already in the US, the IRA’s incentives have brought
manufacturing capacity home that would not otherwise be built. The
combination of forecast demand and clear and accessible tax credits to
support supply are having their effect.
The EU’s moves are still nascent, and they might be more challenged in the
future too. The first hurdle is the sheer scale of current importation, for
solar in particular. Between January and November 2022, 95% of the EU’s
solar module imports came from mainland China. And without the same
sort of production-linked credits which the US is deploying, investors may
not have sufficient visibility on long-term support to dedicate capital to
expansion.
Finally, given the current political climate, the US and EU are unlikely to
become clean energy equipment exporting powerhouses anytime soon. With
China, East Asia and Southeast Asia all ramping manufacturing, a more
realistic goal for Western nations might simply be to meet local demand
with local supply. After all, demand is poised to grow massively
everywhere. US and EU manufacturers could have plenty to feast on just by
eating their own slices of the pie.
By Nat Bullard
Republished with permission from BloombergNEF
6. News in Brief
European News
EU accelerates renewable energy targets
The EU reached a provisional deal on 30 March 2023 on higher renewable
energy targets. It now aims to source 42.5% of its energy from renewable
sources like wind and solar by 2030, potentially rising to 45%. The move
represents an important pillar of the bloc’s plans to fight climate change and
end dependence on Russian fossil fuels. The EU’s current 2030 target is for
a 32% renewable energy share. The European Commission has said
additional investments of EUR 113 billion euros (USD 123 billion) in
renewable energy and hydrogen infrastructure will be needed by 2030, if
EU countries are to end their reliance on Russian fossil fuels.
+ More
European Parliament approves key EU climate measures
The European Parliament has approved three major pieces of legislation
from its landmark Fit for 55 package. These include reform of the EU’s
Emissions Trading System to phase out free allowances in the ETS system
from 2026 and to include the maritime sector in the system. Road transport
and buildings sector will be included in new ETS II from 2027. The new
carbon leakage instrument CBAM also got approval. It is intended to
protect EU industry and increase global climate ambition, and is to be
phased in from 2026. The third piece of legislation adopts the Social
Climate Fund to combat energy and mobility poverty. The texts of these
legislation still have to be formally endorsed by Council. They will then be
published in the EU Official Journal and come into force 20 days later.
+ More
Nuclear research to benefit from EU funding
On 4 April 2023, the European Commission published an ambitious
declaration ‘EU Small Modular Reactors (SMRs) 2030: Research &
Innovation, Education & Training’, which is intended to maintain its
position as leading developer in the nuclear sector. A EUR 132 million
budget for the Euratom Work Programme 2023-2025 will be allocated to
researchers for nuclear innovation and technology. This includes the first-
ever Innovation Action of EUR 15 million which will be used to support the
safety of European Light Water SMRs, and EUR 12 million for co-funding
researchers and industry to work together on the safety of Advanced
Modular Reactors (AMRs).
+ More
EU opens first call for joint gas purchasing
The EU Energy Platform for joint gas purchasing has initiated its first call
for placing demand on 25 April 2023, in a crucial step towards preparation
for the next winter and storage filling season. Once the demand is
submitted, it will be aggregated as a central buyer and tendered by the
AggregateEU service to attract competitive global gas supplies that match
the demand. The window to place demand will be closed on 2 May 2023.
The tender rounds will occur every two months for the next 12 months,
with each round lasting approximately two weeks. This joint purchasing
platform is a key instrument to secure stable supplies of gas at lower prices,
by reaching new markets and suppliers.
+ More
EU legislates for decarbonisation of car fleet from 2035
The EU has approved a law that prohibits sales of CO2-emitting cars by
2035 and requires a 55% CO2 emissions reduction target for new cars by
2030 compared to 2021 levels. The targets are designed to drive the rapid
decarbonisation of new car fleets in Europe. Adoption of the legislation was
delayed pending approval from Germany, which finally agreed to a
compromise that will permit sales of cars and vans running on e-fuels with
captured carbon. The Commission plans publish proposals in the autumn of
2023 for sales of e-fuel-only cars after 2035. Such cars will have to include
technology that will prevent them from operating when filled with petrol or
diesel.
+ More
Europe’s battery storage capacity to double in 2023
Europe’s battery storage capacity reached 4.5 GW in 2022, with 1.9 GW of
grid-scale battery storage installed across the continent during the year. The
bloc is expected to add at least another 6 GW of battery storage in 2023,
according to a European Market Monitor on Energy Storage (EMMES)
report, published by LCP Delta and European Association for Storage of
Energy (EASE). Another report by Aurora Energy Research anticipates that
Europe’s grid-scale battery storage systems could reach 95 GW by 2050,
with Germany, Great Britain, Greece, Ireland and Italy named as the top
five markets.
+ More
G7 boosts ambitions on accelerating energy transition
The G7 ministers agreed to speed up the energy transition by setting more
ambitious renewable targets in a two-day meeting in Japan on climate,
energy and environmental policy. However, they failed to endorse a
deadline for phasing out coal. In their communique, the G7 pledged
collectively to boost offshore wind capacity by 150 GW before 2030 and to
lift solar capacity to more than 1 TW. They aim to achieve at least a
‘predominantly’ decarbonised power sector by 2035. The countries also
undertook to reduce additional plastic pollution to zero by 2040, bringing
the target forward by a decade.
+ More
Germany shuts down last remaining nuclear reactors
In April 2023, Germany shut down its last three remaining nuclear reactors
with a total capacity of 4 GW. The country began phasing out nuclear
power more than 20 years ago, but plans were accelerated following Japan’s
Fukushima nuclear disaster in 2011. All the reactors were originally
scheduled to be shut down by the end of 2022, but the gas supply squeeze
stemming from war in Ukraine meant closure of the last remaining plants
was delayed until April 2023. The country aims to generate 80% of its
electricity from renewables by 2030.
+ More
Germany to ban new oil and gas heating systems from 2024
Germany has approved a bill that outlaws fossil fuel-powered oil and gas
heating systems from 2024. All new heating systems are now required to
run on 65% renewable energy, while subsidies and exemptions are offered
to support the transition. The government plans to offer a 30% subsidy to
support residential households with the switch to renewable heating, with
an additional 10% subsidy if consumers opt into the transition earlier than
required by law. An extra 20% subsidy will be offered to lower-income
households. Currently, fossil fuels supply 80% of the country’s heating
demand. Studies show that Germany will have to shut down its 500 000 km
gas distribution network within the next 20 years as a consequence of the
new bill, making 71% - 94% of its existing gas grid redundant.
+ More
Ukraine offers 10 bcm of winter gas storage to Europe
Ukraine has offered 10 bcm of natural gas storage capacity to Europe for
the coming winter, according to Oleksiy Chernyshov, CEO of Ukraine’s
state-owned oil and gas firm Naftogaz. The extra capacity, which is
equivalent to roughly 10% of EU’s current gas storage facilities, could
represent a significant reinforcement to Europe’s energy security. Ukraine’s
underground gas storage facilities are the largest in Europe, with a capacity
of 31 bcm.
+ More
RWE to use wooden wind turbines to lower emissions
Swedish company Modvion has entered into a partnership with RWE
Renewables Sweden AB to supply wooden towers for RWE’s future
onshore wind farms, which is part of RWE's efforts to increase production
capacity while reducing its carbon footprint. Modvion’s module-based wind
turbine towers are made of laminated wood, which is stronger than steel in
proportion to its weight, making the towers lighter and more practical. The
material is particularly suitable for taller towers. Using wood reduces
emissions by 90% compared to conventional steel towers of the same height
and load, according to a life cycle analysis from the Swedish research
institute RISE. The first commercial wind turbine using Modvion’s towers
will be installed in 2023, and the company has plans for a 6 MW
installation, which will be one of the largest turbines used on land,
according to RWE’s press statement.
+ More
Dutch Port of Rotterdam plans green hydrogen cluster
The Port of Rotterdam Authority is planning to develop a 1 GW green
hydrogen plant at a facility in Maasvlakte, Netherlands. The announcement
comes ahead of a tender for the 2 GW IJmuiden Ver Wind Park, which is
expected to be completed by 2028 and will supply electricity to the green
hydrogen plant. The facility will also include a 1 GW of electrolysis
capacity and a new hydrogen transportation pipeline. The Port of Rotterdam
Authority aims to achieve 2 GW - 2.5 GW of electrolysis capacity by 2030,
accounting for half of the country’s overall electrolysis target of 4 GW by
the same year.
+ More
UK unveils route to net zero
On 30 March 2023, the UK Government announced a comprehensive net
zero plan – ‘Powering Up Britain - Energy Security Plan’. This 1 000-page
document sets out a long-term plan and a package of measures designed to
strengthen the country’s energy security and to reduce emissions, while
making energy more affordable. The plan presents guidelines for the
acceleration of industries such as renewable energy to boost the UK’s
independent energy generation, and also proposes adjustments to existing
government schemes to extend their reach in an effort to bring down
household energy bills. Planned targets and measures include: the launch of
Great British Nuclear; solar power capacity to reach 70 GW by 2035; the
provision of GBP 20 billion of investment funds for the early deployment
of CCUS; 10 GW of low-carbon hydrogen production capacity by 2030;
investing GBP 30 million through the Heat Pump Investment Accelerator
and nearly GBP 400 million into infrastructure supporting electric vehicles.
+ More
UK funds innovative renewable energy storage projects
The UK government has disbursed GBP 30 million in funding for projects
focused on long duration energy storage for renewable energy to facilitate
the modernization of the energy system and testing business cases. GBP 9.4
million will be awarded to Cheesecake Energy from the Net Zero
Innovation Portfolio to trial its FlexiTanker technology that stores
electricity by integrating compressed air and thermal energy storage; GBP
11 million to Invinity Energy to manufacture and develop a 7 MW, 30
MWh 4-hour Vanadium Flow Battery, and another GBP 9.4 million for
Synchrostor to manufacture a Pumped Thermal Energy Storage (PTES)
grid-connected demonstration plant running at 1 MW. The announcement
comes on top of the GBP 32.8 million funding awarded to five UK energy
storage projects in November 2022.
+ More
Denmark opens EUR 168 million Power-to-X tender
Denmark has launched a DKK 1.25 billion (EUR 168 million) Power-to-X
(PtX) tender to support production of green hydrogen, which can be used to
decarbonise hard-to-abate sectors such as industry and heavy transport. The
winning projects will be awarded with a 10-year fixed subsidy based on the
volume of hydrogen produced. Only hydrogen that is made using renewable
energy sources can compete in the tender. The government will aim to
achieve the cheapest price and largest hydrogen amount for the budget.
Interested parties have until 1 September 2023 to submit bids. The tender
will contribute to Denmark’s ambition to install between 4 GW and 6 GW
of electrolysis capacity by 2030.
+ More
Europe’s largest nuclear plant starts operating in Finland
Finland’s Olkiluoto 3 nuclear power plant started producing electricity in
April 2023, according to Finnish plant operator Teollisuuden Voima Oyj
(TVO). With a capacity of 600 MW, the OL3 plant - Europe’s largest
nuclear power plant - will boost Finland’s energy security by increasing
domestic production and is intended to be operational for the next 60 years.
Finland has five operating nuclear reactors which provide 33% of the
country’s generation capacity, according to the World Nuclear Association.
+ More
China News
China outlines standards system for achieving carbon targets
China has unveiled a guideline outlining the structure of a standard system
for achieving carbon peaking and carbon neutrality targets. The system
includes four primary subsystems covering general standards, carbon
emission reduction standards, carbon removal standards, and market
mechanism standards, with 15 secondary subsystems. The aim of the
document is to address key issues such as accurate carbon emission
accounting, reduction, and neutralisation, and to ensure that emissions are
quantifiable and tradeable. The standards are intended to provide
comprehensive support for key industries and fields to achieve carbon
peaking and carbon neutrality goals.
+ More
New target boosts solar thermal power development
China’s National Energy Administration has released a notice proposing an
annual installation target of 3 GW of solar thermal power (CSP) until 2025.
At the end of 2022, China’s accumulated installed CSP was just 588 MW,
representing 8.3% of global capacity. The new notice highlights the
significance of CSP technology in providing vital flexibility such as peak
shaving and energy storage. It also calls for the roll out of CSP projects to
be accelerated by integrating with the development of new energy bases in
desert areas. Power grid companies are requested to give priority support to
grid connection and dispatching of solar thermal power projects.
+ More
Zero tariff policy for coal imports to be extended until end 2023
China has decided to extend zero tariffs on coal imports until the end of
2023. The zero tariffs policy, announced in April 2022 by Chinese Ministry
of Finance, was scheduled to end on 31 March 2023. Amid concerns about
supply disruptions and global market uncertainties, the extension is
intended to safeguard the country’s energy security. Coal import volumes
will be determined by the coal price difference at home and abroad. China’s
coal imports have surged in 2023 following a sharp fall in coal prices on the
international market.
+ More
China’s coal imports jump to three-year high
China imported 41.17 million tonnes of coal in March 2023, the highest
monthly level of the past three years, according to data from the General
Administration of Customs. Energy companies are buying more coal in
anticipation of a post-Covid demand recovery and following the removal of
curbs on cheap Australian coal imports. In the first quarter of 2023, China’s
coal imports almost doubled compared to the relatively low levels recorded
in 2022. Import volumes are set to grow further as the economy recovery
boosts domestic coal demand.
+ More
New deals to boost China-France energy cooperation
France and China signed several deals on energy cooperation during a
recent state visit to China by French President Emmanuel Macron. French
utility EDF and China National Nuclear Corporation have renewed their
long-standing partnership on nuclear power. EDF and China Energy
Investment Corporation have agreed to build an offshore integrated smart
energy island in Jiangsu Province with a total installed capacity of 1.5 GW.
China State Power Investment Corporation also signed a framework
collaboration agreement with EDF on low carbon innovations, including
onshore wind, energy storage and urban energy services; a further
agreement on smart energy with Schneider Electric will see joint
exploration of third country markets. French container shipping line CMA
CGM has placed a USD 3 billion order with the China State Shipbuilding
Corporation (CSSC) for 12 methanol dual-fuel 15 000 TEU vessels and
four liquefied natural gas (LNG) dual-fuel 23 000 TEU vessels. Cosco
Shipping, CMA CGM and the Port of Shanghai have additionally signed a
MOU to collaborate on green marine methanol supply.
+ More
Carbon impact analysis required for all new investment
projects
China’s National Development and Reform Commission (NDRC) is to
require a carbon impact analysis to be included in the feasibility studies for
all new investment projects in the country. Local governments and
enterprises will not only need to predict and calculate the total annual
carbon emissions of the project and the carbon emission intensity of major
products, but will also need to propose a carbon emission control plan. The
new requirements also stipulate a broader analysis of the project’s impact
on regional carbon targets. The analysis has to be included in the feasibility
study report, which is a prerequisite for obtaining government approval,
bank loans, and hence implementation of a project in China.
+ More
China opens consultation to update voluntary carbon market
methodologies
China’s environment ministry has launched a public consultation, seeking
new methodologies and revisions to existing methodologies intended to
generate voluntary carbon credits under the nation’s China Certified
Emission Reduction (CCER) scheme. Registration of new projects under
the CCER scheme has been paused for the past five years and the credits
circulating today are from projects registered before 2017. The consultation
process signals a relaunch of the scheme, which is expected to ease the
current supply shortage and high prices of CCERs. The environment
ministry said baseline settings of the existing methodologies need to be
updated, while additionality needs to be justified to prove that cuts to
emissions are directly linked to a project. The consultation is due to close
on 30 April.
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China’s first solid-state hydrogen storage project starts
operation
China Southern Power Grid’s ground-breaking solid-state hydrogen storage
facility has begun operations. This is the first project to use solid-state
hydrogen generated by PV power. It offers a solution to the issue of how to
store hydrogen in solid form under normal temperature conditions, and
achieves flexible conversion between green power and green hydrogen. The
technology is based on a chemical reaction between hydrogen and a new-
type of alloy material. When the ambient temperature of the alloy is raised,
the hydrogen gas is released and converted into electricity through a fuel
cell. The project represents a milestone for large-scale hydrogen production
from renewable energy, supporting the development of new power systems.
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China plans trans-regional hydrogen pipeline
China is planning its first ‘west-to-east’ green hydrogen pipeline to
transport clean energy from Inner Mongolia’s Unlanqab to Beijing, marking
the nation’s first cross-regional hydrogen transmission pipeline. According
to Ma Yongsheng, Chairman of Sinopec, the 400 km pipeline will initially
transport 100 000 tonnes of hydrogen per year, with the potential to increase
to 500 000 tonnes. Once operational, the pipeline will bring low-carbon
hydrogen produced from renewable-rich Inner Mongolia and other western
regions to Beijing-Tianjin-Hebei region, replacing fossil fuel-based
hydrogen production.
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New breakthrough achieved in hydrogen blending
PetroChina (CNPC) announced in April that it achieved a blending ratio of
24% on its 397 km Ningdong hydrogen blending demonstration pipeline.
This provides technical support for China’s future large-scale, low-cost
long-distance hydrogen transportation. As of the end of 2022, China had
185 000 km of oil and gas pipelines. When the hydrogen blending ratio
reaches 20% or above, these pipelines have the potential to transport more
than 10 million tonnes of hydrogen, equivalent to more than 560 TWh of
green electricity. This new breakthrough signals that it will be possible to
achieve significant hydrogen cost savings.
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Green product exports rise 66.5% in Q1 2023
Green products dominated a surge in China’s exports in the first quarter of
2023, particularly passenger EVs, lithium batteries and solar panels.
Customs statistics show a 66.9% growth in exports of these products,
raising the country’s overall export growth by two percentage points.
Exports of passenger EVs saw the highest growth with an increase of
122.3%. The export of lithium batteries also grew over 94%, driven in
particular by foreign electric vehicles and household energy storage
markets, while solar panel exports rose 23.6% in Q1.
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CATL targets carbon neutrality across all operations by 2035
China energy storage giant Contemporary Amperex Technology Limited
(CATL), the world’s largest battery manufacturer, has committed to achieve
carbon neutrality in its core operations by 2025 and across its entire value
chain by 2035. The company identifies five ‘key links’ across its value
chain in reducing emissions: mining, bulk raw materials, battery materials,
cell manufacturing and battery systems. The company has also launched a
transparency audit program called CREDIT to report on some key metrics
in order to raise sustainability awareness in the industry. CATL sold 289
GWh of batteries around the world in 2022, holding a 43.4% share in the
stationary storage market and a 37% share in the EV market by sales
volume.
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China’s ‘artificial sun’ achieves breakthrough
The experimental advanced superconducting tokamak (EAST), or ‘artificial
sun’, achieved a steady-state high confinement plasma operation for 403
seconds in April, a key step toward development of a fusion reactor. The
ultimate goal of EAST, located at the Institute of Plasma Physics under the
Chinese Academy of Sciences (ASIPP) in Hefei, is to create nuclear fusion
like the sun, using substances abundant in the sea to provide a steady stream
of clean energy. Fusion energy is considered safer and cleaner, and
therefore the ideal ‘ultimate energy’ for the future of humanity. At present,
the engineering design for the China Fusion Engineering Test Reactor
(CFETR), which is seen as the next-generation ‘artificial sun’, is now
completed. The project is expected to be the world’s first fusion
demonstration reactor.
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China completes world’s largest chemical looping combustion
facility
The world’s largest chemical looping combustion (CLC) demonstration
facility was completed recently at Dongfang Boiler Co Ltd, with a thermal
power of up to 4 MW. The facility is a key piece of the China-Europe
Emission Reduction Solutions (CHEERS) project, bringing CLC
technology from the laboratory into an industrial large-scale application.
CLC low cost carbon capture technology costs less than one-third of
traditional carbon capture technology and has the potential to provide
significant environmental and social benefits in high-emission industries
such as electricity, heating, petrochemicals, chemicals, and oil and gas. The
project is a collaborative research effort between China and the EU, jointly
funded by China’s Ministry of Science and Technology’s key R&D program
and the EU Commission’s Horizon 2020 program, providing a new
technical solution for carbon capture in industrial combustion, which is
known to have high energy consumption and cost.
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China sees first yuan-settled LNG trade
In March 2023, China’s National Offshore Oil Corporation (CNOOC) and
French TotalEnergies completed China’s first yuan-settled purchase of
imported LNG through the Shanghai Petroleum and Natural Gas Exchange.
The transaction involved the purchase of 65 000 tonnes of LNG sourced
from the UAE, which currently exports LNG from Adnoc’s LNG plant in
Das Island. TotalEnergies, which has a 5% stake in the facility, will offtake
the volumes. The transaction marks a significant milestone in China’s
efforts to reform its oil and gas market and facilitate multi-currency pricing
and cross-border payments.
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7. Featured Publication
Global Electricity Review 2023
Ember’s fourth annual Global Electricity Review aims to provide the most
transparent and up-to-date overview of changes in global electricity
generation in 2022 and a realistic summary of how ‘on track’ the electricity
transition is for limiting global heating to 1.5 degrees. The report analyses
electricity data from 78 countries, representing 93% of global electricity
demand, and includes estimated changes in the remaining generation. It also
analyses emissions from the top CO2 emitters which account for over 80% of
global CO2 emissions. One key takeaway from this report is that global
emissions from power generation may already have peaked in 2022: clean
power growth is likely to exceed electricity demand growth in 2023, and
fossil generation will see a small fall in 2023 with bigger falls in subsequent
years as wind and solar capacity expands. A new era of falling power sector
emissions is at hand.
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Making energy regulation fit for purpose: state of
play of regulatory experimentation in the EU
This report by the Joint Research Centre of the European Commission
investigates the role of regulatory experimentation as an innovation tool in
EU Member States. It identifies forms of regulatory experimentation
adopted, areas of experimentation, stakeholders involved, emerging trends
and lessons learned. The analysis, based on existing literature, desk research
and interviews with competent authorities, includes initiatives already
implemented at national level, as well as those under development or still in
the planning phase. It gives an overview of the main regulatory
developments to show the direction EU Member States are taking, and
reflects on the potential impact of EU level guidance to support the
implementation of regulatory experimentation initiatives in individual
Member States.
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Europe Gas Tracker Report 2023
In the ongoing fallout from Russia’s invasion of Ukraine, the rush to secure
gas supplies threatens a massive overcapacity buildout: Europe is pursuing
an expensive and uncoordinated expansion of LNG import infrastructure,
which could result in a 136% increase in capacity. Global Energy Monitor’s
annual review of data in the Europe Gas Tracker Report indicates that up to
227.2 bcm/yr of additional LNG terminal import capacity could be added to
the bloc at a cost of EUR 22.1 billion. This additional infrastructure, born
out of crisis conditions, is at risk of ending up as stranded assets: it is likely
to be supplanted by cheaper renewable energy long before the end of its
lifetime. The report also notes that the case for a mass build out of EU
hydrogen transmission network is a weak one, primarily because of the cost
and issues with retrofitting gas pipelines to carry hydrogen.
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Balancing Act: Stranded Assets and Flexibility in
China’s Power Sector