China’s Renewable Energy Renaissance

Published on Author feldsteinp18

On January 5th 2017, The Chinese National Energy Administration (NEA) announced a plan to spend more than 360 Billion dollars on solar and wind energy infrastructure through 2020. China’s involvement in renewables has been an ongoing endeavor over the past ten years; In fact, China’s production of photovoltaic cells has increased 100-fold since 2005. Because of their commitment to produce this renewable energy at such large quantities, they have achieved the Swanson Effect which says that as photovoltaic production doubles, its price drops by 20 percent.

China’s January 5th announcement is important for a few reasons. It will create more than 13 million jobs in the renewable energy sector, reduce the emissions of greenhouse gasses and clean the air in cities like Beijing which has been plagued by smog. Although China increased their efforts in renewable energy, they are still a large contributor to the global climate change crisis; China currently emits twice as many greenhouse gasses as the United States. Given the comparable sizes of the country, this is not a completely fair comparison, but it does show the magnitude of emissions produced by China. Because of this, China is now  rapidly increasing their efforts in clean energy.

To contextualize the breadth of The NEA’s efforts, Greenpeace estimates that “that China installed an average of more than one wind turbine every hour of every day in 2015, and covered the equivalent of one soccer field every hour with solar panels.” In addition, China may meet its 2020 goal by 2018 given the rapid pace they are currently moving.

There is another story behind China’s renewable investment, and that is coal. According to analysts, China’s coal consumption peaked in 2014 and many believe that it will never return to these levels. At its peak, roughly 70% of China’s energy was derived from coal, though this is now declining. Currently, it is estimated that over 15% of China’s energy now comes from renewables and this percentage should increase to as much as 25% as the 2020 plan draws to completion. There is still much room to grow for China in the renewable space, but if their previous actions are any indication, there is no intention to slow down any time soon.



16 Responses to China’s Renewable Energy Renaissance

  1. It would be interesting to see where geographically most of these wind turbines and solar installations are being put in, given the rapid urbanization of China. If they are all installed in the more rural regions (ostensibly where there is more unblocked sunlight and higher winds near the desert regions), what kind of infrastructure will have to be built in order to transport energy to the area of most need?

    • The largest solar farm in China is called the Ningxia project and it is located in the Ningxia region in North Central China. This region is 13 hours from Beijing. I assume that China has robust enough electrical landscape to support the buildings of these solar farms, but areas where this does not exist, it adds to the job creation aspect of the solar investment.

  2. This is an interesting move by the NEA given the previous troubles the Chinese solar industry has faced. Last year, Yingli Green Energy, one of the world’s top producers of solar panels, defaulted on its debt payments due to dropping solar panel prices because of oversupply. While I think that it is beneficial to invest in these renewable alternatives, there is a chance that too much investment at once will flood the market, resulting in negative repercussions.

    • This is an interesting take and provides the negative prospective on aggressive photovoltaic investment and production. This could also be a similar tale to oil companies who originate debt with an underwritten assumption on the price of oil, and if that price dips, it becomes incredibly difficult to remain solvent. It is possible that this producer was caught at high production prices when originating their line of credit and assumed they would not go lower.

  3. Pete, you mention the 13 million jobs that the NEA’s move to renewable energy will create, which is obviously a huge plus for China. I wonder, however, if the Chinese have considered the impact of these 13 million jobs. One would imagine that they are not the low-skill manufacturing jobs that the Chinese government is used to furnishing. As the skill required for jobs like this increases, won’t wages have to increase as well? How will the Chinese economy handle an increase in the cost of labor, that is, the wages of the workers? Mr. Miller mentioned this briefly today in class, and it seems relevant to this discussion. Thanks for a great post!

    • This is a great question and I think part of the answer lies in what Professor Murphree said in his lecture last Friday. As China’s economy continues to develop, the manufacturing sector, and the workers working in this industry, will have to be flexible and pivotable in the goods they are creating. In other words, there is a frictional aspect to China’s manufacturing sector and preexisting workers will simply enter the field of photovoltaic manufacturing. That being said, the price of labor is a very legitimate concern and could compound the case that Noah highlighted above.

  4. Peter, I like the empirical strength behind your statements on renewable energy. Clearly, the Chinese care very much about investing in renewable energy, and i think their efforts in this endeavor are often overshadowed by their pollution problems. It is quite likely we could actually see China become the world’s first mover in wide spread renewable energy, and I think it is interesting to note that land issues (All govt. controlled) should not be a problem in setting this up. China’s investments in renewable energy may be their ultimate savior once their economy really begins to slow down.

    • This is a good point. I think that one thing to realize is that much of the Chinese motivation for this renewables investment is the pollution. So think that pollution is fairly referenced when talking about Chinese renewable investment. It is interesting to see Countries such as Norway and Iceland which no operate on 100% renewable energy. While their populations pale in comparison to that of China, it is in interesting point to think about whether this is achievable for China in the future.

  5. If only we could see this type of infrastructure investment in the states. That could be one thing Trump could really be proud of in terms of getting ahead of China. It would create jobs and create a long term support network for future capital investment in renewables. Unfortunately I don’t see this happening any time soon.

  6. As China’s coal consumption declines, one has to wonder whether the coal that is mined there will truly go unused, or simply be exported and burned someplace else. There is surely a market for Chinese coal in developing nations which lack the means and knowledge to implement wide-scale renewable energy projects. If the goal is worldwide carbon emissions reduction, you have to applaud China’s efforts. At the same time however, it may be a case of two steps forward, two steps back as emerging markets become hungrier and hungrier for the dirty power resources that the developed world is slowly moving away from.

    • China’s coal as currently mined is not economical. Small underground mines, remote locations. Weak processing capabilities – you don’t want to be shoveling sand into your furnace, it turns into glass and quickly leaves you with an inoperable, impossible to repair burner system. Coal has to be cleaned, sorted by grade (slightly different chemical composition across mines) and all that.

  7. I wonder if China’s entry into the renewable field will help bring down the prices for the rest of us. Wind and solar energy particularly are prohibitively expensive. So while they do work quite well in most cases, the initial investment creates a barrier to entry. While it seems clear that this investment will be mostly funded from government investment, perhaps, in a secondary effect, the free market can work magic on the pricing. For example, maybe some Chinese companies will also want to invest or American companies can look at what works and what doesn’t by studying China. Maybe this influx of cash in to the industry will help lower prices enough to get more private capital invested in renewable energy. The problem with wind and solar energy has been no one really wants to go first in a really big way. Hopefully the Chinese government’s investment will snowball into lower cost down the line. Again maybe this is just optimistic thinking.

  8. I’m intrigued by the speed of the Chinese pivot to renewable energy sources. I think that China has been subject to intense international pressure to reduce pollution in recent years, but I wonder if part of this recent shift towards wind and solar is also a result of serious domestic pressure to mitigate the health and aesthetic costs associated with polluting. Over time, serious unaddressed pollution could result in social pressure, which the Chinese government takes great pains to avoid entirely. In any case, China stands to gain a huge amount on the international stage by becoming a leader in sustainable energy development.

  9. Asian countries seem to have a stronger mentality for environmental preservation than the United States. Of course, it may be due to the fact that China has been under intense pressure from the world to curb their pollution problem. As many of us have mentioned above, China could become a leader in sustainable energy development. One unique object they developed is a tower that sucks smog around it and releases clean air back out. People still question how effectively the tower actually cleans the air around it seeing that the Chinese Forum of Environmental Journalists suggested the tower “be renamed to ‘Haze Warning Tower'”. Nonetheless, it’s uplifting to see China take what seems like serious action to fight air pollution.
    (Title is misleading)

  10. No one mentioned energy security. Don’t just think coal, think gasoline and diesel, much of which is imported (as crude oil). They have however been more thoughtful in their geopolitical involvement in the middle east: whoever is in control will need to sell their oil, so why get entangled? That also lies behind some of China’s African involvement, where they are entangled. My sense is different actors, existing oilfields attract a different range of players than those involved in simply buying a bulk commodity in (say) the Persian Gulf.

    Now China’s western deserts are great for wind, but they’re distant. That also means that getting coal to Urumqi is hard, which means more attention in how to substitute wind for other sources. However China is also developing the know-how for very high voltage transmission lines (the lines themselves aren’t the challenge, topography aside – and China has a lot of nasty topography – it’s the control gear and transformers).

    In a growing economy, renewables can be (i) a rising share of total consumption but (ii) consumption of coal could still be rising. Peak coal, yes, but an awful lot is still being burned, and that won’t change anytime soon.

    As per Murphree, Chinese firms are now very good at installing large solar systems. There was a bubble on the production side, too many firms entering with big plans, and while it the market indeed was/is big it wasn’t big enough. There are interesting tales of some of these firms, and how they enticed the best materials scientist (Chinese) to come back from a foreign (?Australian) lab, and provide him with the funds to recruit a large group of PhDs. Great technology, not great financial management.