Analysis: China clean energy plan hinges on coal price
coal price
By Chen Aizhu and Jim Bai
BEIJING |
Fri Aug 27, 2010 10:07am EDT (Reuters) -
China's $736-billion push to harness nuclear, wind, solar and biomass
energy hinges on making the cleaner fuels competitive with cheap and
CO2-intensive coal without derailing surging industrial growth.
The world's second-largest economy faces formidable challenges to make the plan work. Beijing must upgrade its rickety electricity grid, open up the network to alternative energy and raise tariffs to make new energy sources competitive with coal-fired power. All that while retaining investor confidence China will remain the low cost factory of the world.
"Parallel policies are essential," said Wang Yi, deputy head of Institute of Policy and management, China Academy of Science. "The
government must gradually lift fossil fuel prices while granting
incentives to non-fossil fuels to establish a long-term price signal." The
plan is awaiting government approval, and the loans, grants and tax
breaks it includes aim to encourage renewables, gas and nuclear use. Beijing
aims to cut carbon intensity as much as 45 percent from 2005 levels by
2020 and increase the share of renewables to 15 percent of primary
energy consumption. That is nearly double the current ratio and would
make the country a leader in green energy manufacturing and use. STATE-OWNED FIRMS For
international firms involved in the sectors expected to receive the
spending, the plan is a potential gold mine. They will be sifting the
sands of decision making in Beijing that puts the state firmly in
control of picking winners and losers. Companies
such as nuclear experts Areva of France, wind power equipment makers
Gamesa of Spain, India-listed Suzlon and solar power plays such as
U.S.-based First Solar and China's Yingli are waiting to see if Beijing
is ready to use their technologies on a massive scale. One estimate has China on track to build at least 20 nuclear power plants of 2 GigaWatts (GW) each for the next five years. Foreign firms would also be watching how state-owned companies fit into the plan. State
energy giant PetroChina, for instance, is leading the foray to develop
cleaner burning gas sources to supply nearly 10 percent of China's total
energy needs by 2020, from 4 percent now, to help achieve the CO2 cut
target. State firms could absorb
losses, but without changes in tariffs, private firms would have little
incentive to invest, analysts said. "Power
price is the key of the keys. (Without a reform) only state firms want
to build green facilities as they are the ones who can afford to lose
money," said Lin Boqiang, head of Center of Research on Energy
Economics, Xiamen University. "The private sector can't afford waiting
for 5 to 10 years operating at loss." BREAKING THE GRIP OF COAL China
has pursued new sources of power generation for decades from the
world's largest hydro power project at Three Gorges on the Yangtze River
to a 2007 plan of 2 trillion yuan ($294 billion) that set the 15
percent target for renewables by 2020. More
recent efforts link to heightened local environmental and broader
global warming concerns that other countries such as the world's No. 2
emitter, the United States, also face and attempt to deal with in part
through national efforts. China
surpassed the U.S. in 2007 as the world's top carbon emitter, the
International Energy Agency says. The United Nations has called on China
to ramp up investment in renewables and energy efficiency to rein in
emissions growth as nations try to negotiate a tougher pact to fight
climate change. But China's ability
to build cheap cleaner coal plants makes it hard for the world's No. 1
coal producer and user to switch to other sources. The generators, known
as supercritical plants, produce about 15 percent less CO2, at a third
to a half ($500-$600 per kilowatt) of the costs in most OECD countries. China has largely freed prices of coal, which fires almost 80 percent of its total electricity output. But
it has kept a tight lid on power rates, worried about wider
implications for the economy, effectively encouraging generators to
cling to low-cost coal to maximize profit. In
recent months Beijing has drummed up support for hydropower, calling
for quicker building of dams after recent years had seen plans scaled
back due to tighter environmental rules and the costs or relocating the
population. Hydropower would play a
big role in making the 15 percent primary consumption target for
renewables, an official from China's National Energy Administration
said. "Hydropower is the key to reaching that target. It will make up 9 to 10 percentage points out of the 15," the official said. RICKETY GRID Beijing
has scaled back adding new wind and solar farms in places like the
lonesome plains of Inner Mongolia, due to the cost per unit of power and
access to the distribution system. Some
projects get subsidies to contribute to the grid, but there has been
reluctance to embrace new sources as handling new flows requires an
upgrade, industry officials have said. "It's
like human hands, they won't function perfectly without one of the ten
fingers. If we manage to add wind and solar capacities, but the power
grids fail to keep up, they would be wasted efforts," said an official
with the National Energy Administration (NEA), which drafted the plan. Cross-sector
coordination has gained urgency as major Chinese cities choke under a
haze of pollution caused by rapid economic growth that has seen auto
sales, already the largest in the world, balloon ninefold in the past
decade to a forecast 16 million units in 2010. "Chinese
leaders are dead serious about environment, more serious than the
outside world thinks," said Yan Kefeng of Cambridge Energy Research
Associates. "But the challenges are huge." (Editing by Ed Lane)
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