The Chinese government has put forth plans for significant ownership of the global renewable energy supply chain.
China is the largest energy consumer in the world. With 73 percent of its energy mix coming from thermal generation, China is also the largest global emitter of carbon. China however has ambitious plans to transition to a lower carbon future. China's renewable energy generation has been increasing steadily, with the percentage of electricity generated from renewable sources increasing from 17 percent in 2008 to 23 percent in 2014. China has also focused its formidable manufacturing capabilities towards the production of key solar plant and wind farm components.
China's efforts are not limited to increasing the use of renewable energy domestically. The Chinese government has also put forth plans for the creation of a global grid specially designed to transmit renewable energy efficiently.
China's first foray into the world of renewable energy came in the late 1990s when Germany, unable to match domestic demand for solar panels, outsourced solar panel production to the People's Republic. Using German technology, capital and expertise, Chinese companies started to build up economies of scale in the solar panel manufacturing sector, helped by the generous tax credits that were provided by the government. According to the Scientific American, the central government also provided close to USD 47 billion to these companies to help solar panel manufacturers build up capacity. The policies have had the desired effect — the top six global solar panel manufacturers are Chinese and 64 percent of all solar panels produced in the world come from China.
China has also focused on manufacturing turbines for wind energy. The impetus behind the scaling up of China's wind turbine manufacturing sector was the 2005 Renewable Energy Law, which had the intended effect of driving up demand for renewable energy sources domestically. Additionally, the National Development and Reform Commission also issued an edict declaring that at least 70 percent of equipment in a wind project must be developed domestically. The result was a surge in manufacturing of wind turbines, with the market share of domestic companies providing wind power installations increasing from 25 percent in 2004 to 90 percent in 2010.
The economies of scale and incentives provided by the central government led to a surplus in the market by 2011, and manufacturers started to pivot to the international market. Consequently, five of the top ten wind turbine manufacturers in the world are now Chinese.
While China has effectively cornered large parts of the upstream portion of the world's renewable energy production, it is not satisfied with merely being the source of raw materials. Last October, Liu Zhenya, the recently retired Chairman of the State Grid, gave a talk at the United Nations on the viability of building a global power grid. Mr. Zhenya envisions a grid that will draw power from far reaching corners of the world, such as windmills in Antarctica and solar panels in Africa, and transmit them to all parts of the globe. Using high voltage direct current technology to transmit power with minimal distribution loss, the proposal suggests that a global grid could help solve one of the largest issues with renewable energy — intermittency. A global grid could, potentially, do away with the need for enormous electricity storage batteries or use of coal or natural gas plants for the time periods where the sun is not shining or the wind is not blowing hard enough.
The global grid is ambitious, and many experts believe it to be farfetched. The cost estimates for such a project range from USD 25 to USD 50 trillion and the geopolitical issues associated with creating such a grid have not been addressed. Yet, another wide ning network proposed by China, was also initially viewed sceptically for being too costly and unfeasible geopolitically. The OBOR network proposed by China in 2013, envisions a continental connection ning inland China to France and a maritime connection starting from coastal China and reaching Kenya and Italy. The project has been moving forward with alacrity, with China having signed five bilateral cooperation agreements with Central Asian nations and initiating projects including a train connection between East China and Iran and a high-speed railway project in Indonesia. A global grid project is not as out of reach as many imagine.
The four seemingly unconnected directions of China's economic and foreign policy reveal an ambition to become an indispensable source of the world's energy. China's manufacturing policies have already resulted in solar panels prices dropping by 80 percent from 2008 to 2013 and forced Europe and the United States to impose large import tariffs on wind turbines to protect their domestic producers. It will not be feasible for any other nation to build up and match China's manufacturing capacity.
The OBOR will allow China to transport the goods it manufactures easily over channels that it has built and controls. The Global Grid, for which China has already formed a developmental organisation called the Global Energy Interconnection Development and Cooperation Organisation (GEIDCO), will allow Beijing to control the downstream portion of the renewable energy supply chain. It is entirely possible that in 30 years, China will have control over the production and transmission of the majority of renewable energy across the world.
One of the touted benefits of renewable energy has been the fact that it will solve global energy security issues. No longer will the oil producing countries of the world be able to dominate the energy supply of the world and dictate prices on their terms. If China, with its far-reaching vision is able to implement its plans to create monopolies along all parts of the renewable energy supply chain, however, global energy security might become an even larger problem. Instead of being influenced by a cabal of nations, global energy supply could be determined by just one.
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.
Vikrom Mathur is Senior Fellow at ORF. Vikrom curates research at ORF’s Centre for New Economic Diplomacy (CNED). He also guides and mentors researchers at CNED. ...Read More +
Hosuk Lee-Makiyama Director European Centre for International Political EconomyRead More +