Solar Energy Market in China
China has become a global leader in the energy market within the space of the last two decades!
When the country began its journey in the energy industry, it virtually had no solar panels installed. However, in the following years, China made it up by turning the table and became the undisputed leader by a margin of more than 100%.
According to the consulting firm Wood Mackenzie, the photovoltaic (PV) installations in China is likely to go up to 370 GW by 2024, which is twice the capacity of the US at that point.
Fig.1: Cumulative Annual PV Installations by Country 2001-2024 (Source: weforum.org)
The vast population in China has been instrumental in making the country the largest global energy growth market. Although India is close to the heels, it still has a long way to go.
Already China has more solar capacity than all the countries in the world.
A question that naturally crops up is, “How China has made it possible?”
The answer is renewed policies and streamlined efforts across the country. We will talk about it in detail in one of the following sections.
For now, we can say that China did set up huge solar farms, including the largest farm in the world located in the Tengger Desert.
The government also started many large- and small-scale solar projects.
Now, as the biggest clean energy investor globally, China is eyeing to increase the proportion of renewable energy power mix. The country is already well on its course to achieve that goal.
Despite having the largest solar market in the world, in the domestic energy landscape, solar is still a small proportion of the country’s total energy mix.
Leading Chinese States in Solar Energy in 2019
Globally, solar photovoltaic (PV) installations started booming since 2010 and had an annual growth rate of 40%.
China has been leading growth momentum since then. In 2015, the country ranked number one for the first time, both in the installed capacity as well as power generation.
Two years down the line, in 2017, China reached the capacity of 130 GW solar PV, which was nearly six times the capacity of the three largest hydroelectric plants in the world.
The country has already achieved its solar energy goal for 2020, two years ahead of schedule.
In China, most of the solar PV projects are concentrated in the eastern and southern parts of the country. In these two regions, the economy is the most prosperous and has the maximum demand for solar power.
The four provinces in China – Anhui, Jiangsu, Shandong, and Zhejiang have nearly 52% of the total capacity.
Fig.2: Installed Capacity of Distributed Solar PV in China (Source: wri.org)
The distributed solar PV is growing at a fast rate in China than large-scale solar power stations.
Here distributed PV refers to relatively smaller solar energy-producing plants that are located near consumers and connected to distribution systems.
In 2017, distributed solar PV generated nearly 13.7 terawatt-hours of electricity, which was enough to meet the energy requirement of all the residential consumers in Beijing for 7.5 months.
Currently, the total installed capacity of distributed solar PV accounts for 27.1% of the country’s total solar PV installation.
Solar Growth Statistics
The solar energy market in China got its momentum in the early 2000s, keeping up with the increasing demand for energy.
To make solar a mainstream energy and become a part of the global energy mix, China started giving incentives for boosting the domestic solar PV manufacturing.
The country also initiated the process of acquiring technology and skills required for manufacturing PV cells.
Over the next decade, China caught up with the Western countries in terms of solar technologies by purchasing manufacturing equipment from a competitive international market. It also started employing skilled labour from the vast population.
Fig.3: Installed Solar PV Capacity from 2010 to 2017 (Source: idsa.in)
Through concentrated efforts over the years, China has secured the position of the largest solar panel technology manufacturer in the world. Currently, the country manufactures more than 60% of the solar panels globally.
China’s dominance in solar panel manufacturing is evident from the fact that out of the top ten solar panel manufacturers in the world, seven are Chinese firms.
A report by the energy news website EnergyTrend, despite the trade war with the US, China has already shipped 28.5GW of solar PV panels overseas during the first quarter of 2019. An increase of nearly 92% (14.68 GW) during the same period in 2018.
Currently, solar energy accounts for 7% of China’s total energy generation capacity.
Interestingly, in 2017, the newly added PV capacity by China is equal to the total solar PV capacity of Germany and France.
Recently, China rolled out policy changes in the solar sector after evaluating the changing international environment, and to address growing domestic energy challenges.
The country has also lowered the feed-in tariffs that were preventing the unrestricted growth in producing solar power.
The government has also addressed the cumulative debt of $15 billion that the state-run renewable energy fund incurred. The debit is likely to go up to $39 billion by 2020 if appropriate action is not taken.
On June 1, 2018, the Chinese government issued a policy to connect the solar projects to the grid, which will not receive feed-in tariffs.
By implementing these measures, China plans to bring down the subsidy costs, which is getting increasingly difficult to pay.
According to an energy official, China is curbing the growth of solar power capacity, and cutting down on subsidies.
This step will help the energy sector focus on quality than quantity. It will further ease the government’s financial liability.
The 13th five-year plan in China has put the focus on improving the electric grids and lowering curtailment issues.
By implementing new policies and directives, the government wants to ensure that the provinces follow the country’s mandatory renewable portfolio standards. Now, each province has to calculate its power target for 2030.
Provinces that fail to comply with these standards will be penalized, and their revenues could go into reducing the subsidy burden on the government.
What are the reasons behind the surge of the solar industry?
In China, these days, solar power is cheaper than grid electricity in cities all over the country, which may boost demand in the long run.
One of the key reasons behind China’s growth in the solar energy segment is distributed solar PV installations.
Here are the four main reasons why distributed solar PV has triggered a growth spike in the country.
Setting National Targets
A report under the 13th Five Year Plan of Solar Power Development in 2016 shows that distributed solar PV installation will be a minimum of 60 GW by 2020, with an installation rate of 10 GW per year.
Also, during that period, the government will build 100 demonstration zones of distributed solar PV. As much as 80% new building rooftops and 50% of existing building rooftops will be equipped with solar PV systems.
Additionally, earlier in 2014, China initiated a solar PV program for poverty alleviation program. The objective of this program is to support a large portion (nearly 70-80%) of the initial investment and let families use solar power freely or sell it to the grid.
Reduced Cost and Higher Efficiency
Reduction of cost is another reason behind the surge in the distributed solar PV projects, as private companies find them attractive.
The average pricing of global PV modules came down by 79% between 2010 and 2017. During the same period, technological breakthroughs in the solar energy segment resulted in a sharp increase in its efficiency.
All these factors have been instrumental in bringing down the average cost of solar power in China to 0.5 Yuan/kWh (USD 0.077/kWh) in 2017, which was nearly 75% from 2010.
To achieve its solar energy targets, China issued several incentive policies since 2013. These policies provided support at the national as well as sub-national levels.
Other than national solar subsidy, which is 0.32 Yuan ($0.049) per kilowatt-hour (kWh), local governments have their policies on subsidies for distributed solar PV projects.
Many local areas install solar and have set their own targets for expanding renewable energy.
Rolling out tax incentives for solar stations as well as distributed solar panels are also driving the expansion of solar PV in the domestic market.
Revenue-driven Business Models
In China, the electricity rates for industry/commerce are substantially higher than rates for residential usage. Due to this, many businesses install solar PV to produce their own electricity and can have a significant amount of savings.
Also, there are diverse applications of solar energy “Solar PV+,” or integration of solar PV with fisheries, agriculture, and PV livestock operations, which are pushing the growth further ahead.
China is also clearly ahead when it comes to renewable energy technology patents. The country had more than 150,000 renewable energy patents in 2016, which was 29% of the total patents in the world.
The US was second with more than 100,000 patents, followed by Japan and the E.U. with nearly 75,000 patents each.
Overall, the surge in the renewable energy segment has consolidated China’s position as the global leader and reduced dependence on fossil fuel. It is a massive power shift that has lowered the importance of fossil fuel exporters.
As the price of clean energy technology has dropped, and China’s electricity demands witnessed a spike, making investments in renewables seems an attractive proposition.
The bottom line is that commercial solar has become cheaper than grid electricity, which means the world can embrace solar energy without having to pay any subsidy.
The Economic Index of the Solar Industry
The continuous growth in the renewable energy sector all over the world has increased the demand for Chinese solar power.
China’s position in the world’s energy landscape has several dimensions. Consolidated GDP growth and integration into the global economy have made it possible to stay ahead in the energy space.
Fig. 4: Subsidy Policy in China from 2015-20 for Solar Power with Utility-Scale (Source: belfercenter.org)
The graph above is about China’s national subsidy policy between 2015 and 2020 for solar power with a utility-scale.
In the graph, we can see there are three categories, which represent variance in solar energy based on geographic differences, insolation in the regions, and local climate conditions.
This is how it reads according to the solar utility-scale:
- In the first category (blue), the annual operating hours are more than 1600 h (h>1600);
- The second category (red) is between 1400 h and 1600 h (1400<h<1600), and
- The third category (green) is less than 1400 h (h<1400) for solar power.
The range of operating hours is different because of the availability of sunlight in those three regions.
The regions that receive more sunlight achieve the economies of scale and the regions with cloudy weather or low sunlight fall behind.
The Global Perspective
The emergence of solar energy has shifted the balance of power around the world, changed trade patterns and formed new alliances.
Investment in solar power calls for long-term strategy as the cost of installation is still high. High pricing turns policymakers away as they do not feel such investments are necessary for something short-term.
Also, as the price of solar energy continues to drop, many companies prefer to wait until prices drop further.
When it comes to China, the initiative of PV panel manufacturers to shift sales in foreign countries has resulted in 531 new deals in 2018. All this prospective business is making a positive impact on companies in terms of achieving their financial targets.
The overall capacity utilization rates of solar PV companies are said to have reached 78% in the first half of 2019. According to the current demand, cell utilization rates were at 110%.
Despite all the progress in the solar market, the International Energy Agency (IEA) has notified the countries that more investments in renewable energy are required across the world.
The IEA has expressed its concern to prevent more than 1.5 C of the carbon footprint as agreed under the terms of the Paris climate agreement.
Solar Energy Production Statistics
A report by the National Energy Administration shows that in the first quarter of 2019, China added 5.2 GW of installed PV capacity. It is a drop from the installed capacity of 9.65 GW during the same period in 2018.
Despite the drop in the installed capacity, solar energy is still ahead of other renewables such as wind (4.78 GW) and biomass (970 MW) in the first quarter of 2019.
On the other hand, PV module production has gone up to 47.5% year-on-year, which accounts for 11.8 GW during the period from January-February.
Fig. 5: Monthly Solar Power Generation from March 2017- March 2019 (Source: statista.com)
Another report by China Customs reveals that the country exported 15 GW of PV modules in the first quarter of 2019, which is up 70% year on year.
According to a research report by Sinolink Securities, between 2017 and 2019, PV power has become relatively affordable globally. Lower pricing has encouraged the major countries in the world to phase out thermal and replace it with solar PV.
A prediction by the IEA shows the total PV installed capacity in the world is likely to reach 1,721 GW by 2030, and it will go up further to 4,670 GW by 2050. China will have the lion’s share in the estimated spike of PV capacity.
The price for a solar PV module has dropped by 94% percent over the past decade. Due to this reason, the cost of building a PV power station has dipped by 90%.
This is where China is still way ahead of other countries because the manufacturing of PV modules has got a boost due to the increased export of solar modules.
Related article: Top 15 Solar Energy Trade Shows in China
By integrating renewable energy with the existing power structure, China has become a global leader in renewable power.
There are, however, still some gray areas that the country needs to weed out. One area is the percentage of renewables for the overall electricity generation profile remains low.
Another challenge is that bringing all the produced power from renewable resources to grids for user consumption is difficult. The government needs a way around it.
Also, the lack of physical connection, the rigidity of the electricity market, local protectionism, and competitive pricing still make solar energy less adaptable. However, it is expected that China will overcome these challenges with a proactive policy to utilize the potential of solar energy at all levels.
The Chinese solar industry will achieve unprecedented growth in 2012, adding more than 2.8 GW. The strong growth of Chinese solar in 2012 is due to both the 12th Five Year Plan for Renewable Energy Development (2011-2015) and their feed-in tariffs (FiTs).
In February, China’s Ministry of Industry and Information Technology posted a plan that calls for certain polysilicon producers to reach 50,000 tons of annual production capacity by 2015; it also wants solar cell and panel makers to reach 5 gigawatts of annual capacity in the same time frame.
Like the rest of the solar sector the stock prices of Chinese solar companies have declined in the last half of 2011. However, domestic installations are expected to boost Chinese solar companies in 2012.
In 2010 China had only 893 MW of installed solar capacity, that number grew an additional 1.7 GW in 2011. Based on annual installed capacity China is expected to surpass the US in 2012 to become the third largest PV market in the world.
According to the 12th Five Year Plan, targets for installed capacity are expected to be set at 10 GW by 2015 and 50 GW by 2020. This 2015 target implies an annual growth of over 1000%.
The Chinese government said the new 5-year plan aims to promote domestic solar energy use and bolster Chinese manufacturers’ competitive edge in the global market that is marked by intensifying competition and trade disputes.
To make solar more competitive with conventional sources of power, the plan also calls for reducing the price of solar panels to 7000 yuan per kilowatt, or around $1 per watt, by 2015.
As part of the plan China is promoting the development of smaller-scale distributed solar projects in populated areas. This will attract private small and medium enterprises to the installation market, and large players will focus on bigger projects.
To guarantee market demand for the solar power produced, China has mandated minimum prices for FiTs grid operators of at least 15 cents/kWh. This is expected to be paired with clean energy quotas for grid operators.
In the first half of 2013 shipments of PV modules reached 15 gigawatts with about 60 percent coming from Chinese PV, according to new TrendForce data. The news could spell trouble particularly for European PV manufacturers who aren’t able to compete with the inexpensive modules coming from China.
It also appeared that of the 54 gigawatts of PV module capacity 60 percent of it was Chinese. In fact, EnergyTrend found that, “Among the top ten manufacturers, only First Solar was not a Chinese manufacturer.”
Already a growing number of solar manufacturers in Europe have filed for bankruptcy or are seeking to reorganize. “For example, Solarezo, Conergy, and Gehrlicher all filed for insolvency and some manufacturers have started business restructuring,” TrendForce stated. SolarWorld has also run into problems in Germany and is seeking to restructure. Meanwhile Panasonic plans to close its module plant Hungary in September.
“The future for PV manufacturing in Europe is worrisome due to the government subsidy reduction, high manufacturing cost, and competition from cheap Chinese products,” TrendForce’s EnergyTrend research division said. Chinese modules were being manufactured at 19 to 22 cents per watt, whereas European manufacturers were at least 27 percent higher in manufacturing costs. The low manufacturing costs made the the cheapest price for Chinese PV as low as 54 cents per watt, while the least expensive modules from other countries were costing 66 cents per watt. “Moreover, Chinese manufacturers can get a refund on export tax, thus the price for Chinese products would be about 30 percent cheaper in European market,” the company said.
EnergyTrend also noted that Chinese modules are continuing to gain traction in Europe as countries reduce their incentives for solar. Among them Germany, Italy and Spain—the leading markets for solar on the European continent have all reduced their incentive programs are likely to continue to do so. “With European governments continuously cutting the subsidies, in order for system investors to receive higher [returns on investments], Chinese modules have become the first choice for manufacturers,” Energy Trend said.
The European Union, largely due to the lobbying efforts of SolarWorld, has enacted tariffs against Chinese PV, since China has been found to be in violation of international trade laws for subsidizing its manufacturers. Similarly the U.S. has enacted tariffs against Chinese PV, but thus far it appears that China is outcompeting by underselling the competition. That said, however, the price drops of PV, which have forced some manufacturers out, are appearing to stabilize compared to the last few years.
HSBC issued a bullish report on China’s solar industry this morning, saying that Beijing is now dead serious about controlling pollution. The bank upgraded its China solar demand outlook from 12GW to 15GW for 2015, and from 14GW to 16GW for 2016.
China is already the world’s largest market for solar. Beijing has set an ambitious goal 100GW of installed solar copacities by 2020.
China’s need to diversify away from its dependence on coal, which still makes up around two-thirds of of the energy mix, is well understood. We are all choking in foul air here! Sitting in Hong Kong, this blogger now has a lingering allergy-induced cough.
The more important question is implementation. Last year, Beijing insisted that the industry switch from the giant desert solar farms, or the utility scale generations, to smaller seaboard rooftops, or distributed systems. But the industry was not ready. As a result, in 2014, China likely have installed only 10.5GW solar systems, smaller than 2013′s 12GW.
The U.S. International Trade Commission yesterday ruled that solar products imported from China and Taiwan harm manufacturers, the final step for imposing dumping and anti-subsidy duties on the imports. It’s part of a clean-energy trade dispute between the world’s largest economic powers.
The move threatens global development of renewables and will ultimately hurt U.S. companies that benefit from low-priced solar components, China’s commerce ministry said today in a statement on its website. China will protect its own interests in the framework of the World Trade Organization and through the U.S. justice system, it said.
China is upping its solar target once again, after having done so several times in past couple of years.
Last year, China raised the target to an eye-popping 21 gigawatts (GW) by 2015, and the new target of 35 GW is 67% higher than that.
That means, in just 3 years, China will have added five times the solar it has installed today – about 6.5 GW.
For perspective, consider that all the solar installed over the years adds up to 5.9 GW in the US, and that’s after some record-breaking years.
Since 2011, China had 2 GW of solar and has more than tripled it since then. 10 GW are planned for this year, for which $2.1 billion in subsidies have already been allocated for domestic solar project developers.
The country has every reason to do this. The air is so thick with smog that people can barely see, much less breathe, reaching record levels in Beijing this month. As China sees the real effects of climate change in catastrophic floods and drought, it’s got to become more energy efficient and reduce carbon pollution.
As of the end of 2011, China burned almost as much coal as the rest of the world combined, according to the International Energy Agency.
Then there’s its suffering solar industry. After flooding US and European markets with low-priced solar panels, China’s solar manufacturers are reeling from oversupply and too tight margins. The industry needs a local market to buoy flagging sales.
“We’ve got more pressure to save energy and reduce emissions as smog worsens due to pollution,” he said. China will use renewable energy to cut coal consumption and support the domestic industry amid U.S. and Europe anti-dumping charges against Chinese solar products, Shi Dinghuan, counselor of China’s State Council and president of the Chinese Renewable Energy Society, told Bloomberg.
Besides adding significant amounts of renewable energy, the government is also looking at ways to further raise energy efficiency. As of July 1, 2012, a trial is underway that charges residents higher electricity rates when they exceed baseline levels.
The country is also moving ahead on its cap-and-trade program, which goes into effect in 2015. Seven pilot programs in major cities will be rolled out this year and this month, China set a cap on carbon emissions at 4 billion tons of coal equivalent by 2015.
For the past two years, China’s carbon emissions growth offset significant cuts in the US and EU, resulting in a 3% increase in global emissions.
Other measures will incentivize dirty companies to clean up their act, such as China’s green credit policy. Last year, the government announced it would support development of seven industries through subsidies and loans. At the same time, banks will be required to deny loans to polluting, inefficient companies.
Guidelines have been issued that help lenders rate companies on their environmental and social risks.
And if companies fail environmental inspections, they won’t be allowed to file for an IPO.
Chinainvested US$34.6 billion in clean energy projects during 2009 – almostdouble US investments in the same period. China has more installed windpower capacity than any other country in the world. And the Asian poweris now tied with America as the most attractive location in which toinvest in renewable energy projects, according to the Renewable EnergyCountry Attractiveness Indices, published by project finance advisorsErnst & Young in June.
According to Ben Warren, Ernst & Young’s Environment and EnergyInfrastructure Advisory Leader, China’s performance results from itsdetermination to “build a dominant position in the global market fortechnology manufacture and supply.”
The Ernst & Young investment attractiveness score is calculatedfrom assessments of each country’s renewables infrastructure(electricity market regulatory risk, planning and grid connectionissues, and access to finance) and its renewables resources (onshore and offshore wind, solar PV and CSP, geothermal and biomass).
While China strengthened on the indices, the US has dropped back dueto the increasing likelihood that the much-awaited climate and cleanenergy bill will not be passed before the November mid-term elections.
The federal government had a direct effect on the performance ofrenewables sector industries in the US last year, according to theanalysis. The stimulus package that allowed operators to convertproduction tax credit or investment tax credit into Treasury grants wasvital in allowing pipeline projects to be completed during 2009.However, E&Y believes the stimulus has been less effective inmaintaining momentum into 2010. The rate of installation of windcapacity dropped in the first quarter of 2010 to its lowest since 2007.
The Ernst & Young analysis cites a number of points thatstrengthen the position for the US renewables sector. The need forhedges against unstable oil and gas prices, the need for energy security of supply, and an expectation that deepwater oil exploration will beslower, more regulated, more costly and less profitable, all promote the wisdom of investment in renewables.
But how should potential US investors in solar, for instance, reactto the rise of the Chinese with their plan for “a dominant position inthe global market?” (punctuation inside quotation marks)
The US media commentators on this subject can be split into twocamps, according to China energy consultant Chris Brown. One camp viewsChina as a global solar powerhouse that will eventually beat the US into submission. The other camp believes the Chinese are not serious aboutdeveloping a domestic solar market because of the difference in pricebetween coal-based and solar electricity generation.
The answer when viewed from ground level in China is lot morecomplicated, says Brown. There are some impressive solar policies inplace in China, but there is a lot of regional variation. “The mostinteresting solar policies are happening at the provincial level,” hewrites.
There are also some major implementation problems. China faces manyof the same challenges as the United States. The infrastructure forelectricity transmission between Chinese provinces is very limited. Ithas not managed to create a nationwide comprehensive feed-in tariff. And there are also energy storage issues that restrict the country’simpressive ambitions.
“When the China kicking our ass crowd points to the money Beijing isputting into clean tech, we need to closely watch how the money andpolicy trickles down to the local level.”
It is with interesting irony that China has launched its muchanticipated Golden Sun program of incentives for the deployment of 500MW of large-scale solar PV projects throughout the country the dayafter the 40th annivesary of the America’s landing on the moon, AND aday before an actual solar eclipse.
The “Apollo Project” of our generation as summed up nicely by my colleague, not out there in space, but right here on Earth:
“Our top planetary mission for the foreseeable futuremust be to stop destroying the one climate hospitable to the onecivilization that we know of in the entire galaxy.”
China is doing its part, pulling ahead in the race for a sustainableEarth, as it launches its domestic solar industry. It is thus quiteironic that as parts of China experiences a solar eclipse today, whatis in fact transpiring in the solar industry is the opposite–a new dawn.
Reuters has actually done a decent job of hitting the main points of the Golden Sun policy (?????????????????????; original Chinese document here), so we’ve stolen their summary and reproduced them in the following bullet points:
- The government will subsidize 50 percent of investment for solarpower projects as well as relevant power transmission and distributionsystems that connect to grid networks.
- For independent photovoltaic power generating systems in remoteregions that have no power supply, the subsidy will rise to 70 percent,the ministry said in an announcement on its web site.
- Grid companies are required to buy all surplus electricity outputfrom solar power projects that generate primarily for the developers’own needs, at similar rates to benchmark on-grid tariffs set forcoal-fired power generators.
- To qualify for the subsidy, in addition to other requirements, eachproject must have a generating capacity of at least 300 kilowatt peak,while construction will have to be completed in one year and operationswill have to last for at least 20 years.
- The government plans to install more than 500 megawatts of solar power pilot projects in two to three years.
- The total generating capacity in such pilot projects in eachprovince in principle should not exceed 20 megawatts [GLF note: a mostinteresting target considering that for the full 500 MW of subsidizedproject to be deployed, almost all the provincial-level jurisdictionswould need to have such a qualifying solar project] .
The policy also emphasizes grid-connectivity of projects (which shows that China is learning from its sore lessons from its wind industry)and the approval of various components of the solar systems by anunnamed “state approval organization” (which suggests that perhaps theyare forming some sort of standards body, which will go a long way inenhancing product quality).
If you are wondering how this relates to the Solar Roofs Programannounced in March, its simple–the Golden Sun program targets largerutility-scale projects, probably mounted on the ground instead ofbuildings, and more than 300 kw, and complements the Solar RoofsProgram, which as the name implies, is meant for roof top projects notless than 50 kw. The Golden Sun policy explicitly excludes projectswhich fall under the Solar Roofs Program from benefiting under theGolden Sun program.
How impactful will this program be? 500 MW of installed capacity,in the grand scheme of things, is not huge, especially when oneconsiders that China will probably revise its 2020 solar target to10,000 MW of installed capacity. But given the nascent nature ofChina’s solar domestic market, this 500 MW program, which comes just afew months after the landmark solar roofs program, send a strong signalthat China is serious about developing its domestic solar market, andwill undoubtedly stimulate more activity in domestic deployment byenterprises outside of the subsidy program (like what the Solar Roofsprorgam did), and lends further support to my earlier prediction that 2009 will be remembered as the Year of Solar.
Picture credit: a2zCharms
This post is dedicated to my “golden son/sun”, Keane, who just turned one yesterday.
Faced with the on-going nuclear crisis in Japan — the costs of which could make the March earthquake and subsequent tsnuami the most expensive natural disaster the world has ever seen — nearby China may be moving to double its target for solar photovoltaic (PV) power capacity over the next five years.
Citing unnamed sources, China Securities Journal today reported thatthe country’s solar target might be raised to 10 gigawatts (GW) of PV by 2015, up from the current target of 5 GW. For comparison, global solarPV capacity was about 40 GW in 2010.
This news comes after a report released yesterday found that, in terms of clean energy investment, the United States has slipped to third place behind China and Germany.
Put out by the Pew Charitable Trusts and titled, “Who’s Winning the CleanEnergy Race?,” the report offers some additional insights beyond “theU.S. is losing”:
- Worldwide clean energy investment and finance has grown 630 percent since 2004.
- Regionally, Europe remained the leading recipient, attracting $94.4billion, led by Germany ($41.2 billion) and Italy ($13.9 billion).
- Italy ranked fourth, attracting $13.9 billion. It is the firstcountry in the world to achieve grid parity, or cost-competitiveness,for solar energy.
- The Asia/Oceania region, led by China, continued its sharp rise,attracting $82.8 billion, a 33 percent increase over the previous year.
- The Americas also saw investment grow 35 percent, but as a region it remains a distant third, attracting $65.8 billion.
- Investments in small-scale, residential solar in G-20 countries grew by 100 percent to $56.4 billion. Germany accounts for more than halfthe total, followed by Japan, France, Italy and the United States.
- Installed generating capacity increased to 388 gigawatts from wind,small-hydro, biomass, solar, geothermal and marine, with Chinaaccounting for more than 25 percent of the global total
It’s worth noting that China is the world’s biggest exporter of solar panels, and is home to such solar-panel-making powerhouses as SuntechPower, JA Solar, Trina Solar and LDK Solar. Assuming that thesecompanies continue to hold a decent share of China’s internal market, anew solar PV target of 10 GW would help advance China’s energyindependence goals.
It’s also worth noting that the U.S. held the number one spot until 2008, when it was eclipsed by Germany.
This is slightly dated by now but I want to be sure this is postedfor posterity’s sake. In mid-May I participated in a panel discussionat the China Environment Forum at the Wilson Center here in Washington,DC. The topic of discussion was “Decarbonizing King Coal: Growing U.S.-China Clean Technology Cooperation“, and my fellow panelists Ming Sun of Clean Air Task Force (picturedright) and Albert Lin representing Future Fuels, LLC (pictured left) had very interesting perspectives on the role of “clean coal” in China’senergy future. (And that’s me in the center of the pic.) The focus ofmy presentation was to provide a more macro look at China’s innovationcapacity in clean energy technologies. The whole sessions can beaccessed at this archived webcast.
For the convenience of readers, I am pasting my presentation outline (as prepared, but not necessarily delivered) here:
I’m looking forward to hearing my fellow panelists, who really arethe technical experts on the subject matter at hand, and so I hope tokeep my remarks relatively brief.
My goal is to set some context for our discussion today on scienceand technology cooperation between the US and Chin, particularly in theclean energy space, by making some observations on the state ofinnovation capacity in China today.
I’d like to start off with a quote by Premier Wen made last September at the World Economic Forum.
“We should see scientific and technological innovation as animportant pillar and make greater effort to develop new industries ofstrategic importance. Science and technology is a powerful engine ofeconomic growth . . . We will make China a country of innovation. . .Wewill accelerate the development of a low-carbon economy and greeneconomy so as to gain an advantageous position in the internationalindustrial competition.”
– China’s Premier Wen Jiabao at the World Economic Forum, September 10, 2009.
1. Not surprising, nor anything new.
a. China used to be the cradle of innovation. It invested the compass, paper, printing press and gunpowder.
b. Science & Technology is one of the Four Modernizationslaunched in the late 1970s during China’s reform and opening up.
c. Now, Science & Tech as a modernization movement meets thesustainable development imperative through Hu Jintao’s “ScientificDevelopment” concept.
d. Different kinds of innovation – Without getting too much into a business school course on innovation theory, I would like to bring upone category of distinctions, that of incremental innovation versusradical innovation.
e. It is mportant to recognize where Chinese innovation strengths are. In China’s case, it tends more towards “Incremental”: Theclassic Chinese model is import-digest-reinnovate
a. E.g. solar China versus US
2. The times of one-way technology transfer is over. China is an emerging leader in the exports of energy technologies – solar PV,hydropower, high speed rail, UHV, and now coal gasification
a. Seems to have a well-thought out innovation strategy
b. In the medium-to-long term plan for Science & Tech, includes benchmarks for patent generation, scientific publication
c. National R& D programs such as 863, 973, Key Technologies Program, Spark, Torch, etc.
d. Not clear if the 150 or so national high tech zones or science parks are resulting in substantive innovation work, or just low-costmanufacturing clusters
e. Creation of domestic clean energy market is attracting allsorts of foreign R&D capabilities, e.g. Applied Materials, DuPont,Novazymes, IBM
3. But big challenges to innovation in China remain
a. Hard to monetize innovation, solar and US vs. China as an example
b. A relentless approach to bring down the cost of a newtechnology has come at the expense of quality. Culture of rewarding the lowest bidder à “cutting corners”.
c. Absolute amounts of R&D still small. 1.5% of GDP in R&D, cf. US at 3% or Japan at 4%; aiming for 2.5% by 2020
d. In the private sector, still perceived as as a cost. Need topromote more SME access to financing to unlock innovative capacity ofthe private sector
e. “Indigenous innovation” policies raise the ire of foreign trade partners, but the Chinese seems to be moving back on this
f. IPR concerns means that the most innovative foreign technologies don’t come close.
4. Technology cooperation and codevelopment is essential. Lots ofbenefits, and clean energy opportunity is larger than any one countrycan dominate.
5. But technology is not everything. Systemic and design change.Market development. Data gathering and analysis capacity. Lifestyle.
The rapid economic transition of China from an undeveloped nation to a country which now derives 50% of its GDP from industrial productioncreated a series of negative side effects that has sown the seeds forChina’s next wave of its economic journey; cleantech. In recent years it has been acting with vigor to create a sustainable economy and is now not only the world’s largest cleantech manufacturing hub, but itscleantech innovation capacity is rising rapidly. (See: The rise of home-grown cleantech innovation in China, by Cleantech Group analyst Stephen Marcus.)
So why is China a cleantech leader?
1. Government’s strategic focus and resolve. The Chinese government is determined to become the world’s leader inclean technology. And unlike a western democracy, when China’s centralleaders make up their minds, action follows quickly. The Chinesegovernment has set renewable energy targets of 20 GW of new solar and150 GW of wind by 2020. Its policies state that non-fossil fuel sources of energy should account for 30% of the overall power supply by 2020.This would be a major shift given that 80% of China’s current supplycomes from coal. This transformation represents a huge marketopportunity.
2. China is the world’s largest cleantech investor. China pledged $200.8 billion for green initiatives in its stimulus bill in 2009, 79 percent more than the $112.2 billion allocated to thesector in the U.S.
3. Cleantech is not an option; it’s a necessity! The country’s enormity and economic growth rates make sustainabledevelopment a necessity. With hyper annual growth at around 5%-9%annually and 18 million people moving to urban areas every year, Chinaneeds as much cleantech as possible, as soon as possible and as costeffectively as possible. The country fully understands that their energy demands and pollution levels are unsustainable – sixteen of theworld’s most polluted cities are in China. China’s policy has changed – it’s no longer growth at any cost; it now has to be green GDP.
4. The financial landscape for Chinese cleantech innovation goes beyond state funding. There is a huge influx of new venture capital and private equity funds that are focused on Chinese cleantech. Additionally, limited partnersaround the globe are planning on increasing their exposure to China. 38% of European LPs plan to have more than a tenth of their PE exposure in the Asia-Pacific region in the next two years; 41% of North AmericanLPs and 87% of Asia-Pacific LPs aim to have a similarly highproportion. Newly announced China-focused funds include ChinaInternational Capital Corp (CICC), Infinity Group, Olympus Capital,Origo Partners, Redwood Capital and Tano Capital.
5. Cleantech IPOs in China are strengthening whilst the rest of the world is flailing. In 2009, for the first time, China/Hong Kong accounted for the largest share of money raised from cleantech IPOs (69%), well ahead of the U.S. (26%). It also accounted for the majority of cleantech IPOs by dealnumber. In 2009 China accounted for 17 (53%) of the 32 cleantech IPOsthat were tracked globally.
6. China is attracting top tier corporations that see the commercial opportunities in cleantech. Corporations such as American Superconductor, Duke Energy, AppliedMaterials, Verdant Power, GE, IBM, Daimler, Intel, and Boeing have allset up strategic partnerships in China in 2010. Increasingly thesepartnerships are based around developing technology, not justoutsourcing manufacturing.
7. Transitioning from ‘Made in China’ to ‘Created in China’. China is emerging as a source of cleantech innovation and valuable IP, the implications of which the rest of the world should notunderestimate. Home grown cleantech innovation in China extends waybeyond what most people realize, and the universities, research labs and start-ups are developing great cleantech ideas. There are currentlyover 1,600 government supported incubators and science parks in Chinaand it already ranks fourth in the world in terms of cleantech patentsacross a variety of clean technologies.
8. The Winds blows strongly in China. The Global Wind Energy Council (GWEC) has reported that China “doubled its entire installed capacity each year since 2005.” Last year, theybecame the largest wind market in the world, passing the U.S. andEurope. “The Chinese government is essentially using the state banks and state power companies to support and foster a turbine industry,”according to Jefferies Bank analyst Michael McNamara.
9. Chinese prices. Energy iscommodity meaning that the market will end up in the hands of the lowest cost producer. This is where China is king. It is estimated thatbusiness costs in China are about three times less, when compared to the rest of the world, meaning that any comparative investment numbersactually understate the value of the capital being deployed in China. An exemplar case is Broad Air Conditioning – a provider of airconditioning units powered by clean energy sources – which was foundedin 1988 with a $3,000 investment and now employs over 2,000 people andhad over $450 million in revenue in 2007.
10. The government is focusing on both commercialization of technology and on cleantech R&D. The Ministry of Finance has decentralized the R&D process by usingpolicies such as preferential tax treatments, favorable financingpolicies, government procurement policies and the implementation oftechnology standards to encourage R&D institutions to partner morewith the private sector. The Ministry of Education also providesuniversities with incentives to turn their research into commerciallyviable products. As a result, the industry share of R&D spending in China has dramatically increased from less than 30% in 1996 toapproximately 60% in 2003. Today this number is expected to be evenhigher. China’s 11th 5 year plan (2006-2010) was clearlyfocused on conserving energy and natural resources, sound environmental practices and R&D. The next 5 year plan is expected to be even more cleantech and R&D focused.
The pitting of U.S. vs. China in cleantech will no doubt continue for many years to come. And whilst the political will and investmentnumbers in China are putting the rest of the world to shame, one must be careful not to overinflate where China’s cleantech sector is today,nor underestimate where it is heading in the coming years.
The West is still king when it comes to cleantech innovation andexpanding new industries. China’s immediate need to create a sustainable economy means that China will need to collaborate with companies andinvestors from other countries, creating huge market opportunities forforeign stakeholders across all asset classes. “Already, 86% ofcleantech joint ventures with a Chinese company, involve a foreignpartner, and I would expect to see more cross-border cleantechinvestments involving Chinese cleantech firms in the future,” according to Cleantech Group research analyst, Stephen Marcus.
10 Reasons China Is A Cleantech Leader originally appeared in Green Chip Stocks. Green Chip Review is a free 2x-per-week newsletter, is the firstadvisory to focus exclusively on investments in alternative and renewable energies.
Israel’s northern town of Katzrin is the first town in Israel toreceive its electricity from solar energy with the installation of a 50KW “rooftop” solar power plant.
The solar installation was installed by a cooperative agreement between the Chinese Sun Tech Power Holdings, based in Wuxi China, and Ramat Gan based Solarit Doral, which develops commercial and private solar energy projects.
When in full operation, the plant is expected to generate around85,000 kilowatt hours of electricity, and surplus electricity will besold back to the national electricity grid for NS 2.01 per KWH, whichamounts to about $0.55 US. Cleantech reported on the start of the project last year.
The joint agreement is an example of joint economic projects now going on between both Israel and China.Sun Tech Power Holdings, which specializes in the manufacture of solarenergy roof tiles for private homes and commercial enterprises, is alsoinvolved in projects with American companies, including the Californiabased Open Energy company, which will manufacture under license theSolarSave line of 50-watt, 4-foot solar roof tiles.
Solarit Doral is a subsidiary of the Doral Group,and specializes in solar energy projects for homes, condominiums andalso large energy projects. Solarit Doral also works with other solarenergy companies, including Schott Solar and their American subsidiary, Schott Solar Inc.Schott specializes in designing esthetically appealing photovoltaicsolar panels for a variety of applications – especially private homes.
On-going renewable energy projects such as the one in Katzrin andseveral now southern Israel are part of an overall goal to supply atleast 20% of Israel’s total energy needs using renewable energy by theyear 2020. With a high return on investment, from 10 to 14% investorsfrom around the world are looking to be part of the Israeli sunshine.
There appears to be no website link for Solarit. In the meantime enjoy our solar energy guide.