Dr Paolo Frankl is head of the renewable energy division at the International Energy Agency (IEA), where he provides policy advice in the areas of technology, markets and systems integration. From 2000-2002, Frankl served as advisor to the director general of the Italian Ministry for the Environment. Here, he speaks to Julian Turner about the scope of China’s investment.

Julian Turner: What percentage of China’s current energy mix is taken up by renewables?

Paolo Frankl: The energy mix in China is still dominated by coal, which produces 70% of the nation’s electricity and is also used in major industries such as steel making and, to a lesser extent, heating.

However, overall coal consumption, including for industrial applications, decreased for the first time in 2015 and preliminary data from China’s National Energy Administration (NEA) suggests it declined again in 2016. This may change, of course, because these figures are very much connected to global commodity prices and the ongoing large-scale industrial restructuring that is taking place in China.

The NEA’s target was to limit solar PV at 105GW, but in 2016 China installed 35GW in just one year, jumping above 75GW of cumulative installed capacity. The forecast for 2017 is now very uncertain, but some stakeholders believe it could be around 25GW.

If this were true, that would mean 100GW of installed cumulative solar capacity. This would imply that at the end of 2017 China would get very close to its 2020 target. What would happen then?

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The government would face the following options; either the domestic solar market (and Chinese industry) collapses or the NEA will likely revise its target and/or find new decentralised applications for solar PV.

Whatever the future will be, overall, the Chinese Government deserves great credit for what it has achieved in the field of renewable energy in the past five years and also for what it plans to do in the next half decade.

JT: What types of renewable energy is the Chinese Government investing in and why?

PF: Hydropower remains the largest chunk, but wind and solar are increasing. There are two drivers here. On one hand there is industrial restructuring governed by world demand and then there is the political issue of air pollution, but not necessarily climate change mitigation, which is a bi-product.

China is serious about tackling air pollution, which of course is well-documented in big cities, such as Beijing. In a major policy change that occurred for the first time in 2016, the government started to control permits for new coal plants and delay construction of those that have already been granted.

That said, in 2015 China still brought in 60,000MW of new coal. There are many drivers and the movement is not always linear, but what has been constant is net capacity additions of renewables.

"At present, China is for the first time dealing with over-capacity, something they couldn’t predict in advance."

In 2013, in terms of new power plants, renewables accounted for the majority of installed capacity and since then the majority of annual net capacity additions have been clean energy such as wind and hydro; 60% in 2013, 55% in 2014, similar in 2015 and also possibly in 2016.

At present, China is for the first time dealing with over-capacity, something they couldn’t predict in advance. As a consequence, capacity factors have systematically dropped meaning coal power plants are being used less. That’s very positive from an environmental viewpoint, but less so from a financial and economic one.

If you compare the levelised cost of energy in China then coal is still much cheaper, but the cost of renewable technology is going down and the economic reasons for diversifying are becoming increasingly important. This will allow China to take a more leading role in climate negotiations.

JT: China plans to invest $361bn in renewables by 2020. Where exactly will the funds be spent?

PF: Using official NEA scenarios as a benchmark, this $360bn is actually less in dollar terms than China spent in the last five years, which was $400bn, so again the government deserves credit. This 10% drop also equates to more in terms of capacity because the technology costs have gone down.

The IEA forecasts that the spending spectrum will be roughly 43% wind, 35% for solar PV and 17% for hydropower. Hydro in China is gradually going down due to a lack of sites for new facilities.

Excluding hydro, those figures equate to around 300GW of clean energy − mainly wind and a smaller percentage of solar PV and bio-energy − and around 20GW of nuclear installed in China in the next five years. That is 40% of total global growth, meaning China has become by far the largest investor and constructor of renewable energy in the electricity sector, but not yet in heating and transport.

JT: How does China plan to finance this clean energy revolution? 

PF: Investment in renewables in China has been financed through feed-in tariffs, so in the end it is the consumers who pay, but the Chinese Government realises that this system is not sustainable.

Deployment of renewables in China has been rapid. Five years ago the feed-in tariffs were among the cheapest methods of generating renewable in the world. Now, if you compare those tariffs with the results of the auctions in the US, Latin America and the Middle East, for example, they are much more expensive.

China capped its targets by 2020, which are 110GW for solar (105GW for PV, 5GW for concentrated solar) and 220GW for wind. The government is putting the brakes on for two reasons; one, because solar is more expensive than in other parts of the world, and two, issues around grid integration.

"The Chinese Government may phase out feed-in tariffs in 2018 in favour of competitive auction bids."

Many of these large-scale wind and solar installations have been constructed in the north, west and south west provinces where there is a lot of resources but not a lot of demand. In those provinces coal continues to flourish and as a result big chunk of the renewable activity has been curtailed.

Nationwide, the curtailment share is around 15% but in some provinces, Guangzhou for example, it is 39% for wind and 31% for PV. The Chinese Government may phase out feed-in tariffs in 2018 in favour of competitive auction bids to lower the price and/or introduce some sort of quota system.

In principle, renewables priority dispatch in China, but in reality it doesn’t work like that. Coal is the priority, depending on the economic goals of the province, then hydro, then the rest, and the consequence is a high level of curtailment of wind and solar. This is throwing money away and cannot last too long.

JT: Can renewables provide the base load power required by China’s heavy industry?

PF: China is totally electrified and interconnected − the coverage is at 99% − so we are not talking about industrial cities versus rural isolated areas since renewables are already in their main system.

No electricity or power system in the world experiences flat demand. You have daily and seasonal variations and consequently you don’t just need base load power, but also require mid-merit or peaking power. In China, wind and solar PV already make a significant contribution in this area.                                                                

Portugal and Denmark have proved that a system can run without base load power. Wind and solar will penetrate the base load system more and more, especially for mid-merit and peaking power supply, which is what has already happened in several European countries. This may also happen in China, but the power system must become more flexible through better interconnections and better grids, more production when the value of the energy is higher, better storage, and/or demand side response.

Progressively, this notion of base load power will become less and less important; for example, we see more and more corporations signing long-term renewable energy contracts. This is an evolution.