Booming of Energy Sector in Chinese Economy

If anybody thought that the economic downturn experienced by the world over will bring the Chinese energy sector to a standstill, then they were grossly wrong. For one, this period of economic uncertainty has made the country more determined to rise to the occasion when the economy revives.

It is true that the financial crisis has made it difficult for the energy industry to cope, with the demand for energy also reducing. There exists a scene of energy companies slashing prices and increasing stockpiles. The oil and electricity industries are facing heavy losses. But China plans no reduction in energy output as it is preparing with watchful eyes for an upturn in the economy. The nation will be well prepared to cater to the energy demands, according to reliable sources.

This argument gains credence from the fact that China is busy constructing new nuclear power stations, wind farms and solar power stations. This will enhance the energy mix of the country, which has been traditionally dependent on energy from coal.

Besides restructuring the energy mix, nuclear power construction is being boosted by leveraging the technological know-how processed by the Chinese. Also, nuclear energy is considered more energy-efficient and environmentally friendly and it will also create more jobs. The nuclear power capacity is set to shoot up to 60 gigawatts by 2020. At present China has only 9 gigawatts of nuclear power capacity.

The construction activity of nuclear power generation plants is expected to give a fillip to other industries such as cement, steel, transport and material handling. Several Banks have entered the fray in a big way, which will give the energy sector a push.

With fast development comes responsibility. The Chinese government implemented strict environmental standards and refused to approve several coal-fired projects. The China Electricity Council also confirms that investments in nuclear and wind energy generation plants have increased, while those for coal-fired projects have been curtailed.

The investment in nuclear power increased by 71.85 percent and wind power by 88 percent in 2008 compared to 2007 with the same trend continuing till now. Also, China’s total power generating capacity touched 790 million kW in 2008 according to available statistics.

China has started constructing two large solar power plants in the western provinces of Qinghai and Yunnan to further reduce dependence on coal and oil. The Qinghai plant will be a gigawatt-level solar station while the Yunnan solar plant will be a 166-megawatt solar power plant. The country is also set to promote mergers and acquisitions in the energy and resources sector. Overseas cooperation will be required in the sectors of oil, gas and mineral resources exploration.

Government Initiatives

China is the second largest consumer of energy after the U.S. To beat the economic downturn, China announced a 4-trillion Yuan or $586 billion investment two years back. The focus was on improving industry value chains and energy conservation so as to reduce dependence on an export-driven economy. The government announced tax reductions, rebates, fiscal subsidies and other measures.

All sectors of industry including real estate, transport, power infrastructure, rural development were benefited. State-owned oil companies were given a hand in improving their output through tax breaks. Economic development is expected to follow owing to the government stimulus especially in enhancing energy security and energy efficiency with an increase in domestic consumption and increase in demand for energy commodities.

China is a giant consumer of energy and is hence a large importer of oil and natural gas. The country is trying to cater to natural gas demands by laying pipelines for the import of liquefied natural gas into the country. However China is the largest producer and consumer of coal. China is now trying to boost other sources of energy like nuclear, hydroelectric and natural gas.

Problems Faced by the Chinese Energy Sector

The growth in energy demand is faced with supply reliability and energy security blockades. According to 2000-2005 estimates, it was forecast that the requirement of energy will be 400 gigawatts by 2005, 500 gigawatts by 2010 and 850-900 gigawatts by 2020. But actual figures show much higher rates which the power suppliers are not able to provide. Many provinces involved in export industries situated in the provinces of Fujian, Jiangsu, Shanghai and others have been affected by power outages. The transmission grid’s inability to supply power has hit many industries resulting in manufacturing problems, which may have long run repercussions.

The problems facing the power sector are the inadequacy of a proper restructuring program, slow development of a regulatory framework, a monopoly in the power sector and low efficiency of electricity supply and use, among others. The government has taken steps to tackle all issues and improve efficiency in this sector.

China’s growing energy consumption, especially in the oil sector, touched new heights with tremendous growth in passenger vehicles, an increase in inland freight transportation, industrial output etc. Also, energy consumption is expected to be more than double by 2020. The government is trying to reduce China’s dependence on oil imports by developing strategic oil reserves, acquiring upstream oil assets and imposing fuel efficiency standards for all vehicles.

The country’s present energy policy focuses on lesser dependence on oil imports and a reduction in particulate sulphur in vehicle emissions and the use of clean, green technologies. In November last year, China announced initiatives to reduce its carbon intensity by 40 percent to 45 percent below 2005 levels by 2020. Urbanization in China will result in more housing and infrastructure requirements made from energy-intensive commodities like steel, cement and glass. Also, the populace will buy energy-consuming equipment and appliances, besides using energy in urban public transport systems and cars. According to the China Energy Group, household energy consumption increases steeply with urbanization. Hence the requirement of more energy to support China’s urban development policy.

Green Energy: A Sustainable Source of Power

China is not going to be left behind in the pursuit of green energy. The nation invested $34.6 billion in clean energy technology last year alone. The efforts of the government have drawn private-sector foreign investments to the green energy sector. An expanding economy that needs more domestic energy and the requirement of non-polluting energy sources made the government adopt a national renewable energy standard. It stipulates that 10-15 percent of its electricity supplies should come from renewable sources by 2020. To meet future needs for expertise in the green energy sector, China has set up 16 energy technology research centers for training engineers to develop green energy tech solutions.

The concerted efforts made by China in this field helped it to jump ahead of Denmark, Germany, Spain and the U.S. to become the world’s largest producer of wind turbines. It has also gained a leading position in solar panel manufacture, too, besides building nuclear reactors and efficient types of coal power plants. Such efforts take dependence away from oil.

China is expected to lead the race in the renewable energy sector. Vestas of Denmark has erected a large wind turbine manufacturing complex in northeastern China and transferred technology for building electronic controls and generators to Chinese engineers. The Chinese Renewable Energy Industries Association revealed that the renewable energy industries are also adding more and more jobs every year.

However, this industry is spurring China’s economy more than improving the environment. China plans to increase wind, solar and biomass energy to reach 8 percent of its electricity generation capacity by 2020. But coal will still represent two-thirds of China’s energy capacity by 2020 and nuclear, and hydropower will account for the rest.

The Chinese government has formed a National Energy Commission Ministry comprising of cabinet ministers, led by the prime minister. More emphasis is given on expanding the electricity grid, also. Power generation companies have been advised to use renewable energy more. Subsidies are awarded to consumers for installing solar panels and solar water heaters.

Compared to developed nations, China has an advantage because it can plan and develop efficient energy producing sources as it is in the formative years in this high growth sector. The government’s active policies in developing green sources of energy and the participation of the country’s banks in backing related projects have helped develop the energy sector, taking it to new heights.