Transcript distributed energy: future prognosis

CHINA’S POWER SECTOR: GRAPPLING WITH
THE GLOBAL “FOOTPRINT”
ROBERT W. GEE
PRESIDENT
GEE STRATEGIES GROUP LLC
62ND ANNUAL MEETING
ENERGY BAR ASSOCIATION
WASHINGTON, D.C.
MAY 1, 2008
Overview
• China’s economic juggernaut and its significance for escalating
energy demand
• Challenges in achieving sustainable development
• Major highlights of China’s current energy strategy
• Efforts to reform government oversight of energy industry and to
introduce measures to liberalize power sector
• Issues regarding carbon/greenhouse gas (GHG) mitigation
2
China’s Economic growth: Driving Energy
Demand
• China’s economy → has grown an average of 10 percent per
year over last 25 years
• China consumes:
– Half of the world’s cement
– Quarter of all steel
– Two-fifths of all copper
• China is a prodigious consumer of petroleum
– Second largest oil consumer in the world; third largest oil importer
– Accounts for nearly one-third of global oil growth in the last decade,
adding demand equivalent to one medium size country per year
3
One illustration of this economic expansion
Source: New York Times, “China Builds Its Dreams, and
Some Fear a Bubble”, October 18, 2005
•
In 2005 alone, Shanghai
completed towers with more
space for living and working
than there was in all the
office buildings in New York
City.
•
Shanghai has 4,000
skyscrapers, double the
number in New York, with
plans to build 1,000 more by
the end of the decade.
•
Every three years, China
adds building capacity equal
to that of the entire United
States
4
Major Challenges to Energy Sector
• Imbalance of energy supply and demand with increasing
dependence on foreign supply
• Irrational energy portfolio with over-reliance on coal
• Lack of adequate transmission infrastructure has hampered west
(resource) to east (market) power delivery
• Underdeveloped rail transportation system has impeded coal
carriage
• Power sector unfailingly subject to “boom/bust cycles” – from
shortages to surpluses, and vice-versa
5
Energy Demand
•
Since 1980, China’s energy demand has grown 4.3 percent annually
•
China’s energy intensity (energy consumption per unit of GDP)
–
–
Historically, had been low, but in most recent years has reversed
Today, to produce $1 million of GDP requires:
•
•
•
•
−
2.5 times energy of US
5 times that of EU
9 times that of Japan
Reasons:
−
Low proportion of high value-added products
−
Higher proportion of industries with high energy intensity in GDP (driven by country’s macroeconomic goal of
promoting investment in heavy industry)
−
Low energy efficiency – China’s industrial processes consume 20 to 40 percent more energy than those of
OECD countries
But China’s per capita energy consumption still low
−
Was 39 percent (oil), 5 percent (natural gas), and 37 percent (electricity) of world average (2006)
−
Eight, 2 and 15 percent of United States’ per capita consumption (2006)
6
China’s Primary Energy Resource Portfolio
(composite of most recent 3 years)
Oil 19.3%
Wind 0.1%
Hydro 14%
Natural Gas 2.6 %
Nuclear 2.0 %
Coal 69%
7
China’s Coal Dependence
•
Principal indigenous fuel resource, mostly low grade
–
–
•
One-third originates from locally-owned village-and town mines
Small mines are inefficient and have world record fatality rates
Consumes over 2.2 billion metric tons/year
–
–
one-third of the world’s total and twice that of U.S.
More than that of the US, India, and Russia combined
•
Makes up 69 percent of China’s primary energy consumption, and 55 percent of power generation
requirements (2006)
•
Each week, China builds one additional, coal-fired 1 GW power plant
•
Annually, rate of growth equals total installed thermal generation of the United Kingdom (~ 74 GW)
•
Consumption projected to increase from 22.7 quadrillion Btu per year (2004) to 55.9 quadrillion by
2030 – averaging 3.5 percent growth annually
•
Became a net importer of coal in January 2007
8
Environmental Impact of China’s Coal
Dependence
• China is home to 5 of the 10 most polluted cities in the
world
• Power sector emissions responsible for 44 percent of SO2,
80 percent of NOx, and 22 percent of CO2
• International Energy Agency – China will surpass U.S. in
greenhouse gas emissions by 2010
• Netherlands Environmental Assessment Agency – this
already occurred in 2006 through reliance on coal and
cement production
9
China’s Current Energy Policy
• In 11th Five-year Plan (2006-2010), elevated objective of sustainable
development and energy efficiency
– Greater emphasis on environmental stewardship w/ economic growth
– Energy Demand Goals
• Doubling year 2000 per capita GDP by year 2010, while reducing energy intensity
per unit of GDP by 20 percent over 5 years, equating to 4 per cent reduction per
year
• Goal fell short first 2 years -- realized 1.23 percent reduction in 2006 and 3.27
percent in 2007
• December 2007 Energy Policy “White Paper”
– Continues to urge goal of energy conservation
– Urges expansion of energy supply capacity, with continued emphasis on
development of domestic resources for energy security purposes
10
China’s Current Energy Policy (Con’t.)
• Accelerate energy exploration and production
– Increase the reserve and production capacity of domestic energy resources
– Cooperate in energy resources development worldwide (“Go Out” strategy of National Oil
Companies)
• Optimize the energy resource mix
– Develop hydroelectric power (e.g., Three Gorges Dam)
– Promote the development of nuclear power – additional 27 GW by 2020
• Signed recent agreement w/Westinghouse to construct 4 AP1000 nuclear plants
– Increase natural gas use from 3 percent currently to over 7 percent by 2025 (including LNG)
– Renewable Energy Law (enacted January 2006) mandates 10 percent of all of China’s energy
to come from renewable sources by 2020
• Includes wind, solar, water, biomass, geothermal, and ocean
• Mandates sale of all output to national grid company, at prices established by authorities
• Includes penalties for noncomplying purchaser
11
Power Sector Reforms
•
Reorganized State Power Corporation’s generation assets into five national
generation companies – created “independent power producers” that were still
primarily state-owned
•
Formed two grid corporations, established four auxiliary groups for construction,
maintenance and design
•
Created limited experiments to simulate power pooling and bidding in organized
markets – results were unsuccessful and not replicated elsewhere
•
Tariff reforms -- ongoing but still problematic
– Lack of full cost pass through for higher coal costs
– Pressure to keep regulated prices low owing to inflationary fears, and maintenance of social
stability
•
Foreign investors in independent power projects, some lured by oversized return
expectations, have disinvested (AEP, Sithe, Alstom, Siemens, Alliant Energy)
12
Regulatory Reforms
•
Over several years, government reorganizations were implemented to reform the
decision-making process
•
But progress is still hampered by
–
–
–
•
In 2002, State Electricity Regulatory Commission (SERC) formed
–
–
–
•
But still not a independent regulator
Tariff jurisdiction still shared with National Development and Reform Commission (NDRC)
NDRC still responsible for energy policy
In March 2008, National Energy Commission created to develop “national energy strategies”
–
–
•
interagency infighting over jurisdiction
Battles between market-oriented officials and state-enterprise supporters
Lack of transparency in decision-making processes
But administration and oversight still resides in Energy Bureau of NDRC
Possible prelude to creation of Energy Ministry to consolidate decision making authority which is now
diffuse
Continued discussion of enacting new Energy Law, but not likely this year
13
China’s Greenhouse Gas Mitigation
Strategy: The 900 Pound Global “Gorilla”
•
As non-Annex I developing country under Kyoto Protocol, China is exempted
from obligations to reduce GHG
•
In June 2007, China announced National Climate Change Program
– Rejected caps on carbon emissions
– Emphasized renewable and clean energy deployment, greater research &
development, population control, and raising public awareness
– Looked toward leadership of developed world to reduce global intensity of carbon
•
US’ ability to influence China’s acceptance of carbon controls is limited until it
also adopts regulation of carbon emissions
•
China seeks technology for carbon emission mitigation, but disfavors reliance
on commercial technology transfer
– Uses analogy of medicine for public health (e.g., polio vaccine)
– Wants technology transferred as a public good
14
Final Thoughts
•
Coal use will continue to dominate China’s resource mix in its power sector and
general economy
•
Market equilibrium between energy supply and demand will increasingly be
frustrated by continued controls on energy commodity costs and delivered power
prices
•
No significant regulatory reform envisioned at this time
•
Any control of China’s future carbon emissions will be postponed for years
•
For more, see China’s Power Sector: Global Economic and Environmental
Implications, 28 ENERGY LAW JOURNAL 421 (2007) by Robert W. Gee, Songbin
Zhu, and Xiaolin Li (http://eba-net.org/docs/elj282/Chinas_Power_Sector.pdf)
15
Robert W. Gee 朱 健 榮
President
Gee Strategies Group LLC
7609 Brittany Parc Court
Falls Church, VA 22304
U.S.A.
703.593.0116
703.698.2033 (fax)
[email protected]
www.geestrategies.com
16