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    Wednesday, June 12, 2013


    Vision and Roadmap to Meet China’s Goals for a Cleaner Energy Future

    June 2013 (China Greentech Initiative)

    Promoting collaboration along energy value chains to accelerate deployment of cleaner technologies and enhance energy efficiency

    China is upgrading its energy value chains to minimize the impact of rapid development, meet growing demand and address energy security concerns. There are opportunities to use cleaner forms of energy, improve efficiency, raise consumer awareness and integrate renewable energy into the grid.

    Definition and Scope – Next-Generation Energy Value Chains

    Energy value chains refer to the activities and stakeholders that create value throughout the extraction, production, transportation, transmission, distribution and consumption of various forms of energy. They encompass public and private stakeholders collaborating to provide products, services and solutions that satisfy market demand.

    CGTI defines China’s Next-Generation Energy Value Chain as the resources, activities and technologies—both proven and new—that can accelerate the use of cleaner energy solutions and greater energy efficiency for all major forms of energy and electric power. China has a strong track record of achieving supply-oriented targets for energy and electric power. Thus, CGTI’s emphasis is primarily on downstream, demand-oriented opportunities that use creative integrated solutions to improve efficiency and accelerate the adoption of cleaner energy. From a supply perspective, we also focus on cleaner resources and technologies for extraction and production—including natural gas, nuclear and renewable energy.


    China is the second largest economy in the world after the United States and the world’s top energy consumer. Following three decades of economic development it is apparent that as China continues to grow, it must manage carbon emissions and the environmental costs of economic development.

    We are optimistic that China’s Next-Generation Energy Value Chains will propel the country towards a cleaner energy future. But to do so, the appropriate regulations, policies, implementation capabilities, collaboration models and financing mechanisms will need to be adopted. CGTI developed a vision to support China’s 2015 and 2020 energy related goals as laid out in the 12th Five-Year Plan. Our vision focuses on the following priorities:

    Meet or exceed non-fossil fuel targets: Accelerate development of non-fossil fuel resources—especially solar, wind and nuclear—to meet growing energy demand and reduce reliance on fossil fuels.

    Leverage shale gas resources and global expertise: Encourage use of domestic resources and global expertise to tap shale gas potential, improve production processes and manage environmental impact, particularly for horizontal drilling and wastewater management.

    Promote efficient energy use: Support China improve efficiency in the production, distribution and consumption of energy through enhanced collaboration along the value chain and the adoption of proven integrated solutions to increase energy savings, particularly in the industrial and building sectors.

    Accelerate development of a smarter grid: Consistent with State Grid and Southern Grid plans, ensure readily available information on supply and demand, improve integration of renewable energy sources and accelerate investment in distributed energy to optimize existing assets, manage energy demand, improve energy efficiency and ultimately lower carbon emissions.

    Encourage innovation and transparency across energy value chains: Promote use of innovative technologies, business models and operational changes that can accelerate the adoption of integrated solutions, especially for cleaner energy and energy efficiency. Improve the transparency of demand, supply, pricing, assets and other information across value chains to enable collaboration and more effective decision making among value chain stakeholders.

    To achieve this vision we have developed a three-stage roadmap. From 2013 to 2014, China can establish pilot projects for integrated solutions that demonstrate energy savings in practical and quantifiable terms so that successful projects will be ready for large-scale development from 2015 to 2017, and widespread adoption by 2020.

    Situation and Trends

    Growing energy security challenges and environmental concerns have prompted China’s government to launch a series of major initiatives across the energy sector. Emphasis on Strategic Emerging Industries (SEIs) related to energy; global investments; energy efficiency programs targeted at the industrial and commercial building sectors; and greater investment in demand-side management are just a few of the many energy-related areas China is focusing on to ensure a sustainable future.

    China’s 12th Five-Year Plan targets: striking the right balance

    Targets for pollution reduction, fuel diversification, and renewable energy have been issued across China’s energy sector. However, the ambitious nature of these targets, coupled with rapidly growing energy demand, infrastructure limitations and implementation hurdles is leading to uncertainty regarding their achievability. Major energy-related 12th Five-Year Plan targets include:

    Energy efficiency: Reduce energy intensity by 16% (based on 2010 levels) by 2015, and cap annual energy consumption at 4 billion tons of coal equivalent (TCE) by 2015.1 Solar and wind: Achieve 100 GW of installed and connected wind power capacity by 2015.2 Since announcing the 12th Five-Year Plan, the government has adjusted solar targets upwards three times from 10 GW to a current target of 35 GW.3

    Fuel diversification: Increase the percentage of non-fossil fuels in the energy mix to 11.4%4 by 2015 and boost natural gas production to account for 8% of the national energy mix by 2015 and 10% by 2020.5,6

    Pollution reduction: Reduce sulphur dioxide (SO2) emissions by 8%, carbon intensity by 17%, nitrogen oxides by 10% and PM2.5 levels in key regions by 15% by 2015.7 Financial mechanisms: Experiment with carbon taxes and trading regimes. Energy pricing reforms are ongoing, subject to broader economic considerations such as inflation and discretionary consumer spending.

    Striding forward: unconventional gas and distributed energy drive a cleaner future Unconventional gas and distributed energy appear to be leading drivers of China’s clean energy future.8

    These two sectors have taken encouraging steps forward since the 11th and 12th Five-Year Plans. China’s unconventional gas resources, mainly coal bed methane (CBM), coal mine methane (CMM) and shale gas, represent 96% of total resources.9 Once extraction technologies are commercialized, and provided that the industry is properly regulated to minimize the environmental impacts of horizontal drilling, shale gas has the potential to help China diversify its energy mix over the next two decades.

    There are also high hopes for China’s distributed gas and solar photovoltaic (PV) sectors. Although development is still at a nascent stage, plenty of opportunities exist—particularly in connecting these resources to the grid. Distributed gas solutions, as an alternative source of energy, should be integrated into the grid with other distributed energy technologies, including renewables. As for solar energy, despite the highly publicized obstacles of US and EU trade disputes with China, domestic demand will remain strong as national targets are continually raised.

    In order for China to maximize the benefits of distributed and renewable energy expansion, it must continue to invest in a smarter grid. An improved grid can result in enormous energy savings through demand management, greater accuracy in energy use projections, and improved integration of renewable energy sources. It is also important that grid companies partner with distributed energy producers, such as independent industrial producers of distributed energy, to ensure that there is an outlet and incentives for the incorporation of non-traditional energy systems into China’s massive grid network.

    With a smarter grid, electricity supply and pricing can also be adjusted to help manage peaks and valleys in demand and supply. Offering competitive battery recharge prices for electric vehicles during off-peak hours and feeding excess energy generated from solar parks back into the grid during peak hours are just two examples of how a more flexible grid could allow for greater energy savings and improved efficiency.

    Challenges: lacking clear regulations and strong commercial incentives for integration

    The challenges to achieving a clean, diversified and efficient energy future are technical, regulatory and commercial in nature. While China has made progress in technology adoption, regulatory and commercial challenges remain and have major implications for the energy sector.

    Regulatory challenges, such as the absence of strict environmental standards and enforcement mechanisms, have dampened the demand for clean technologies across the energy sector. This is especially apparent in second and third-tier cities where emission standards for coal-fired power plants are often low and enforcement is poor. Finally, artificially low end-user electricity prices set by the government provide little incentive to adopt energy efficient technologies.

    Commercial obstacles also exist, particularly in the adoption of integrated solutions. Currently, project developers have little or no incentive to adopt energy saving integrated solutions since the benefits are cumulative and garnered by end-users as opposed to developers. Incentives to encourage adoption and commercialization of integrated solutions can help to accelerate achievement of China’s energy efficiency and pollution reduction goals.

    2020 Vision: Capturing Opportunities to Accelerate China’s Clean Energy Development

    Rapid economic development is driving China’s demand for energy. As the world’s largest energy consumer and with reliance on foreign oil, coal, and gas growing, China is facing mounting pressure to reduce its carbon footprint and reexamine its energy strategy. From a supply perspective, China’s energy strategy needs to consider significant investments in the development of both renewable and cleaner conventional energy sources. From a demand perspective, a fundamental shift in emphasis from increasing capacity to managing demand and promoting energy savings is essential. This can ease China’s growing reliance on imports, curb rapidly rising emissions and air pollution, and gradually bring China’s heavy industries in line with international standards for energy intensity and energy efficiency.

    CGTI has created a vision for Next-Generation Energy Value Chains that highlights key areas that can help China achieve its 2015 and 2020 energy-related goals and targets.

    The vision covers nine distinct yet interrelated areas along energy value chains. These areas are primarily focused on downstream opportunities that can accelerate the adoption of cleaner energy and integrated energy efficiency solutions, while at the same time promote collaboration and innovation across energy value chains. We have intentionally focused on gas, non-fossil fuels, and downstream areas where China has less experience and can benefit from international expertise.

    Promote innovation and transparency across energy value chains

    Promoting innovative business models and changes to market structures that promote open and fair access can accelerate the adoption of integrated solutions, especially for cleaner energy and energy efficiency. While the innovation of new technologies and products is clearly important for China’s energy future, we believe significant opportunities exist for business model and operational innovation in the shorter-term that can support achievement of China’s 2015 goals and targets.

    Current institutional arrangements, management models and processes limit the transparency and accessibility of valuable, timely information that can help drive efficiency across China’s energy value chains. For example, the availability of realtime information on supply and demand can help power generators, grid companies and others better forecast changes in supply and demand, and improve awareness of actual energy use. Sharing of data and information is a prerequisite for effective collaboration among stakeholders that can lead to better decisions and new sources of value.

    Adopt clean, safe and economic gas production

    China plans to increase shale gas production to 6.5 billion cubic meters (bcm) by 2015 and up to 100 bcm by 2020.11 However, high capital costs, complex geological conditions and oligopolistic market structures raise uncertainties regarding the industry’s ability to reach these targets. Capitalizing on global expertise and lessons learned to develop its shale gas resources can help China overcome some of these challenges and reach its development goals.

    Despite the benefits of lower emissions in gas-fired power generation, the environmental impact of shale gas extraction and production should not be underestimated. Measures can be adopted to minimize fugitive methane emissions and ensure resource protection, particularly the potential impact of shale development on water quality.

    Meet and exceed non-fossil targets

    China has succeeded at keeping up with rapidly growing domestic energy demand primarily through the expansion of fossil fuel sources, particularly coal. In an era where renewable energy and nuclear energy are receiving greater support from the government, and integration of renewable energy sources to the electric grid is improving, China is poised to meet or even exceed its non-fossil fuel targets.

    Develop a smarter grid

    An electric grid capable of integrating both conventional and renewable energy sources is critical to achieving non-fossil fuel and energy efficiency goals. This includes the integration of distributed energy systems, which are growing in importance, particularly as distributed solar and gas-fired combined heat and power investment increases. At the same time, a smarter grid is essential for intelligently managing energy demand.

    Prioritize efficient energy use through integrated solutions

    Our vision prioritizes significant improvements in energy efficiency. In 2009, China became the world’s second largest net importer of oil and is currently the world’s largest producer and consumer of coal.12 In the past decade alone, China’s national oil and gas companies have expanded their investments both domestically and overseas to meet local demand and energy security goals. Growing reliance on foreign fuel, however, raises energy security concerns and demonstrates the need for greater efficiency.

    Currently, China requires 273 kilograms of oil equivalent per USD 1,000 of GDP, compared with only 171 for the United States, 184 for South Korea and 125 for Japan. This is partly because energy intensive industries account for 47% of China’s GDP. However, it also demonstrates inefficiency in China’s energy sector.13 Statistics show that China’s cement, steel and fossil fuel-fired power plants—which combined account for 57% of total energy consumption—are, respectively, 23%, 11% and 37% less energy efficient than those in Japan.14 One way of addressing China’s energy inefficiency is by adopting integrated solutions for electric power utilities and industrial, commercial and residential end-users.

    2020 Roadmap to Achieving China’s Next-Generation Energy Value Chains

    To realize our vision for a cleaner, more efficient and diversified energy future, CGTI has created a three-phase roadmap that focuses on four key aspects of China’s Next-Generation Energy Value Chains. The roadmap includes immediate steps in 2013 to accelerate shale gas exploration, establish demonstration projects and pilot programs for integrated solutions for energy efficiency, encourage further smart grid innovation and adopt new business models that enable value chain innovation and transparency. Successful projects can then be scaled up and applied widely across energy value chains by 2020.

    Natural gas

    Between 2013 and 2014, China should encourage development of unconventional gas resources with policies and guidelines that both incentivize exploration and mitigate risk. Increasing the threshold for safety and environmental protection, while encouraging participation by highly competent new market entrants that have proven capabilities in exploration, can accelerate production. Between 2015 and 2017, Chinese firms can strengthen partnerships with international companies that have field expertise. Leading up to 2020, China can ramp up production using proven technologies suitable for the local market in an environmentally friendly manner.

    Integrated solutions for energy efficiency

    There are several opportunities for energy savings, particularly in buildings, which consume 30% of energy in China. Between 2013 and 2014, commercial and residential building developers may begin adopting integrated solutions and demonstrate savings through model projects, such as green roofs in commercial buildings and recycling systems to reuse rainwater and household grey water for irrigation. These projects can be supported by clear targets and key performance indicators (KPIs) established by local governments. By 2015–2017, municipal and county level governments may consider including targets for accelerated adoption of integrated solutions in the 13th Five-Year Plan. By 2018–2020, energy savings from integrated solutions should have been widely proven and adopted across sectors nationwide, particularly in the industrial sector. Bayer’s EcoCommercial Building Program is an example of a collaborative model that is accelerating adoption of integrated solutions for buildings. The Program combines the knowledge and expertise of a community of experts to provide analysis, planning support and product solutions for the successful construction of environmentally friendly, low-cost commercial and public buildings.

    Smarter grid

    In the initial stage between 2013 and 2014, major industrial and commercial energy users can work with State Grid to set up demonstration projects for smarter grid solutions focused on integrating renewable energy, distributed energy, demand management and energy efficiency. These projects should leverage the experience from State Grid’s demonstration projects in Zhangbei (Hebei Province) and others. From 2015–2017, a target of over 95% connectivity for distributed solar and natural gas projects should be achieved.

    Innovation and transparency across value chains

    Initially, from 2013–2014, small-scale projects can demonstrate the benefits of greater transparency and competitive access along value chains. Beginning in 2015, major industrial and commercial users can use information provided by the grid and others to begin capturing energy savings through the adoption of proven technologies and process related improvements that can drive energy efficiency. Between 2018 and 2020, the government and grid companies may consider launching larger-scale price-based initiatives to incentivize energy conservation.

    Access to readily available information on pricing, supply and demand will help to enable end-user participation in these and other energy savings initiatives.

    Opportunities for collaboration across China’s energy value chains

    Opportunities exist along all stages of China’s energy value chains to accelerate the adoption of cleaner energy and achieve major energy savings. Many of these opportunities exist downstream, where energy stakeholders can collaborate to develop and implement integrated solutions.

    In natural gas, there are opportunities to build, own and operate distribution networks. Furthermore, additional investment is likely in pipeline construction and maintenance if efficiency standards are strengthened and market structures are adjusted to realize the financial benefits of capturing fugitive methane emissions released during gas distribution.

    Technology and solution providers have opportunities for collaboration with local governments investing in distributed energy, energy savings efforts and other areas. In particular, international companies can play a key role in assisting governments in the development and deployment of integrated solutions for distributed energy, which can include inverters, turbines, thin-film solar panels, energy storage batteries and other enabling devices. Other attractive areas for technology and solution providers include participation in government-sponsored low carbon eco-city and green building initiatives.

    Finally, opportunities exist to work together with sectors and industries that are intensive users of energy and are seeking ways to improve energy efficiency and drive cost savings.


    Establishing a sustainable energy future is of paramount importance for China. We have proposed a 2020 vision and a three-phase roadmap that if implemented can help make China’s cleaner energy future a reality. We believe success rests on collaboration among stakeholders—enabled by innovation and transparency across value chains—working together to help China meet and even exceed its ambitious goals and targets set for 2015 and 2020.

    Based on this vision and roadmap, CGTI will continue to track market developments in 2013 and explore opportunities for cross-sector collaboration to pursue potential energy projects.


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