Since the beginning of the industrial revolution CO2 emissions have continued to rise and, at 30,649 million tonnes (Mt) in 2007, their level has more than doubled in the past 40 years1. Since the early 1990s, Asia has been responsible for the greatest surge in fossil fuel production (3.2%/yr), particularly China and India. China’s huge population and economy will remain dependent on fossil fuels, (predominantly coal) for more than 70% of its energy demands for at least the next twenty years, and hence will continue to emit huge levels of CO2, a major greenhouse gas2.

The path to universal electrification in China is not complete, and about 8 million individuals (i.e., the total population of Sweden or Austria), particularly in rural areas, still lacked electricity in 20093. The Western regions of China have historically been neglected by central governments, and only recently electrification in rural areas like Yunnan has become a national priority.

Within the context of electricity market reforms, the Chinese authorities set objectives to significantly increase the share of renewable energy in the energy mix, reduce emissions and generate additional power to also supply areas where there is no energy access. This article identifies the broad spectrum of challenges facing China’s energy sector and looks at the impact of this policy intervention on its development.

International, Regional and Domestic Challenges
In 2007, China overtook the US as the world’s largest CO2 emitter and, with emissions rising to 6,500 Mt, accounted for 22% of the global total4. The international challenge to reduce emissions in China is thus central to protect the global atmosphere and avoid further climate change.

Priding itself on having the second largest electricity industry in the world (after the USA), China’s booming economy is immensely energy intensive, with energy production almost trebling in nine years. As a result, the formerly habitual blackouts, which lasted for years and seemed to jeopardize growth particularly in the coastal regions, are now largely a thing of the past. Reliance on coal for energy supply, however, has caused environmental and health problems, including acid rain and air pollution in numerous cities. The combination of continued dependence on coal and strong economic growth is likely to result in additional land and water contamination for an already deteriorating environment. At the national level it is therefore vital to implement a strategy to reduce China’s reliance on polluting coal plants.

Yet, despite more than three decades of electricity market reform, the country’s huge energy industry has not managed to keep pace with demand even with an average annual growth rate of 8% installed capacity over the past decades5. Furthermore, while one should not underestimate China’s achievement in providing universal electricity access to the bulk of the population, some 2.6 billion – mostly in rural areas – do not have access to clean energy for cooking. Regionally, China, India and Bangladesh account for more than half of those without clean energy for cooking.

Reliance on coal for energy supply ... has caused environmental and health problems, including acid rain and air pollution

Thus China urgently needs to increase energy supply, while reducing reliance on polluting coal. With these demands in mind, China aims to expand both its share of renewable energy (excluding hydroelectric) to 15% by 2020 and energy consumption from renewables to 4.5%6.

Policy Interventions and Incentives
One of the key challenges facing China is how to meet energy demands by drawing on its existing energy infrastructure and dual system of state and private ownership industry without further exacerbating environmental problems but prioritising affordable and effective power supply to its entire population and rapidly growing economy. Driven by the National Development and Reform Commission (NDRC), in 2005, the National Programme for Building a New Type of Rural Area was launched to eliminate rural poverty and, particularly so in the Western provinces, where farmers have depended on traditional firewood to generate basic energy. The provision of modern energy services was a key priority in this policy.

The Renewable Energy Promotion Law, which came into effect in January 2006, provided a single coherent framework for the development of renewable energy within China’s electricity system. Designed to address the barriers to renewable energy and facilitate the growth of the industry, this legislation is the first strategy of its kind in China. The Chinese government also included a commitment to the construction of off-grid renewable power systems in areas not covered by the grid, and to establishing a renewable energy development fund to support projects in remote rural areas and outlying islands (such projects may qualify for preferential loans and tax benefits). Further, in 2007 the Government launched specific Energy Programmes in four provinces, including Yunnan7.

Inaugurated in 1953, a Five Year Plan (FYP) is the body of policy and strategies drawn up by the Chinese government in order to achieve social and economic development objectives. The goals of energy sustainability and a low carbon economy were included in the 12th FYP (1011-15). Despite the fact that coal is recognized as the dominant energy source, state policy explicitly aims at a 17% reduction in CO2 emissions by 20158 and establishes that energy from non-fossil fuel must reach and stay above 11% of total power generated by 2015. It forecasts that China will generate 91 GW additional capacity yearly between 2010 and 20159.

The policy and market incentives written into the 12th Five Year Plan and Renewable Energy Promotion Law send a powerful message to the international community about how vitally important achieving CO2 reductions, increasing energy supply and promoting renewable technologies are for the Chinese government. Should these objectives be attained, the 11% renewable energy target set in the 12th FYP could be exceeded. Making these goals a reality within the country’s ‘dual public-private economy’, however, is the real challenge for policy-makers and researchers.

What has the impact been so far of this commitment to the development of renewable, and rural, energy sources in China?

Investment in Renewable Energy
Conditions within China’s energy sector have fundamentally changed due to the transition to electricity liberalisation and the policy incentives for renewable energy. Decommissioning of the country’s old and polluting energy plants has become a priority as China adopts new standards and invests in new, more efficient technologies and systems via a process known as ‘leapfrogging’. This latter term describes when, in essence, developing countries advance rapidly by adopting modern, more efficient technologies and systems without first using older less efficient systems which may still be in use elsewhere.

To meet some of its energy targets, China has significantly increased its investment in renewable energy technologies – through state-owned enterprises, financial mechanisms and tax incentives – with an estimated US$1.54 trillion earmarked for clean energy projects over the next 15 years. The China Investment Corporation is a US$300 billion-asset-holding state owned wealth fund which invests heavily in national clean-energy companies and foreign operators with projects in China. Similarly, the state China Energy Conservation Investment Corporation funds energy conservation, pollution control and renewable energy projects in the private sector. As a result, the renewable energy market is growing at an average 15.5% per year8.

Against a backdrop of a 6.6% decline globally in such investment in 2008, China invested almost twice as much as the United States in clean energy10, becoming the world’s leading manufacturer of photovoltaic (PV) panels – although a very high percentage of production is destined for overseas markets (e.g. 95% of the total produced were exported in 2009)2.

State policy explicitly aims at a 17% reduction in CO2 emissions by 2015 and establishes that energy from non-fossil fuel must reach and stay above 11% of total power generated by 2015

Renewable Energy in Rural areas
A study was undertaken in Yunnan Province, as part of a DELPHE research project (Development Partnerships in Higher Education; British Council and UK DFID, 2007-2011) in which Imperial College is a partner. Semi-structured interviews with local policy-makers, and household surveys, were conducted and analyzed using the multi-criteria tool SURE-Decision Making System. Designed by an international research team and coordinated by Imperial College, SURE-DSS software aims to address the gap in energy development by suggesting initiatives that are both technologically appropriate and sustainable in the long-term by matching local resources to needs11 12. The tool, piloted in other developing regions, had not been used in East Asia before.

The study revealed that the Energy Programme in Yunnan brought mostly grid-connected electricity to rural towns with only minor expansion of off-grid energy projects, particularly biogas and improved cooking stoves. By 2006, 1.7 million rural households had access to biogas, yet the use of firewood remains high in Yunnan: 53% of households generate energy directly from the burning of crop stalks and firewood7. Such heavy reliance contributes to extensive local deforestation, respiratory health problems and long hours expended – especially by women – collecting firewood.

The 50-household survey in the rural town of Yule, in Yunnan’s western region of LiJiang, found that, 32% of the households were dissatisfied with the energy service (blackouts, cost), and that 62, 54 and 52% of the households were dissatisfied with healthcare, water access and education in their village – a sign that grid connection may be inadequate in terms of alleviating poverty.

The results of SURE-DSS indicate that there is considerable scope for further expansion of renewable energy technologies in Yule. Given that farmers in the region rear cattle and domestic animals, rolling out biogas installation seems feasible. However, investing almost exclusively in biogas technology, as the government has been doing, is rather limited: other small-scale renewable technologies, such as solar, could be appropriate for the region.

Renewable Energy for Development?
Despite policy intervention, renewable energy generation remains low in China with the share of wind, solar and biogas at just over 3.26% of total electricity production by 20108. Renewable energy resources in China, particularly wind and hydropower, are abundant but significantly under-utilised at present and hence a major increase in the share of renewable energy in the country’s generation mix could play an important role in both moving China towards a cleaner electricity system and helping to reduce emissions.

It is nonetheless questionable whether promotion of renewable energy alone will achieve the substantial reduction in CO2 emissions required from China. It could be expected that further renewable installations will be required to replace existing polluting generation sources as well as reducing the carbon and energy reliance of current technologies.

It is likely that China’s NDRC confident and forceful approach may result in their exceeding the 15% target share of renewable energy. Indeed reaching a 20% share would represent a direct challenge to Europe’s (who share a 20% goal), and particularly the UK’s claims to world leadership in the field – despite the fact that China continues to be heavily reliant on fossil fuels to satisfy its energy needs.

It is clear that China’s renewable energy policy and market incentives highlight the Government’s desire to address the serious local, national and international challenges it faces in the energy and domestic development sector. Although a definite step in the right direction, more may be done in terms of adopting low carbon intensive technologies and expanding installation of clean energy to achieve meaningful emissions cuts in China.