B&R offers China chance to lead global energy reform

By Yang Yifang and Zhong Yang Source:Global Times Published: 2017/4/11 21:38:39

Illustration: Peter C. Espina/GT

As China's economic development has transitioned into its new normal, the force from which China's energy sector has drawn momentum has changed. In the past, China's breakneck growth drove a huge demand for energy. Starting from 2015, China's energy demand significantly slowed with the cooling of its economy. Technology, environment, pricing and efficiency have also slowed energy demand. This March, China's two sessions offered an opportunity for the country's most experienced energy experts to discuss the ongoing energy transition.

Along with China's ongoing supply-side structural reform, energy supply-side structural reform is seen as a solution to fulfill the country's mission of shifting to a clean, low-carbon, and efficient energy system. According to Nur Bekri, head of China's National Energy Administration, energy supply-side structural reforms are not just an expedient, but rather a cure to the outdated energy structure and development pattern, which include structural adjustment, institutional reform, model innovation.

The core of China's structural energy adjustment involves the shift from coal to clean energy. China's energy structure is congenitally deficient due to the high endowment of coal and lack of oil and gas. It's for this reason that the government work report elaborated so much on work arrangements on energy structural adjustment. The targeted increase of clean energy in the country's overall mix is 1.7 percentage points for 2017 (in 2016, hydro, wind, nuclear and natural gas accounted for 19.7 percent in total), while the target decrease of coal is 2 percentage points (in 2016, coal accounted for 62 percent). The shift from coal to clean energy is reflected in the vast difference between their respective industrial policies. In 2017, as much as 50 gigawatts of coal power capacity will be eliminated, suspended, or postponed, and approximately 150 million tons of coal capacity will be cut. In contrast, Premier Li Keqiang emphasized that clean energy should be a top priority in terms of grid-connection. Furthermore, more than 3 million households' coal-fired boilers will be replaced by electric or natural gas boilers, a huge market for clean energy.

The essence of institutional energy reform is to share the State-owned enterprise (SOE) reform dividend and market competition dividend. Fossil energy tends to foster natural monopolies. In order to improve the efficiency of resource allocation, it is necessary for the government to deepen SOE reform. The deepening of mixed-ownership reform will have a large impact on SOEs that dominate China's energy industries. Both electric power reform and oil and gas reform will follow the path of "hold the middle, and loosen two ends" and as a result will spur competition between SOEs and private firms. A new round of electric reform marked by the publication of the central government's No.9 document in March 2015 has brought changes in transmission line pricing and power exchange. Oil and gas reform has not yet been published, but Nur Bekri has confirmed that the scheme has been approved by the State Council and will be disclosed soon.

The essence of promoting innovation in the energy sector is to seek new momentum. The development of China's energy sector has been severely restricted by factors like technology, environment, prices, efficiency and other areas. Innovation is the key to breaking these bottlenecks. The government work report reaffirmed the promotion of Internet Plus, a national strategy on big data and the implementation of Made in China 2025. It is through innovation that China's solar cell, wind, new energy vehicle and other industries have gained strong international competencies and huge market shares. Li Xiaolin, member of the CPPCC National Committee, proposed that "energy Internet" based upon distributed energy and storage systems could be the answer to severe curtailment on wind and solar power. Other innovations such as green finance and the national carbon market to be established in 2017 will also help raise more capital and bring momentum for clean energy development.

The going global strategy is also the optimal choice for China's energy sector to achieve healthy development amid the background of the increasing tendency of economic globalization and cutting overcapacity. In recent years, global energy and political patterns have sharply changed. In the context of global energy structural contradictions and a lack of energy governance coordination, China is being encouraged to take the lead on global energy. In this year's government work report, the One Belt and One Road initiative was mentioned five times, with an emphasis on opportunities for deepening global capacity cooperation and driving a better going out strategy for China's energy equipment, technologies, standards and services. Foreign Minister Wang Yi stated that the first One Belt One Road summit will be held in May in Beijing. Guests from around the globe will discuss the long-term cooperation mechanism for the development of the initiative. Further, regions along the routes will have the greatest growth in energy demand and the need of energy equipment and infrastructure. It could be a good opportunity for China to take a further step to push forward interconnection of energy infrastructure, capacity cooperation on technology and equipment, and actively participate in global energy governance.

Yang Yifang is a research fellow at the CBN Research Institute and Zhong Yang is a project associate at the National Center for Climate Change Strategy and International Cooperation. bizopinion@globaltimes.com.cn


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