A study of the role played by renewable energies inChina’s sustainable energy supplyAbstract:This paper first provides an overview of the context of renewable energy development in China, including the country’s recent renewable energy legislation. Further, it summarizes the current status of renewable energy development and the role it plays in the national energy supply. Next it introduces the national indicative targets for renewable energies in 2010 and 2020, and conducts a long term scenario of the role of renewable energies in China’s energy system transition till 2050. It discusses the main risks involved in China’s renewable energy development, and proposes some policy measures for risk management.Keywords: Renewable energy,Energy supply,Market development,Public policy,China1.IntroductionChina is the largest developing country as well as the second largest energy consumer and carbon dioxide emitter in the world .China’s energy issue has recently become a focus of many talks regarding global energy, environment, and security. Domestically, it is the first time that the Chinese Central Government set a target for improving energy efficiency of the economy together with the economic growth target in its social and economic development plan during the 11th Five-Year-Plan period 1, which was endorsed by the Congress in March 2006. The features of China’s energy system evolution in the future will have significant implications on global energy investment, energy market restructuring, and environmental protection. Increasing the share of renewable energies could be an important dimension of China’s energy system transition.China’s Renewable Energy Law was passed by the Congress on February 28, 2005, and took effect on January 1, 2006. The Law recognizes the strategic role of renewable energies in optimizing China’s energy supply mix, mitigating environmental pollution,improving energy supply security, and promoting rural social development. It also directly relates renewable energy development and utilization to China’s energy system transition. More importantly, the Law largely shapes an integrated renewable energy policy framework by providing a set of directives encouraging renewable energies, including national renewable energy targets, a feed-in tariff, a special fiscal fund, tax relief, and public R&D support as well as education and training.It is accepted beyond doubt that an enabling environment for renewable energy development and utilization is emerging in China. While recognizing the new opportunities that the Law brings for China’s renewable energy development and utilization, it must also be noted that the main technological, financial, and institutional risks associated with China’s renewable energy developmen t and utilization still remain. The context of the country’s renewable energy development and utilization has never been this complex .To what extent will renewable energies contribute to China’s sustainable energy system transition? What are the characteristics of the main risks for China’s renewable energy development and utilization? What policies and strategies should be in place to manage the risks? Although these questions have been addressed to some extent by a number of studies in the past , yet those studies were not able to take the context of China’s new complex renewable energy development into account. As a consequence, it is of significance and required to carry out a new study to gain answers to these questions, which would largely contribute to formulating China’s new strategy for renewable energy development and utilization.The paper is structured as follows: Section 2 gives an overview of the context of renewable energy development in China, including the country’s recent renewable energy legislation.Section 3 summarizes the current status of renewable energy development and the role that it plays in national energy supply.Next, it introduces the national indicative targets for renewable energies in 2010 and 2020, and conducts a study of the long term scenario of the role that renewable energies play in China’s energy system transition till 2050. It discusses the main risks involved in the country’s renewable energy development, and proposes some policy measures for risk management.2.Context of renewable energy development2.1. Renewable energy resourcesChina has abundant renewable energy resources. The country’s annual solar energy ranges from 3360 to 8400 MJ/m2, and two thirds of her area’s solar radiation is more than 5020 MJ/m2. China’s wind energy resource is pretty rich, too. The development potential of the on-shore wind resource is as much as 253 GW at a 10 m height with an annual electricity generation of more than 50 billion kWh. China’s hydro power potential amounts to 400 GW; 128 GW of which is for small hydro power plants with an installed capacity below 50MW. The country produces 700 million tons of agricultural residues each year, and approximately 350 million tons of them could be used for energy purposes, equivalent to 170 million tons of coal equivalent (tce). The firewood production amounts to 220 million tons each year, equivalent to 130 million tce . Further, solid wastes and wastewater discharged from livestock and poultry farms and light industry could be used to produce 31 billion m3 of biogas, equivalent to 26 million tce. The volume of discharge of combustible municipal waste, a renewable source for power generation, has been growing in most Chinese cities. Taking the ase of Beijing for example, it discharged 4.5 million tons of combustible municipal wastes in 2004, and the volume will be growing at 4–5% per year.2.2. Energy supply securityIn general terms, energy security means that a nation’s energy demands could be met at a reasonable price. The new target for China’s economic development set by the country’s government is to quadruple the gross domestic product (GDP) accounted for in 2000 by 2020, ensuring China’s attainment of a well-off society overall. To achieve this target, the total primary energy consumption will reach approximately 3 billions tce, once the substantial energy conservation and economic restructuring efforts are taken into consideration [1]. Under this scenario, the total demand for oil will be 0.45 billion tons with more than 0.2 billion tons relying on imports. Natural gas demand will reach 160 billionm3 with a domestic supply deficiency of 50–60 billion m3. Therefore, there would be a large gap between China’s energy demand and supply capacity to achieve the country’s new social and economic de velopment target, raising significant energy security concerns. In addition to strengthening the country’s energy conservation efforts, development and utilization of renewable energies seem to be an inevitable choice to diversify energy supply and ensure China’s long term energy security [2].From an even far-sighted perspective, China’s demand for energy would reach 5.4 billion tce in 2050 to maintain her sustainable economic growth and social development. But the domesticsupply capacity of coal, oil, and natural gas would be 2.5–2.7 billion tons, 100–200 million tons, and 120–140 billion m3, respectively [3]. The risks involved in China’s energy supply would be even higher without the increasing energy supply from renewable energies.2.3. Environmental managementChina’s total primary energy consumption was approximately 2032 million tce in 2004, of which coal, oil, and natural gas account for 68%, 22.33%, and 2.60%, respectively [4]. The consumption of a huge amount of fossil fuels has caused severe local, regional, and global environmental pollution. Now, one-third of the whole country area is suffering from acid rain, and the combustion of fossil fuels contributes 90% of the sulfur dioxide emissions causing this problem. The economic damage from air pollution caused by the burning of fossil fuels was estimated at 2–3% of GDP [5]. China is currently the second largest CO2 emitter in the world, just after the United States. However, there is a possibility that by 2025, China’s CO2 emission would exceed that of the United States, and become the largest CO2 emitting country of the world [6]. China has been under increasing pressure from the world to reduce her CO2 emissions. Increasing the share of renewable energies in China’s energy supply mix is one of the most important measures to control the country’s local, regional, and global environmental pollution.2.4. Rural, social, and economic developmentApproximately 27 million people living in remote and mountainous areas of China did not have access to electricity by the end of 2004, and most of them are among the lowest income earners. Electricity supply plays a very important role in promoting social and economic development in remote and mountainous areas, and renewable energy power generating options, such as small hydro system, small-sized wind generating systems, and solar photovoltaic systems are often more cost-effective than the extension of conventional power grids.Some renewable energy technologies can also increase the productivity of agriculture. Human wasteand animal dung after anaerobic fermentation in biogas digesters are quality organicfertilizers. Both the output and the quality of vegetables and fruits can be increased markedly by using such fertilizers. Moreover, the use of these fertilizers can also lead to a decrease in the use of pesticides. As a result, biogas digesters cannot only produce the gas to be used for cooking and lighting in rural households, but also help farmers earn more money from agriculture. Geothermal technology can be applied to increase the output and quality of fisheries as well. Solar greenhouses are a common productivity raising technology in the plantation of vegetables, fruits, and flowers.2.5. The renewable energy lawRecognizing the strategic significance of renewable energy development in China, China Renewable Energy Law was passed by the Congress on February 28, 2005, and took effect on January 1, 2006. The Renewable Energy Law has put forward a comprehensive renewable energypolicy framework, and institutionalized a number of policies and instruments for China’s renewable energydevelopment and utilization. Among others, the major policies and/or institutions covered by the Law include●Directives on setting indicative renewable energy targets;●Directives on renewable energy planning;●Directives on functions and responsibilities of the relevant government agencies in renewableenergy management;●Directives on removal of barriers of renewable energy products to entry energy market;●Directives on grid connection of renewable power generation project;●Directives on feed-in tariff of renewable power generation;●Directives on taxation measures;●Directives on special fiscal fund of renewable energy development; and●Directives on renewable energy technology standards and certification.3. Current status of renewable energy development3.1. Small hydroIn 2005, the installed capacity of small hydro power plants was 38 GW, about 30% of the estimated 128 GW small hydro potential. Small-scale hydro technologies and turbines are improving. Moreover, the performance of the automated control systems has improved, too. Over 30 research institutes are involved in R&D and 160 small-scale hydro equipment manufacturers exist at present. This market grew by 12–15% in 2004, and 10% annual growth in 2005. Domestic industry can meet current development needs.Small hydro technologies have been primarily used for rural electrification, often in small county-size grids. However, in recent years, the development has become more multi-dimensional, with small hydro technologies serving centralized grids, the smaller county grids becoming interconnected, and also replacing or reducing the growth of other small-scale power plants, like small coal plants. In the future, the electrification supply in rural areas will still be the major aim for small hydro development, including the estimated 7 million rural households that still function without access to electricity.There are a number of factors which could accelerate and improve market development and power plant performance in the future, including market aggregation, better operation and management, improved technology, and standardized tariffs and power delivery.3.2. Wind farmThe rate of growth of wind turbine installations in China is impressive, and this growth could likely continue indefinitely. The installed capacity rose from 550MW in 2003, to 760MW in 2004, and then ultimately to 1250MW in 2005. The growth rate in 2004 was 65%, on top of a 40% growth in 2003. Only one domestic manufacture dominates the domestic market, constituting 20% of the market share. Imported turbines constitute 75% of the market share.China’s wind technology level has fallen behind Europe, as most of 1–2MW scale turbines have to be imported from Europe. Key R&D priorities for wind are large-capacity turbines, variable speed technologies, variable screw distance, and off-shore turbines and wind farm designs. The production costs have been decreasing, in line with the international costs, over the past decade, and these cost declines need to continue among Chinese manufacturers.3.3. Solar photo voltaic (PV)A total of 65MW solar PV was installed as of 2004, about 50% of this in rural (off-grid) areas. Communications and industry account for most of the other 50%, with consumer products constituting a small share. The grid-connected PV is still marginal, falling on the order of a few MW. The domestic market is growing fast, with 20MW added during 2004. The solar PV installation in China amounted to 70MW.Ch ina’s PV industry is growing faster than perhaps any other country in the world, but from a small initial base. As of 2004, China had a module production capacity of 100MW of PV, compared to the total world production capacity of 1200MW. Chinese production capacity doubled during 2004, from 50MW in 2003, and most production is exported. Cell production capacity was 65MW in 2004, and wafer production capacity was 15MW.As production increases rapidly in the coming years, a rapid declining share of production will go to domestic installation, as the domestic market does not keep pace with the production. This is because the grid-connected applications, which are now the predominant market globally, are still in infancy in China, and the price differential between solar PV and conventional power is still very large, on the order of 3 yuan/kW h.The key research areas are quality and cost improvements in materials and components, advanced solar light–heat transforming material, heat collector structure components, new pattern solar cell material and groupware technology, grid-connected and roof solar photovoltaic power system and integrated solararchitecture.3.4. Solar hot waterSolar hot water sales continue to boom. The estimation of the total sales volume in 2004 is 13.5 million m2 with the same growth rate of 19% as in 2003, and about 70% were below 1500 yuan/m2. The solar water heater installation was 80 million m2 as of 2005. The glass vacuum tube solar water heater was the most common type in the Chinese market. Ten brands of solar water heaters had annual sale volumes of over 100 million yuan. But the market is still highly diverse, as those top 10 brands had a combined market share of only 20%. There are more than 1000 manufacturers throughout the country, and an estimated 250,000 people work in the Chinese solar hot water industry. Some famous household appliance enterprises from outside the sector have also recently entered the solar hot water market, including Haier, Ocma, and Huati.Smaller towns and villages, with a large rooftop area per capita, are likely to continue to be the primary market, although multifamily apartment buildings can effectively use solar hotwater if not too tall.Future priorities include test and certification systems, better quality control, better integration into architectural practice and the construction industry, standardization of products, consumer education and awareness, new financing mechanisms, and favorabletax and tariff policies.3.5. Biomass power generationFor heating and power generation, biomass-fueled combustion technology is mature in China, and there are many biomass boiler manufacturers. Most biomass boilers have small or medium capacity, because their feed stocks are not abundant which are collected from nearby area not from distant area. The advanced biomass power generation efficiency has reached 40%. Biomass gasification has developedstrongly in China, with gasifiers up to 6MW in capacity, and system efficiencies reaching 28%.Biomass power generation capacity was about 2000MW in 2005. Current biomass power generation is dominated by bagasse fueled power plants. In 2005, the capacity of bagasse fueled power plants was about 1700MW or 85% of the total biomass power generation capacity. Power generation capacity from agricultural and forestry wastes, biogas, municipal waste incineration, and land fills was 60MW, 20MW, 200MW, and 20MW, respectively.The uncertainty involved in the biomass-fueled power generation development is still quite high in China. Presumably, with the renewable energy law taking effect, and favorable tariffs for biomass, increases will be seen in power generation. But the use of biomass at the local level is likely to be constrained by resource availability, including competing uses, plus collection, and transport infrastructure and businesses.3.6. BiogasChina leads the world in terms of household biogas technology development and diffusion. Approximately 14 million small-sized biogas digesters were built by 2004 with an annual biogas production of 3.5 billionm3, equivalent to 2.5 Mtce. In addition to providing gas for cooking and lighting purposes in rural households, household biogas technology is an important measure to help farms increase their income. The Chinese government attaches great importance to household biogas technology, and gives special fiscal support for the development and deployment of thetechnology.A remarkable progress has also been achieved in the development of large- and medium-sized biogas plants in China. Fifteen hundred large- and medium-sized biogas plants were in operation in livestock breeding farms as of 2004, producing 100 million m3 of biogas, equivalent to 70 thousand tce. Also approximately, 700 large- and medium-sized biogas plants were in use in the food, alcohol, and paper-making industries, producing 1.4 billion m3 of biogas, equivalent to 1 million tce. In addition to producing biogas, these plants serve as the major facility for treating wastes from livestock farms and effluents from alcohol and paper-making companies. Hence, the biogas technology is not only an energy technology but also environmental technology. As of 2005, the total production of biogas from householdsystems and large- and medium-size biogas plants reached 8 billionm3, equivalent to 4 Mtce.3.7. BiofuelsChina’s ethanol production was 1.02 million tons in 2005. As of late 2004, five provinces Heilongjiang, Jilin, Liaoning, Henan, and Anhui required ethanol to be mixed with gasoline in a 10% ratio (E10). Four other provinces Hebei, Hubei, Shandong, and Jiangsu were added by late 2005.Ethanol distilleries have already been established in China with a production capacity of 1 million tons, to use ‘‘deteriorative’’ grains as feed stocks. Most fuel ethanol production in Chin a currently comes from the ‘‘deteriorative’’ grain. In 2005, China produced 50 thousand tons of biodiesel. Most biodiesel production currently comes from waste oil.Sorgo plantations have been set up in Heilongjiang, Inner Mongolia, Xinjiang Uygar A.R., Liaoning, and Shandong. Sorgo appears to be a promising crop in China for biofuels, as it grows in colder northern climates and is better able to endure drought.Research is continuing on biofuels crops and distillation/production processes. Research is progressing in southern provinces on bio-oils, including colza oil, cottonseed oil, wood oil, Chinese tallow oil, and tea oil.3.8. SummaryIf all renewable energies were taken into account, China’s total primary energy supplywas 2337 Mtce in 2005. Renewable energies contributed approximately 17.8% of primary energy supply, of which traditional biomass3 10.7%, and all new renewable energies4 together 7.1% (Fig. 1). Electricity dominated the energy supply from renewable energies (Fig. 2). In 2005, the total installed capacity of renewable energy power systems was 119.7 GW, accounting approximately for 23.4% of total installed power capacity of China, of which large and small hydro power was 78 GW and 38 GW, respectively (Fig. 3).Renewable energy technologies can be categorized by four phases: R&D, pilot and demonstration, early commercialized5, and commercialized. Table 1 relates China’s major renewable energy technologies to the four phases. As shown in Table 1, only a small number of the technologies listed are commercialized. They are small hydropower plants/turbines, solar water heater, solar stove, geothermal space heating, and biomass stoves.4. A long term scenario of China’s renewable energy supplyThe scenario assumes that the implementation of the Renewable Energy Law and China’s Medium and Long Term Planning for Renewable Energy Development6 will create an enabling environment for the development of renewable energies in China. The scenario largely represents the economic potential of renewable energy development which is larger than the market potential but smaller than the technological potential.The trajectory of renewable energy supply evolution in China’s primary energy supply mix under the scenario is indicated in Table 5 and Fig. 4. Renewable energies will contribute approximately 21% of China’s total primary energy supply by 2050. Please note that the contribution from traditional biomass will decline from 10.7% in 2005 to 6.8% in 2010, 4.0% in 2020, and 2.3% in 2030. By 2050, traditional biomass will be completely replaced by modernbiomass. The contribution from new renewable energies, however, will grow from 7.1% in 2005 to 12.1% in 2020, 17.3% in 2030, and 21% in 2050, respectively.Most of the renewable energy supply is in the form of electricity.Table 6 and Fig. 5 show the picture of China’s power generation capacity installations till 2050 under the reference scenario. The installed capacity of renewable based power generation systems will reach 141 GW in 2010, 362 GW in 2020, 733 GW in 2030, and 1130 GW in 2050, respectively. The share of renewable based generation capacity will increase from 23.4% in 2005 to 30.8% in 2020, 40.8% in 2030 and 43.1% in 2050, respectively. Renewable energies will play a very important role in diversifying C hina’s power generation sources.5. Risks and uncertainties5.1. Financial risksAs shown in Table 1, most renewable energy technologies fall either in the R&D stage, in the pilot and demonstration stage, or in the early commercialization stage, and a few of them have also been fully commercialized. Often the substantive input of the financial resource is needed before a renewable energy technology is able to compete with conventional fossil energy technologies. Private companies are often reluctant to invest in the demonstration, and preliminary commercialization stage due to low economic return. Further private companies often have difficulties borrowing money from banks and other financial institutions due to the high risks involved in these stages. Due to the free-rider issue private companies are also not willing to invest in the R&D stage. As a result, financial resources are often under-provided during the R&D, demonstration, and preliminary commercialization stage. Financial risks are important barriers that impede China’s renewable energy development in the future.5.2. Market entry risksConventional energy enterprises dominate China’s current energy industry. They stay in an advantageous position in competition with renewable energy companies in terms of both company scale and market penetration. The power grid is often not willing to accept electricity generated from renewable energy sources, such as wind, biomass, solar PV, and small hydro mainly because of higher cost and smaller scale of renewable electricity compared with the coal-fired electricity.On the other hand, China’s oil market is monopolized by three large groups: China National Petroleum Corp (CNPC), China Petrochemical Corp (Sinopec Group), and China National Offshore Oil Corp (CNOOC). To safeguard a market share of liquid fuels from renewable energies, such as biodiesel, substantive investment is needed to build or restructure the current production and sale infrastructure. Thecooperation from the three companies is of critical importance in this regard.5.3. Technological risksChina holds a leading position in terms of development and deployment of household biogas technology and small hydro technology. However, there is a large technological gap that China has to bridge in the future for most other renewable energy technologies. Although the size of mainstream wind turbines in the European market is as large as 1–1.5MWper unit, China does not yet have the capacity to manufacture wind turbines of more than 1MW. The country does not yet have the property rights of the core technologies for manufacturing solar PV cells. So far China has heavily depended on importing technologies and systems to develop her biomass-fuel power generation industry. In context of the large scale biogas plants, the technological gap between China and the world advanced level is still big in some aspects. More importantly, there is a lack of qualified researchers and engineers to conduct renewable technology R&D, design, and manufacture in China.AcknowledgementThis study is supported by the National Nature Science Foundation of China (grant no. 90410016). References[1] Zhou DD, editor. China sustainable energy scenarios for 2020. Beijing: China Environment Science Press; 2003.[2] Shi LS. China’s energy is sues and renewable energy planning. Energy Policy Research 2004;(No.4)::17–21.[3] Available from: </nynx/nyhg/2005-06/09/ 153.html>.[4] China energy statistical yearbook. Beijing: China Statistics Press; 2006.[5] Wang YQ. ‘China’s energy consumption and environment protection’. China Development Forum, November 2003. Beijing: 2003.[6] ERI (Energy Research Institute), editor. Climate change mitigation. Beijing: Meteorological Press; 2004.[7] Sijim JPM. The performance of feed-in tariffs to promote renewable electricity in European Countries. The Netherlands: Working Paper, ECN-C-083; 2002.[8] Bechberger M, Reiche D. Renewable energy policy in Germany: pioneering and exemplary regulations. Energy for Sustainable Development 2004;8:47–57.[9] Langni? O. ‘International best practice for renewable energy legislations’ Senior Forum of Renewable Energy Legislation Issue, May 15–16, 2004. Beijing: 2004一项关于再生能源在中国可持续能源供应中地位的研究摘要本文首先提供了中国范围内可再生能源的发展，包括该国最近的可再生能源法的概况。
