CHINA WIND BLOWING UP A BOOM – BUT WILL IT BE BIG ENOUGH?

Can China Catch a Cool Breeze?
Christian Parenti, April 15, 2009 (The Nation)

SUMMARY
The People's Republic of China will definitely grow more affluent and modern. HOW it grows more affluent and modern will have much to do with whether the rest of the world experiences the 21st century as an ecological nightmare or an increasingly exciting opportunity.

China has the opportunity to use the twin crises of the economy (GDP down, growth down, tens of thousands of factories closed, 20 million jobs lost, growing social unrest) and the environment (unbreathable, soot-laden air that costs 7% of annual GDP in lost productivity, diminishing fresh water supplies as climate change causes more Himalyan glacial contraction, desertification and coastal-city inundating sea-level rise anticipated) to create a New Energy economy.

With its $585 billion stimulus package, the central government is attempting to boost demand by building infrastructure. A second massive stimulus package is expected. A New Energy economy would address both of China’s crises: Spending for environment-redeeming New Energy would send the economy into a new surge of long term growth.

Current statistics are not pretty: China’s energy consumption is higher than its economic growth. CO2 is up 370% since 1980, making China the world’s biggest CO2 emitter. By 2030, it could emit more than the rest of the entire industrialized world. The hope for keeping world emissions at or below 350 ppm (see 350.org) would be lost.

China’s 1st wind installation was built in 1986, after a visit to the U.S. by Chinese engineers. A period of technological learning and low fossil fuel prices held growth low for the next decade and a half. During the tenth Five-Year Plan (2001 to 2005), China built 59 newinstallations, for an installed capacity of 1.2 gigawatts, 8th biggest in the world.

In the subsequent 4 years, China’s installed wind capacity increased 800%. It is now the 4th biggest in the world and is expected to double to 20 gigawatts by the end of 2010.

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China's goal: 15% of power from New Energy by 2020.

A recent Greenpeace study says China can build 122 gigawatts of wind by 2020.

China jump-started wind manufacturing by buying licenses to Europen technology. Initially, the government mandated 40% of all wind hardware be made in China. The requirment in now 70%. Result: All the big international manufacturers (Denmark's Vestas, Germany's Nordex, Spain's Gamesa, General Electric) want a piece of the Chinese action and therefore have joint ventures and high-tech factories in China. And plans for more.

China also benefits enormously from the Kyoto agreement's Clean Development Mechanism (CDM) administered by the United Nations Framework Convention on Climate Change (UNFCCC). It grants developed-world emitters offsets for investing in developing world New Energy and emissions-reductions projects. China has ~300 CDM-registered projects and accounts for about one-quarter of the program's $5 billion (~$1.25 billion) a year in wealthy industrialized economy investments in developing economies.

China’s best wind is in the north and northwest (example: huge barren deserts in the Xinjiang Uyghur Autonomous Region). China’s biggest industrial energy consumers are in the east and southeast.

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China’s grid – like that of the U.S. – is underdeveloped, overstressed and intentionally decentralized. The central government is building new, high-voltage transmission to link the supply and the demand.

China also has, in partnership with the Lawrence Berkeley National Laboratory (LBNL) at the University of California and private industry, the most aggressive program in the world to reduce energy intensity (the amount of energy used per unit of GDP). By 2010, China will improve its energy intensity 20%. That will cut more CO2 than the entire EU.

COMMENTARY
To develop its wind industry, China must face many of the same problems the U.S. must face. The parallel growth of the 2 energy sectors will make for an interesting study on the difference between a market system a command system.

The U.S. does not yet have one of these. (click to enlarge)

U.S. New Energy advocates have been trying to develop the right incentive package to drive market growth.

China’s wind growth is an example of East Asia's dirigist (state-directed) industrialization. Central planners want to grow New Energy without burdening and slowing the nation's broader economic growth. The state is investing in solar, hydro and biomass but most of all it is investing in wind. The central planners have worked to protect and discipline private wind businesses, seeing the wind sector as an opportunity to build domestic manufacturing.

Look at that orange. (click to enlarge)

U.S. growth has been in spite of the complete absence of national goals and the presence of only a single federal tax credit that has been periodically allowed to lapse with the changes in political winds.

China’s National Development and Reform Commission (NDRC) has used regulations, mandates, tax and tariff reductions, and direct subsidies. NDRC research identifies sites, then assigns them to Chinese developers and/or foreign partners.

The U.S. wind industry has had access to some federally-generated research on siting but the data is outdated because federal spending on such research has gone down annually for 2 decades, leaving the U.S. far behind. Private companies have, recently, been stepping into the breach with innovative methods.

Chinese players are chosen by guanxi (connections, networks and solidarity), giving NDRC further control. Installations smaller than 50 megawatts do not require competitive bidding, so 49-megawatt projects lay side by side all across the country's windy regions.

Completed projects are sold to local utilities to operate. Chinese law requires regional utilities to buy New Energy supplies at above market prices. The set-up gives all the players a reason to participate.

More big orange bars. (click to enlarge)

There are about a dozen big manufacturers in China. Goldwind and Sinovel, both partially owned by NDRC, are in the world top 10.

The approximately $1.25 billion/year China gets for CDM projects is controversial. Some say it is a scam because China would have to build such projects anyway. Others say the money has been crucial in China’s wind industry development and has allowed China’s money to go to other kinds of development.

China is BUILDING a new, high-voltage transmission system. By 2020, there will 15 corridors linking the industrial and urban south and southeast to the places where the wind blows. The U.S. is PLANNING such a Green Energy Superhighway.

The focus of the Chinese/LBNL energy efficiency program is transitioning China's massive urban building industry to efficient practices, from better insulation, windows and appliances to cogeneration (combined heat and power) and waste recycling-to-power systems (See CAN CHINA GO CALIFORNIA EFFICIENT?).

Another part of the aggressive drive for energy efficiency includes decommissioning old, dirty coal plants. As a result, China has also slowed its rate of building new coal plants - from 2 per week to 1 per week.

Where the autumn action is. (click to enlarge)

QUOTES
- Trevor Houser, energy analyst/ visiting fellow, Peterson Institute for International Economics: "The wind sector in China is growing extremely fast…The challenge now is to devise policies that can keep this going for the long term."
- Lars Andersen, president, Vestas China: “We have seven factories in China…We're going to open a turbine factory in Inner Mongolia because of the huge wind resources there. The biggest challenge we face now is keeping up with demand."
- Joanna Lewis, assistant professor/Chinese wind industry specialist, Georgetown University: "In China about 100 percent of wind projects get CDM subsidies…"
- Energy analyst Houser: "In the US one major transmission line could take ten years to build, between the financing and planning and legal challenges. But in a command economy like China, they'll do it very quickly…Beyond 2020 we could start to see a real paradigm shift; the energy mix could really move away from coal…but not before then."

(Gotta change this. (click to enlarge)

- Recent Chinese government white paper: "[The] coal-dominated energy mix cannot be substantially changed in the near future, thus making the control of greenhouse gas emissions rather difficult."
- Parenti: “…the story of China and climate change is pretty grim. The country is an economic, demographic and political giant that is in many ways falling forward. As long as it catches itself, this looks like progress, but as soon as it stumbles it faces a potentially catastrophic collapse…The main problem is the dirty black rock. Coal provides about 80 percent of China's electricity, and the country is a net importer of it…The race to escape coal and to avert the worst impacts of carbon emissions is, as of now, feeble, even quixotic: renewable energy is simply not growing fast enough…That, unfortunately, is not a time frame that will avert disaster--for China or the world.”