Beijing's New Stimulus Package, This Time for Renewables

by Stuart Burns on September 7, 2010

Style:    Category: Green, Macroeconomics

We had the great Chinese Infrastructure stimulus package in 2009, worth an estimated RMB 4 trillion (US$586 billion), now make way for the great Chinese Renewable stimulus package worth an even more amazing RMB 5 trillion (US$736 billion). The clean energy industries targeted include nuclear, solar, wind, biomass, unconventional gas, clean coal, smart grid and new-energy vehicles according to a Reuters article. Not all the money will go on physical investments, anymore than the first stimulus package did with subsidies for low emission cars etc. This package will also include incentive policies such as subsidies for feed-in power tariffs and imports and income tax rebates. Did I hear you say import rebates? Yes the much maligned export rebate system is being turned on its head for clean energy to support the import of large efficient power generating systems, high or ultra high voltage transmission and transformation equipment, key parts for nuclear, wind and hydro electric generators which will all be exempt from the normal import tariffs and value added taxes. These are technologies in which US corporations are at the cutting edge.

China faces significant challenges in making the leap to a low emissions future without derailing the economy along the way but by earmarking such a huge sum of money it has shown it is serious about tackling emissions from energy consumption and is creating a momentum for industry to invest and get behind the effort instead of resisting what in other countries is often just seen as a rise in users costs.

Wang Yi, deputy head of the Institute of Policy and Management, China Academy of Science is quoted in another article as saying, “The government must gradually lift fossil fuel prices while granting incentives to non-fossil fuels to establish a long-term price signal.” Beijing aims to cut carbon intensity as much as 45% from 2005 levels by 2020 and increase the share of power from renewable source to 15% of primary energy consumption. That is nearly double the current ratio and would make the country a leader in green energy manufacturing and use among major economies.

80% of electricity production comes from coal in China and breaking this grip can only be achieved by power prices according to Lin Boqiang, head of Center of Research on Energy Economics, Xiamen University. “The private sector can’t afford waiting for 5 to 10 years operating at loss. Without price reform, only state firms want to build green facilities as they are the ones who can afford to lose money,” Subsidies on feed in tariffs will support technologies like biomass and wind power while a small levee on coal fired electricity production will raise $1.47 billion per year to compensate grid companies that buy electricity from renewable sources. But the creaking national grid is seen as a major bottleneck to developing renewable sources. Beijing has scaled back adding new wind and solar farms in distant locations like the plains of Inner Mongolia due to the cost of transmitting the power generated over long distances to consumers in the east. Ultra high voltage transmission lines are needed to reduce waste and ensure reliable delivery like an early project supplied by Siemens of Germany which is running the first 800 kV UHV DC system for the China Southern Power Grid Co. in Guangzhou. The system is due to come on stream this year and allows the province to tap hydro-power from Yunnan, reducing emission by a whopping 33 million tons.

Nuclear generators get equal billing in China, not for them the liberal hand-wringing that goes on in so many western economies. Value added tax on electricity produced by nuclear is cut by 75% for the first five years reducing gradually thereafter to 55% from years 11 to 15 plus major components benefit from zero import tariffs and VAT if they have to be purchased from abroad.

Anyone who has traveled in China will understand the urgency with which the country is having to address pollution from conventional coal fired power production and industry. As cities choke under a haze of pollution, Beijing is conscious this is an imperative they need to address just as much as ensuring long term growth in the economy if they are cling onto power in the decades ahead.

–Stuart Burns

{ 2 comments… read them below or add one }

1 Paul Adkins September 8, 2010 at 12:39 am

Um, 80% of China’s electricity comes from coal? I don’t think so. Try 70%.

China’s ability to supply itself with the necessary hardware to generate, transmit and distribute all this electricity is the basic reason for the switch. Go visit the huge factories in Xi’an and elsewhere – they are all running at capacity, trying to build the transformers, substations and associated gear. They are all flat-chat.

As well, China is desperately short of the technology needed for long-distance high-voltage transmission. Companies like Siemens, ABB and other Europeans have been here a while, though of course they are very reluctant to import IP. In China, patents are “worth the paper they are written on,” as a famous American once said.

Many people wonder about China’s energy supply equation, and whether it will be coal mining, coal transport or some other component which willeventually slow the juggernaut. Actually, it’s more likely to be the downstream components, such as switch gear and transmission lines which will be the bottle neck. No wonder, then, that they are looking to import to make up the shortage.

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2 Ben Gee, Edmonton, Canada September 8, 2010 at 4:25 am

China is going to subsidize imports? I guess you can expect the unexpected from China. That will get rid of its embaressing trade surpluses.

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