Chaired by James Brodie, Regional Director for Scotland and Commercial Director for Industrial at the China-Britain Business Council, the discussion featured insights from David Finnon, CTO of Red Rock Renewables; Chong Ng, Associate Director of Applied Research at the Offshore Renewable Energy Catapult (OREC); and Alex Grant, Partner at Pinsent Masons Law Firm. The panel examined the opportunities and challenges of integrating Chinese technology and expertise into the UK’s renewable energy landscape, with a particular focus on offshore wind.

James Brodie opened the discussion around the UK’s green transition by highlighting the UK’s leadership in offshore wind and China’s rapid rise in the sector. “The UK has been at the forefront of offshore wind globally, but China has now overtaken us in installed capacity. What more can Chinese suppliers and investors do to help the UK meet its net-zero targets?” he asked. The question set the stage for a conversation about collaboration, innovation, and the practicalities of integrating Chinese technology into UK projects.

David Finnon of Red Rock Renewables shared his experience of working on large-scale renewable energy projects, including a facility that will power half of Scotland’s homes. “We have two and a half years to get this project up and running,” he said. Finnon reflected on the challenges of bringing Chinese technology to the UK, recalling an attempt in 2011 to introduce Goldwind turbines. “It was like trying to plug a UK appliance into a Chinese socket—it just didn’t work. The technology had to be extensively modified, and for just three turbines, it wasn’t economically viable,” he explained. Finnon emphasised that while Chinese manufacturers are now more willing to adapt their products for international markets, success depends on volume and the establishment of local service networks. “It’s not just about plug-and-play; we need to build the infrastructure and expertise to support these turbines over their 30-year lifespan,” he said.

Finnon also highlighted the rapid evolution of offshore wind technology. “Fifteen years ago, turbines were 4 megawatts (MW); now, we’re looking at 15 MW turbines with blades as long as 236 metres. The scale of everything—turbines, ships, and installation equipment—has grown exponentially, and we’re struggling to keep up,” he said. Despite these challenges, Finnon expressed optimism about the potential for collaboration. “We’ve built strong relationships with our parent company in China, and that trust has been crucial. Recently, we closed a £3.5 billion deal for the Inch Cape project, which was driven by technical considerations rather than politics or funding,” he added.

Chong Ng of OREC echoed Finnon’s sentiments, emphasising the importance of collaboration and quality assurance. “Our aim is to catapult the offshore renewable sector forward. We’ve set up an investment fund to help UK companies explore opportunities in China and vice versa,” he said. Ng noted that while Chinese manufacturers are now more willing to modify their products for international markets, ensuring reliability remains a key challenge. “The industry is a small circle, and newcomers need to build relationships and trust. Quality is critical—if investors see that a product isn’t working, it undermines confidence,” he explained. Ng also highlighted the cost advantage of Chinese turbines, which are roughly one-third the price of European models. “If we can combine economies of scale with improved quality, we’ll find a middle ground that benefits everyone,” he said.

Ng raised an important question about the pace of innovation in the sector. “China installed the UK’s entire offshore wind capacity in just one year. They don’t need time to think—they just act. Meanwhile, European manufacturers are struggling to keep up,” he said. He warned against letting political agendas hinder progress. “If we’re too driven by politics, we risk missing out on a once-in-a-lifetime energy transition. Wind power is one of the most advanced forms of renewable energy, and if we cut off supply from China, where will we turn?” he asked.

Alex Grant of Pinsent Masons brought a legal perspective to the discussion, drawing on his experience working on 9 gigawatts of renewable energy capacity across Europe and Asia. “There are perceived risks when dealing with Chinese suppliers, but the market dynamics are broadly similar whether you’re in the Middle East or Europe,” he said. Grant highlighted the advantages of Chinese manufacturers, including lower unit costs and economies of scale, but acknowledged the challenges of bankability and quality assurance. “Developers need confidence in yield quantities and supplier responsiveness. These are areas where Chinese manufacturers are still building their reputation,” he explained.

Grant also addressed the shifting risk profile in supply contracts, which has made projects less bankable. “In recent years, there’s been a push to de-risk projects, but this has led to extreme positions that make it hard to achieve financial certainty. We need to find a more equitable allocation of risk,” he said. He compared the offshore wind industry to the oil and gas sector 60 years ago, noting that it is still in its infancy. “We’re innovating at an incredible pace, but that brings challenges. Developers are struggling to keep up with quality assurance as technology evolves,” he said.

The panel concluded with a consensus on the need for collaboration, trust, and a balanced approach to risk if the UK is to achieve a smooth green transition. James Brodie summarised the discussion by emphasising the importance of leveraging China’s industrial might to accelerate the UK’s green transition. “The UK and China have complementary strengths in the renewable energy sector. By working together, we can overcome technical and regulatory challenges and drive the global energy transition forward,” he said. As the world races to meet net-zero targets, the insights from this panel underscored the critical role of international collaboration in achieving a sustainable future.

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Stretching approximately 400 kilometres along the Yellow River in northern China, the Solar Great Wall is projected to generate enough clean energy to meet the entirety of Beijing’s electricity needs by 2030. According to China Daily, the project’s completion is expected to produce 180 billion kilowatt-hours (kWh) annually. To contextualise, Beijing’s electricity consumption in the previous year was 135.8 billion kWh, indicating that the Solar Great Wall’s output would not only satisfy the capital’s energy needs but also provide surplus power for surrounding regions. But what exactly does this mean for China’s energy future, and how will it affect the environment?

A timeline for solar self-sufficiency

China broke ground on Solar Great Wall in early 2024, marking the start of an immense infrastructure project that will span desertified regions in Inner Mongolia, aiming to both generate energy and stabilise fragile ecosystems.

With a target completion date set for 2030, the project demonstrates China’s ambitions of achieving carbon neutrality. While financial specifics remain undisclosed, experts estimate it could require investment of up to $100 billion.

The sheer scale of the Solar Great Wall positions it as a cornerstone of China’s renewable energy strategy, with the added benefit of improving ecological conditions in some of the country’s most degraded landscapes.

A great leap in energy output

The Solar Great Wall’s energy production potential is staggering. By generating 180 billion kWh annually, it will also be able to provide surplus power for surrounding provinces. As reported by ECNS News, this capacity could conserve up to 12.6 million metric tonnes of coal annually and reduce carbon dioxide emissions by approximately 31.3 million tonnes.

The project’s energy distribution plan includes an ultra-high-voltage transmission line to connect the solar farm with urban centres in the Beijing-Tianjin-Hebei region. This should ensure a seamless supply of clean energy to some of China’s most densely populated areas.

Balancing the benefits and risks of solar power

While solar power offers significant environmental benefits, including carbon reductions, it is not without its challenges.

The Solar Great Wall is strategically located in desertified regions along the Yellow River, an area plagued by ecological degradation. According to China Daily, the decision to locate the Solar Great Wall in this region will avoid impacting arable land, and there is also a plan in place for ecological restoration through vegetation growth beneath and around the solar panels.

Moreover, the Solar Great Wall is projected to create around 50,000 jobs by 2030, significantly boosting local economies. Residents of affected areas are expected to see average annual income increases of more than RMB 20,000 (£2,300). This blend of environmental and economic uplift underscores the project’s far-reaching impact.

Large-scale solar farms, while undeniably valuable for reducing carbon footprints, often come with their own ecological risks. Habitat loss and the displacement of wildlife are real concerns, as is the potential for soil disruption during construction.

Another challenge lies in the production and disposal of solar panels. As noted by BBC News, “The manufacturing of solar panels involves hazardous materials, posing risks of environmental contamination if not properly managed.” Recycling solar panels at the end of their lifecycle remains an underdeveloped field, raising questions about long-term waste management.

To address these risks, the Solar Great Wall will employ ‘agrivoltaics’, a system that enables crops to grow beneath the panels, promoting biodiversity and enhancing land productivity.

Additionally, China is investing in recycling infrastructure to handle the eventual disposal of solar panels. Dr Rong Deng, a solar recycling expert at the University of New South Wales, told BBC News that, “Ordinary solar panels have a capacity of about 400W, so if you count both rooftops and solar farms, there could be as many as 2.5 billion solar panels.” A robust recycling framework is essential to ensure these materials don’t end up as waste.

Li Hong, an official from the Ordos energy administration, outlined the dual benefits of the Solar Great Wall in an interview with ECNS News: “This achievement will result in an annual green power output of 38 billion kWh, leading to savings equivalent to nearly 12.6 million metric tonnes of standard coal and a reduction in carbon dioxide emissions by approximately 31.3 million tonnes.”

Nevertheless, environmental advocates have urged caution. As The Electricity Hub notes, “While the Solar Great Wall could be transformative, its success hinges on effective mitigation strategies for both ecological and waste management challenges.”

The future of solar in China

The Solar Great Wall is more than just a renewable energy project; it is a symbol of China’s determination to lead the global energy transition. If successful, it will demonstrate how large-scale green initiatives can address climate change while revitalising degraded ecosystems.

Yet, as with any mega-project, the Solar Great Wall’s promise will only be realised through careful planning, community engagement, and a commitment to sustainability. If these challenges can be met, it could set a benchmark for other nations grappling with the dual demands of energy production and environmental preservation.

As the China Daily states, “The Solar Great Wall is a testament to what is possible when technological innovation meets ecological responsibility.”

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The governments of the UK and China have set ambitious net zero goals, and companies in both countries have been working hard to achieve them across fields from renewable energy to clean transportation – even working in partnership in many cases.

Learn more about UK-China partnerships in new energy at the UK-China Business Forum 2024 on 20 March. Click here to register

Collaboration is important because China’s central role in the energy transition can’t be over-estimated. Its industrial might is enabling cost reductions in the supply chain for renewable energy globally, and it is now the world’s largest exporter of renewable energy infrastructure, responsible for 90% of the global photovoltaic cell supply and 50% of wind turbines. This pole position has been achieved through a number of factors, one of which is huge investment. China was responsible for nearly half of global clean energy investment in 2022, investing US$ 546 billion. The EU, as the second largest spender on clean energy, invested US$ 180 billion, less than a third of China’s total.

And it’s not just the scale of China’s proposition – it’s also the innovation seen in sectors such as energy storage, and most evidently in NEVs, where Chinese brands are now world-leading.

Chinese manufacturer BYD sold more battery-powered electric vehicles (BEVs) (526,409) than Elon Musk’s Tesla (484, 507) in Q4 of 2023 – the first time sales by a Chinese company has outpaced the US titan.

BYD has benefitted from its background as a battery manufacturer, which has given it a head start in terms of technology and access to materials. Its “Blade Battery” technology is designed to improve safety by minimising thermal runaway risks – when the battery’s temperature drops below or above a safe range and damages it or causes fire. This innovative approach has not only bolstered the company’s reputation, but has also accelerated the global shift toward safer and more efficient EV batteries.

As Charles Hendry CBE, former UK minister of energy and climate change noted at last year’s UK-China Business Forum, it has been clear since his dealings with China a decade ago that the country is keen to lead in the technology sector rather than simply taking Western technology and selling it back.

For its part, the UK remains a global leader in the deployment of the financing of renewable infrastructure and at the cutting edge of advanced engineering in areas such as material science and floating offshore wind. According to the National Grid, in 2023, wind power contributed 29.4% of the UK’s total electricity generation.

The UK has the largest installed capacity of floating offshore wind in the world, with two commercial floating wind farms and an ambition to install 50GW by 2030. That ambition is backed by an established pipeline of 11 allocated floating offshore wind commercial sites, totalling 15GW capacity. A thriving ecosystem of universities, innovation hubs, manufacturers and ports are supporting the industry’s development, and the UK Government has previously ring-fenced £160 million of funding.

Moreover, in 2022, a UK Government report based on a three-month study by leading energy consultancy Azure International identified 600GW of technical potential for floating offshore wind in China, and the UK could be a key partner to support this development.

Beyond specific renewable energies, the UK is also a world leader in green finance, with London ranking as the top green financial centre globally in the 2023 Green Finance Index. This offers clear synergy with China’s capital-intensive manufacturing expertise and a potentially global reach of positive impact.

While the geopolitics of the day has caused challenges to many areas of UK-China trade and investment, the energy transition stands as a globally important endeavour that the UK and China can’t afford not to embrace together. The New Energy panel discussion at CBBC’s UK-China Business Forum 2024 on 20 March will explore how successful UK-China partnerships have been made possible and remain viable today. The panel includes Paul Taylor, Chief Advisor, CRRC Times Semiconductor Co. Ltd; Bill Ireland, Chief Executive, Logan Energy (TBC); Eugene McKenna, Hydrogen and Sustainable Technologies Director, Johnson Matthey; and James Brodie, Regional Director, Scotland, Commercial Director, Industrial, China-Britain Business Council (Moderator). Click here to register.

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Developing countries have a “huge interest” in Chinese companies and institutions helping with their green energy development, experts have told China Dialogue. But there has yet to be a surge of renewable energy projects finalised under the Belt and Road Initiative (BRI), China’s global infrastructure programme, they said.

Experts spoke to China Dialogue two years after President Xi Jinping promised a shift towards greener overseas energy investments, and ahead of the BRI’s 10th anniversary this autumn.

The slow progress for renewable projects could be down to a range of factors, they explained, such as the long time it takes for deals to be negotiated, expectations realigned and strategies updated, within both China and BRI member countries.

Nevertheless, a few high-profile clean energy projects have been announced this year. They include a 123-megawatt (MW) solar farm in South Africa, to be constructed by Power China; a 50 MW wind farm in Namibia, that has received investment from a consortium led by Energy China; and a 600 MW solar farm in Saudi Arabia, being built by Energy China.

New coal-fired power projects have largely been halted, but a few projects slipped through the net because of “loopholes”, the experts added.

Ditching coal (almost)

At a UN meeting in September 2021, Xi announced that “China will step up support for other developing countries in developing green and low-carbon energy, and will not build new coal-fired power plants abroad”.

Since then, no new investments in coal power plants have been recorded under the BRI, according to the China Overseas Finance Inventory, which tracks Chinese equity and debt investments in the power generation sector. The database is a collaborative effort between five US universities and institutes, and contains transaction details of 652 investments in 569 power plants across 87 BRI countries.

“There is huge interest in having Chinese manufacturers, developers and state-owned enterprises going out and supporting the green energy transition. This is a change,” Christoph Nedopil, an expert in green finance and the BRI, told China Dialogue.

The interest mostly comes from host countries and partly from Chinese companies wanting to be closer to their customers and avoid potential trade restrictions, among other reasons, Nedopil said.

“Most Chinese state-owned companies and banks I know are not interested in coal projects anymore,” he added. “This was not true in 2020, when there was still a lot of talk about the need for coal.”

The shift in mindset can also be found in a lot of host countries, he noted. “The understanding is that coal is less relevant.”

Nedopil is director of the Griffith Asia Institute in Australia. When China Dialogue spoke with him, he was director of the Green Finance and Development Centre (GDFC) at Fanhai International School of Finance, part of Fudan University, in Shanghai. At the GFDC, he published a series of reports analysing BRI investments.

The GFDC’s latest assessment found that China’s energy-related “engagement” – meaning construction and investment – under the BRI in the first half of 2023 was the “greenest” for any six-month period since the initiative’s launch in 2013.

The report looked at the share of renewable projects in all-energy engagement, which includes power generation and exploration of resources related to energy. It found that nearly 56% of the US$12.3 billion that China spent on energy projects during the period went into renewable sources, with 41% going into solar and wind, and 14% into hydropower.

However, some experts emphasised that not all new coal power projects have been scrapped. While Xi’s announcement was “certainly a step in the right direction”, a few projects are still moving ahead, such as a 300 MW coal power plant in Pakistan and a 1.5-gigawatt (GW) plant in Indonesia, Blake Berger, associate director at the Asia Society Policy Institute in New York, told China Dialogue.

“This is where the loopholes begin to come into play,” Berger noted. The plant on Obi, an island in eastern Indonesia, dodged the axe because it was designed as an internal facility of an industrial park instead of a standalone coal power project. On the other hand, the project in Gwadar, in southwestern Pakistan, is not considered “new” by Chinese and Pakistani officials as it was first proposed in 2016 but repeatedly delayed.

Long renegotiation processes

Although many coal power projects have been called off, there has not been a wave of renewable projects coming in to fill the space, some experts noted.

“There have been no major changes,” said Wang Xiaojun, founder of People of Asia for Climate Solutions, a Manila-based non-profit organisation. This was the case “no matter [whether] we count the number of renewable energy projects that has been signed, or China’s total overseas investments on renewable energy projects – or even the types of new renewable energy projects that were built by host countries.”

Although many thermal power projects have been halted, they have not been transformed into renewable energy projects — Wang Xiaojun, founder of People of Asia for Climate Solutions

One possible cause for the “vacuum” – as Xiaojun put it – is the fact that Xi’s one-line pledge did not specify how coal power projects in the pipeline should be dealt with.

The issue, which remains to be explained clearly, has likely caused the Chinese government and host countries to spend a long time renegotiating those projects, Wang said. “Many previously committed coal projects might be under renegotiation to be converted into renewable energy projects,” he explained.

Other experts point out that it takes time for a government mandate to show impact on the ground. Oyintarelado Moses, data analyst for the Global China Initiative at the Boston University Global Development Policy (GDP) Centre, cited the BRI itself as an example. After the initiative was introduced in 2013, it took about three years for large volumes of financing to arrive, she told China Dialogue.

The GDP Centre runs a database that mostly follows the financing from China’s development finance institutions, such as the Export-Import Bank of China and the China Development Bank. The database did not record any energy projects finalised after Xi’s announcement in September 2021.

“I think we are still in that initial time lag period of [Xi’s] announcement. I do expect there to be more low-carbon and renewable energy projects from 2023,” she added.

Host countries also need time to realign their national energy strategies and make decisions on old and new projects, according to Shen Wei, director of the Green BRI Centre of the International Institute of Green Finance at the Central University of Finance and Economics in Beijing.

“A country’s energy strategy is often the result of long-[term] research and preparation by relevant government departments,” Shen told China Dialogue.

“Even though a country’s government halts its plan for an old coal power plant, researching and formulating a new plan is a very complex process and involves a lot of practical questions.” Should the project be in renewable energy, questions might include the type, location, and capacity, Shen said.

Other challenges include the lack of “supportive infrastructure” in some countries, particularly reliable power grids that can take in renewable power – which can be unpredictable and unstable – while still running safely, according to Shen.

The push for ‘small but beautiful’ projects

Renewable energy projects are often much smaller in scale than coal power plants. This means that Chinese energy investors, banks and developers need to apply new business logic and approaches to them.

Chinese state-owned banks are “having to learn how to structure new deals that are focused on renewable energy projects”, said Moses.

China has prompted state-owned enterprises, particularly those directly run by the central government, to adjust their strategies. In February, Zhao Shitang, deputy director of the State-owned Assets Supervision and Administration Commission of the State Council, instructed central-level state-owned enterprises to “incubate a batch of small but beautiful projects with good economic and social benefits” under the BRI, with a focus on areas such as green, health and digital.

That was the first time the phrase “small but beautiful” had appeared in the narrative of the BRI, according to Xiaojun, who described the instruction as “a very good change”.

“‘Small but beautiful’ renewable energy projects, such as distributed, flexible and off-grid projects, can meet the energy demands of host countries and provide a huge stage for Chinese private companies,” Xiaojun commented. “This should be the future direction of energy investments for China under the BRI.”

He called for more government backing for Chinese private companies to help them “play to their full strength … Whether it is policy or financial support, I hope the government can enable private companies to invest in energy projects faster and more flexibly overseas.”

Turning to renewable projects also brings the Chinese into a more competitive investment space, said Nedopil. Previously, China, Japan and Korea were more or less the only providers of technology and public financing for overseas coal power plants.

“If you work on renewable energy, there are a lot more potential investors and technology providers, not only from China, but other countries as well,” he said.

‘Traffic light system’

Several Chinese and international organisations have published useful tools for evaluating the environmental impacts of BRI projects and guiding Chinese companies to invest in more sustainable ways.

One of them is the Green Development Guidance for BRI projects, a collaborative research effort launched in 2019, two years before Xi’s announcement on ending support for new coal overseas.

The series of studies is being led by the Belt and Road Initiative International Green Development Coalition, which was initiated by the Ministry of Ecology and Environment and comprises more than 40 companies, associations, thinktanks and non-governmental organisations from China and around the world.

The guidance is also known as the “traffic light system” because it assesses BRI projects using colour-coded labels based on their impacts on climate, ecology and the environment. Green stands for projects that should be encouraged, yellow indicates neutral ones, and red for those that require stricter supervision and regulation.

The first phase of this effort, which was published in December 2020, red-flagged coal-fired power projects, explained Wang Ye, an associate of the Finance Centre and China Sustainable Investment Program at the World Resources Institute (WRI) China, which co-leads the project. This red flagging supported policy guidance “towards transformative development in China’s overseas energy investments on stopping building [of] new coal power plants overseas,” said Ye.

In the third report of the project, published in May, researchers analysed the role of foreign investment cooperation funds in greening the BRI. These are official funds established by China to meet the financing needs for sustainable development in developing countries. Examples include the China-ASEAN Investment Cooperation Fund, China-Africa Development Fund, and China-Latin America and the Caribbean Cooperation Fund.

“All three funds primarily invest in energy, infrastructure construction and manufacturing capacity, sectors [that are] key to the green transition,” noted Ye.

She underscored the importance of such funds: “How they evaluate projects and manage clients are crucial for aligning investment decisions with local needs, concretising their commitment to sustainability, and shifting financing to green projects.”

Asia Society, a non-profit organisation with offices in the US, Asia, Oceania and Europe, has developed a digital “toolkit” to help local communities and companies involved in the BRI ensure that their projects are “mutually beneficial, equitable, inclusive, and environmentally and socially sustainable”.

Available in five languages – English, Mandarin, Khmer, Lao and Bahasa Indonesia – the toolkit focuses on two “critical aspects”: how to undertake environmental and social impact assessments, and how to ensure engagement from stakeholders throughout the project.

“We designed the toolkit to empower local communities with information to better safeguard and defend their own interest, and to help companies involved in these projects undertake these critical aspects of due diligence in a more systematic way,” the Asia Society’s Blake Berger said.

“We found that even minor adjustments in how projects are undertaken can have a sizeable impact on long-term sustainability of the project and receptiveness of the local population,” he added.

How to go further

Looking into the near future, experts listed several types of renewable projects they wanted to see more of under the BRI.

“One is the local manufacturing of goods related to energy transition,” said Nedopil. His report found that there were not many engagements in the manufacturing of equipment needed for green energy transition under the BRI. “I do hope to see more of these engagements – for example, the manufacturing of solar panels.”

Nedopil also said he hoped to see China step up its support for BRI countries by improving their power grids and helping their existing coal plants retire early.

Xiaojun underlined the importance of a growth in “capacity building” in BRI countries by Chinese companies, such as facilitating technological transfer and relocating some of their renewable supply chains there.

In his view, these moves “can help Chinese companies mitigate some potential supply chain risks, as well as nurture the host countries’ labour market and create electricity demand”.

Training local talent is even more important, he pointed out.

“For the construction of BRI power projects, Chinese companies usually bring their own workers, including technicians, from home.” But moving forward, Chinese companies can train workforces locally, while Chinese universities can also offer electricity and renewable courses for young people from BRI countries, Xiaojun said.

“These practices can truly transform a country: to stop it being a climate victim and help it become a climate victor,” he concluded.

This article was originally published on China Dialogue under the Creative Commons BY NC ND licence.

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At the 75th General Assembly of the UN, China announced that it was committing to reaching peak carbon emissions by 2030 and carbon neutrality by 2060. President Xi Jinping called for all countries to commit to innovative green development, stating that exploiting the environment with little concern for conservation was no longer an option.

Beijing is still thought of outside of China as one of the most polluted places on earth, but PM2.5 emissions – the main issue for the city – are a third of what they were a decade ago, with the falling trend continuing. The skies have turned blue, and we can, in part, attribute this improvement to China’s huge investment in green energy, a field in which the country has rapidly become a world leader. This has resulted in it becoming effectively essential to global green energy supply chains.

PV energy supply chains

No sector highlights China’s centrality to global renewable energy more than the solar energy industry. China currently supplies around 90% of the world’s photovoltaic modules, giving the country tremendous leverage over future energy markets globally.

If you need tangible evidence of China’s investment in renewable energy, look no further than Golmud Solar Park in Qinghai province. With a capacity of 2.8 gigawatts, it is the largest solar power plant in the world. It is, however, not the only mega solar power plant in the country. The Tenger Desert Solar Park in Ningxia province has a capacity of 1.5 gigawatts and spreads across 43 square kilometres.

China is the world’s largest exporter of renewable energy infrastructure, responsible for 90% of the global photovoltaic cell supply and 50% of wind turbines. This means that China is absolutely essential to the global renewable energy market. With increasing pressure from international organisations such as the IPCC to take the climate crisis more seriously in at least the short to mid-term, China is effectively the green energy transition factory until other countries grow their renewable energy manufacturing sectors.

The pace at which China has become the key player in global PV supply is as startling as its current scale. A report from the International Energy Agency (IEA) shows how, between 2010 and 2021, China’s share of global demand skyrocketed from 3.5% to 36%. Meanwhile, former spearhead Europe toppled from representing 80.4% of global demand to a mere 16.8%. Over the same period, the share of every core element in the supply chain has become concentrated in China.

Source – IEA

This pole position was achieved through a number of factors, the first of which is huge investment. China was responsible for nearly half of global clean energy investment in 2022, investing US$ 546 billion. The EU, as the second largest spender on clean energy, invested US$ 180 billion, less than a third of China’s total.

Then comes economies of scale. China has fulfilled a role as ‘the world’s factory’ for decades now and has formidable manufacturing expertise. It also has the space to build infrastructure at a scale unfeasible for most countries, as proven by its PV mega projects.

China’s geographical size and characteristics mean it has an abundance of the raw materials essential to PV components. The charts above from the IEA show, for example, how China has increased its production of polysilicon to over three quarters of the global supply. Data from Statista show that 98% of Europe’s rare earth imports (which it does not produce itself) originated from China in 2021.

China’s green transition and the UK

China may be ahead in zero-carbon technologies, but for the UK, there is an opportunity for collaboration. Thankfully, the potential and will are high, with each country offering its own expertise and sharing a common goal in leading the pursuit of carbon neutrality.

The urgency of the green transition adds to competition in both an economic and political sense, and China sees opportunity in this. Bob Ward, policy and communications director at the LSE Grantham Research Institute, told FOCUS: “China recognises the green transition as a race. The growing market for zero-carbon technologies and materials is a massive new economic opportunity. China has recognised this and is moving ahead more quickly than many of its competitors, including Europe and the US.”

On a global level, competition with China could play a key role in driving down the cost of the transition. “Competition can help to bring costs down further. Some people have argued that if China drops the costs so dramatically, it effectively puts everyone else out of business,” Ward added. “We have seen in the past companies seeking to develop monopolies – they put their competitors out of business and then control the costs and can put up prices. The experience with Solar PV is that China didn’t do that. They are simply aiming to beat everyone and become the world’s supplier.”

Although progress may have slowed, partnerships between the UK and China in green energy go back a decade. In 2013, the Conservative/Liberal Democrat coalition government signed an MoU for cooperation in offshore wind projects. Offshore wind is very much a success story of China-UK energy cooperation. The UK is considered a world leader in offshore energy, but behind the scenes is Chinese investment and energy storage projects. The largest lithium battery storage plant in Europe was set up in the UK in 2021 using technology from the Chinese firm Sungrow.

One of Sungrow’s most recent UK projects sees the transformation of a decommissioned coal energy plant into a green battery storage unit in Ferrybridge, West Yorkshire. It is expected to be able to supply the national grid with 300MWh of capacity upon completion in 2024. The project is thus more than a contribution to the UK grid – it has a symbolic value in tangibly transforming a site of former fossil fuel energy into a green one.

The UK is also a world leader in green finance, with London ranking as the top green financial centre globally in the 2023 Green Finance Index. This offers clear synergy with China’s capital-intensive manufacturing expertise and a potentially global reach of positive impact.

In a recent report, Baillie Gifford, a CBBC member company, long-term investor in China and ESG expert, states that despite the rapid growth in ESG investing and infrastructure to support it, there are still significant knowledge gaps to making sound ESG decisions in the China market. Among the points of their overall ESG due diligence checklist are specific sustainability questions: Does a company disclose carbon emissions and set a carbon reduction target? Is the company compliant with the UN Global Compact?

Baillie Gifford’s China Growth Trust 2023 report highlights the difference that targeted ESG finance can have on decarbonising investment. On a measure of weighted average carbon intensity comparing their China portfolio to an average index, the portfolio had an 85% lower carbon intensity. The portfolio includes multiple firms engaged in renewable energy supply chains, from component suppliers to EV battery producers.

The climate crisis is a global issue, demanding global cooperation. With green energy supply chains very much focused in China, the UK will need to collaborate if it is to meet its own green targets. As the London Environment strategy targets a carbon-neutral capital by 2050, much inspiration can be drawn from the newly blue skies of Beijing.

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At first glance, recent headlines on coal, energy and emissions in China make little sense. Coal-fired power generation grew slightly, by 1.4%, in 2022, and output in the other major coal-using sectors, steel and cement, contracted. However, the government is reporting a major increase in coal use, of 4.3%.

Clean energy installations made records, but the permitting of new coal-fired power plants also surged.

In its 2023 work plan, the government is aiming to further increase domestic coal production to support energy security, while according to the current Five Year Plan for energy (2021–25), coal is supposed to move from the mainstay of the energy system to a supporting role, and coal consumption is supposed to start falling in the 2026–30 period.

There are both real and apparent contradictions between these headlines.

Did China’s coal consumption increase in 2022?

The 4.3% increase in coal consumption and 2.2% increase in energy sector CO2 emissions in 2022 reported by China’s National Statistics Bureau are very hard to square with what we know about activity in China’s main coal-consuming sectors. This would also be the first time in almost 20 years that coal consumption increased faster than GDP, which clocked 3% growth.

A week after the release of the official government data, the International Energy Agency released its numbers on China’s CO2 emissions, based on more detailed data obtained from government sources. These numbers added to the confusion, as they indicated a much smaller 2% increase in coal consumption, and a fall in fossil fuel emissions. However, the IEA also said that CO2 emissions in the power sector increased 3%, which doesn’t align with the reported 1.4% growth in coal power generation and falling power generation from gas.

Factories had to burn more coal to get the same energy – and produce the same emissions

A part of the increased coal consumption is due to a switch from gas to coal prompted by sky-high gas prices. However, since gas only makes up 8% of China’s energy mix, while coal makes up 56%, and gas consumption only fell by 1%, this cannot be the main explanation.

The most likely cause of the conflicting data, then, is that more coal was used in 2022, but it was of lower quality. Average energy content and carbon content of coal fell, meaning power plants and factories had to burn more coal to get the same amount of energy – and produce the same amount of emissions.

Coal consumption can be measured in two ways: the tonnes of coal used, or the amount of energy contained by the coal. Unlike oil, gas and electricity, the energy content of coal varies widely, with the most energy-dense varieties containing up to three times as much energy per tonne as the lowest-quality, commercially-used varieties. Therefore, accounting for changes in coal quality is a key requirement for accurate statistical reporting.

The background to the changes in coal quality is that the Chinese government has been pushing coal miners to increase output aggressively in response to the coal shortage of 2021. In that year, domestic coal production fell far behind consumption and stockpiles were depleted, leading to electricity rationing. At the same time, to counter the steep increase in international coal prices, the government has pressured miners to sign long-term contracts with power plants and factories at far below market prices.

To fulfil the output targets and delivery contracts, miners have prioritised quantity over quality, resorting to exploiting lower-quality coal reserves to hit the quota, or reducing the processing they usually carry out to increase the quality of their mined coal. This was seen for example in a coal market survey report by analysts at CITIC Futures, who, in February, visited eight coal mines in Inner Mongolia, Shaanxi and Shanxi. The concerns were also reported on by Reuters in June 2022.

Because users are getting worse quality coal, they must burn more of it to run their power plants and factories. The miners are misreporting coal quality to make it seem like production targets are being hit. Therefore, the drop in coal quality is not captured by official statistics.

China’s policymakers have been aware of the coal quality issue and have sought to address it. Last August, the state planning agency NDRC (National Development and Reform Commission) released a notice on ensuring the quality of coal under mid- and long-term contracts for coal used in power generation, in response to a recent “decline in the calorific value of coal purchased by power companies”.

In January 2023, a China Electricity Council official noted a “clear decline in coal quality” as a problem associated with long-term coal contracts, as well as deliveries of coal that don’t meet the quality specified in contracts.

Despite the evidence of a decline in coal quality, official statistics imply no change in the average energy content of coal produced, which is highly unlikely given the major increase in output. This is a further indication that the official statistics are failing to account for the changes in coal quality.

The energy content of coal produced in China according to official statistics can be calculated implicitly from the reported total production of primary energy.

Another indication that not all is well with the domestic coal supply is that coal imports increased 74% in the first two months of 2023, compared with the previous year. After a reported 10.5% increase in domestic production in 2022, there shouldn’t be such ferocious demand for imports.

Why did China permit more than 100 new coal plants, despite record growth in clean energy?

Coal power plant permissions, construction starts and new project announcements accelerated dramatically in 2022, with new permits reaching the highest level since 2015, even as clean energy installations made new records. A total of 106 GW of new coal power projects were permitted, the equivalent of two large plants per week, over four times as much as in 2021.

There are a few drivers behind these investments:

• China saw a rapid increase in electric peak loads in 2021–2022, with the highest recorded momentary load increasing by 230 GW, due to an increase in the prevalence of air conditioners and exceptionally intense heat waves. This is prompting an increase in coal power plant development – a costly and sub-optimal solution, especially in major electricity demand centres and provinces neighbouring them.
• As the prices for imported gas skyrocketed in 2022, the coastal provinces that have relied on gas-fired power plants to cover demand peaks seem to be replacing it or building alternatives.
• Some large wind and solar power developments in remote areas require new thermal power to regulate the voltage and frequency of the grid.

Despite impressive acceleration in clean energy installations, annually added power generation still hasn’t reached the level where it matches growth in electricity demand, resulting in continued growth in demand for power generation from coal. However, the point when all demand growth is covered from clean sources is likely to be reached soon, as the targets for annual wind, and solar installations in particular, are increased.

China’s National Energy Administration said in February 2022 that new coal power plants should not be permitted solely for the purpose of bulk power generation, but only to support grid stability or the integration of renewable energy. While some of the new coal power projects follow this rationale, many don’t. It appears that the statements from the central government encouraging new coal projects have created a self-reinforcing boom dynamic, leading to a lot of projects that cannot be justified from a power system planning perspective.

Currently, local governments are allowed to issue permits with very little, if any, scrutiny or justification, and are rushing to permit as much as possible while this remains the case.

Local governments are always keen on new construction projects as they bring in economic activity and demand for construction materials and services from local state-owned enterprises, while the risks are borne by the central-government-controlled banking system.

New coal power projects don’t seem attractive to developers. However, encouragement from the central government to build more coal-fired capacity creates an expectation that investors will be made whole, for example through cuts to coal prices or increases to electricity tariffs, increasing profitability. At the very least, central-government-controlled banks will absorb any losses.

The government is also preparing capacity payments for coal power plants, and the anticipation of such payments can make investments more attractive.

Yet, the wave of new projects shows a real challenge: while China is making rapid progress in scaling up clean energy, the power system remains dependent on coal power capacity for meeting electricity peak loads and managing the variability of demand and clean power supply.

As electricity demand for cooling increases and China needs to start reducing coal power generation, other solutions to manage the variability of demand and clean power supply are needed. They include increased investment in electricity storage, flexibility, and transmission within grid regions.

The growth in peak loads could be effectively mitigated through strengthened energy efficiency requirements for air-conditioning units and for new buildings, and by introducing a programme of large-scale energy-efficiency improvements for existing buildings.

Once clean energy is growing faster than total electricity demand, there will be no space for power generation from coal to increase

What do China’s conflicting trends mean for emissions?

The government’s focus on energy security means that China will be working simultaneously to: replace coal use in industry and households with electricity use; replace coal power with clean generation; and replace imported coal and gas, and even some imported oil, with domestic coal. This approach explains a lot of the apparent contradictions in promoting both coal and clean energy.

Given the rapid growth of clean energy and expected slower electricity demand growth, the massive additions of coal-fired capacity don’t necessarily mean that China’s coal use or CO2 emissions from the power sector will increase.

China’s emissions-peaking timetable will be dictated by when clean energy growth overtakes total energy demand growth. This may happen in 2024. Clean energy growth would be sufficient this year if it wasn’t for higher growth due to the rebound from China’s zero-covid policy.

Once clean energy is growing faster than total electricity demand, there will be no space for power generation from coal to increase. As more capacity continues to be added, the utilisation rate of China’s vast coal power fleet capacity will decline.

The government’s plan for managing this transition is to relegate coal power to a supporting role, moving from a baseload source to a regulating one that only runs at full steam when wind, solar, hydro and nuclear fall short of meeting electricity demand. In particular, coal power plants will need to ramp generation up and down quickly to respond to changes in generation from variable renewables. This is referred to as “coordinated operation” in the NDRC’s 2023 development plan.

That plan includes studying the introduction of capacity payments, which could be a way of making the transition to a “supporting” role palatable to plant owners – they will make money not just on the electricity that they generate but the regulated capacity that they provide to the system.

But still, China’s targeted rate of emissions reductions after the emission peak is an open question. Adding hundreds of new coal power plants and opening vast amounts of new coal-mining capacity is concerning as it incentivises local governments and companies to continue coal use and avoid a rapid phase-out.

To peak emissions as soon as possible and get on track to reaching carbon neutrality, China will need to keep increasing investments in clean energy, to cover all energy demand growth as quickly as possible and enable the use of fossil fuels to begin falling. To avoid excessive or misplaced investments in coal-fired power, the scrutiny of permits handed out by local governments should be increased and permits that cannot be justified on the basis of serving grid stability, or the integration of renewable energy, should be cancelled. Looking ahead, investments in electricity transmission, more flexible grid operation and storage can help eliminate the need to add more coal power capacity.

This article was originally published on China Dialogue under the Creative Commons BY NC ND licence.

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Rising energy costs are probably one of the most pressing issues in current UK politics. And while the spike in electricity and heating bills is probably temporary, electricity prices might well play a much larger role in economic growth in the coming years and decades. 

The main reason for this is climate change and the global race for net zero targets and technologies. A little-known feature of the transition from fossil fuels to renewable energies and carbon neutral industries is that a lot of the changes will require more, not less electricity. 

Consequently, cheap power might well be the most important variable determining not only the success of a clean energy transition, but also which countries are best placed to benefit from the opportunities of the net zero economy. 

This brief looks at the importance of electricity for businesses in the coming decades, in particular focusing on the prospects in both China and the UK. 

Background 

The net zero goals that were adopted at last year’s COP26 Summit in Glasgow will have far-reaching consequences, the most crucial of which might well be the growing importance of electricity costs for businesses. 

Take the steel industry for instance. Reducing carbon emissions – for example by switching from blast furnaces (burning iron ore) to environmentally friendlier electric arc furnaces (which use scrap metal) – would require up to five times the amount of electricity currently used. 

According to a study by McKinsey, electricity demand in the UK could jump from the current 300 terawatt hours to 590 terawatt hours. So, while overall energy consumption would drop by 34%, electricity consumption could rise by a staggering 97%. The International Energy Agency (IEA) comes to a similar conclusion, predicting that international industrial electricity consumption will more than double between 2020 and 2050.

In a globalised world, this also means that electricity costs will be a key factor for determining where green technologies and businesses can thrive – and where they can’t. In a world where China is seen as a ‘systemic competitor’ – according to the now widely accepted notion put forward in last year’s Integrated Review — the key metric could be electrification rather than computerisation. 

China’s rise and the role of cheap electricity 

Looking back at four decades of Reform and Opening Up, the ability to provide cheap electricity to businesses and households has been one of the major reasons for China’s rapid economic rise. According to the World Bank’s 2020 Ease of Doing Business report, electricity costs as a proportion of GDP per capita were almost zero. 

Based on one estimate, Chinese electricity costs for businesses in December 2021 were £0.078 per kWh – nearly three times less than in the UK, where the cost for the same amount of electricity was £0.216. Unsurprisingly, China has emerged as a global leader not just for attracting power-intensive industries, such as aluminium, but also green technologies like EVs and renewable energies. Domestically, China is set to sell six million EVs this year, roughly the same number sold last year … worldwide.

Average electricity costs for businesses in December 2021 (£/kWh)

China has also emerged as one of the world’s largest investors in green energy. Last year, its investment in green energy projects accounted for over 30% of global spending on renewable energy sources. By comparison, both Europe and the US spent far less, according to the International Energy Agency.

But despite being a poster child for renewable energy and still having one of the lowest electricity costs among major economies, China too is worried about the increasing dependency on cheap power. As Peng Wensheng of China International Capital Corporation (CICC) – a Chinese investment financial services company – recently wrote in Caixin, the energy crisis in Europe, and especially in its industrial powerhouse Germany, has underscored the importance of stable prices for China’s own manufacturing sector.

To be fair, Chinese electricity prices have remained remarkably stable compared to Europe. Prices for businesses in Beijing were around £0.099/kWh, only 27% higher than the national average from last December, according to data aggregator CEIC. 

China’s energy imports are also more diversified than Europe’s. Australia, China’s largest source of natural gas, only accounted for 25% of its external supply in 2021; Russia for only 5%. Europe, on the other hand, imported nearly a third of its gas from Russia. 

But even so, China faces its own dilemmas. First of all, Beijing also wants to achieve net zero. In a televised speech at the UN General Assembly in 2020, Chinese President Xi Jinping declared that China wants to reach a peak in greenhouse gas emissions by 2030 and carbon neutrality by 2060. These ‘double targets’ require a fundamental transformation in the country’s energy mix. 

In 2020, 64% of the country’s electricity still came from coal-firing plants. But that is not all. The second largest source – hydropower, accounting for roughly 17% of China’s power generation in 2020 – has proven to be problematic, too. Hotter, drier summers and weaker rainfall have forced hydropower stations to curb output, leading to several power cuts in southern and central China. 

Low water levels might also affect nuclear power plants — another green energy source. These plants rely on access to fresh water to cool their reactors. But with water getting scarcer during the summer months, it’s likely that they will also need to be shut down temporarily. France, for example, had to halt several reactors due to the current high temperature in adjacent rivers. China, too, wants to expand its nuclear power sector with at least three reactors planned near crucial waterways in southern China. But with the consequences of climate change becoming ever more apparent, these plans might have to be revised.

Sources of electricity in China (2019)

Additionally, China has undertaken several steps to reform its electricity pricing system which, in the short term, could increase the cost of electricity. Obviously, the main objective of the reform – which aims to replace the current fixed tariff-based system with a market-driven one – is to make energy costs more responsive to fluctuation in demand and to create incentives to save electricity and invest in energy-saving technologies. It also wants to make polluting energy sources such as coal more costly compared to renewable alternatives such as wind and solar. 

While the reform is both necessary and well-intended, it could pose a risk to China’s own net-zero timetable. The dilemma between market driven electricity prices and the growing demand for cheap and reliable electricity might force policy makers to make difficult choices. 

The CBBC View 

As the consequences of climate change become clear, the need to provide stable and affordable electricity will be a major challenge for policymakers around the globe. Countries like China, that have managed to attract businesses with cheap electricity costs, face similar challenges as those with more expensive costs. 

Some effects of global warming, such as hotter and drier summers, have also exposed the vulnerabilities of power sources relying on sufficient water supply, notably hydro and nuclear power. Expanding water-neutral renewable energy sources and expanding grid and storage technologies which allow electricity to be delivered across long distances will be one of the top priorities for governments with large industries. 

Cheap electricity has helped China become a leader in the expansion of renewable energies and green technologies, but the extreme reliance on coal and water power poses its own risks for the country’s race towards net zero. Fixing these problems will be crucial, not just for the green transformation of the Chinese economy, but also for the chance for other industrialised economies to meet their own targets.

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Floating offshore wind is a key emerging technology that is at an early stage of commercialisation in the UK and Europe. According to the Global Wind Energy Council (GWEC), the technology will triple the size of the addressable global offshore wind market by enabling the installation of wind turbines in water deeper than 60 metres. This has huge potential to increase clean power generation for densely populated coastal areas.

A new UK Government report based on a three-month study by leading energy consultancy Azure International identifies 600GW technical potential for floating offshore wind in China, showing the enormous potential for China to become a future leader in the sector. Harnessing the potential of floating wind power could support China to meet its carbon peaking and carbon reduction targets.

“The UK and China have an established relationship on offshore wind, reaching the eighth annual session of the bilateral Offshore Wind Industry Advisory Group in 2022. Over these past eight years, offshore wind has developed from a niche sector to a booming industry, key for the decarbonisation of power grids across the world, and central to international efforts to limit global warming to below 1.5 degrees,” says John Edwards, Her Majesty’s Trade Commissioner for China.

However, the technology has some big challenges ahead in order to scale, including a lack of special power tariff subsidies and a supply chain that is still largely focused on fixed-bottom wind farms.

China has the world’s largest installed capacity of fixed-bottom offshore wind, at 26.4GW, and a strong armada of tier one manufacturers, supplying turbines, blades, cables, towers and monopiles for projects around the world. Currently, floating offshore wind is at an early stage, with two demonstration projects in the construction phase and six in the design phase. The first floating offshore wind project in China, developed by China Three Gorges Group, went into operation off the coast of Guangdong in 2021. The report identifies 16 sites across four provinces in south-eastern China that have good potential for floating offshore wind, a finding affirmed by the chairman of the China Renewable Energy Engineering Institute (CREEI), Peng Cheng: “China’s expansive coastline and deep waters have a high potential for the development of offshore wind power. In deep waters, floating offshore wind is one of the main methods for development.”

With the largest installed capacity of floating offshore wind in the world, the UK could be China’s key partner to support this development. The UK has two commercial floating wind farms and an ambition to install 5GW by 2030. That ambition is backed by an established pipeline of 11 allocated floating offshore wind commercial sites, totalling 15GW capacity. A thriving ecosystem of universities, innovation hubs, manufacturers and ports are supporting the industry’s development, and the UK Government has ring-fenced £160 million of funding.

The report demonstrates how a strategic partnership between China and the UK could overcome key technology and supply chain bottlenecks to accelerate floating offshore wind deployment. As Li Dan, Executive Secretary-General of the China Renewable Energy Industry Association, comments, “[China and the UK] can draw on China’s relatively complete supply chain system and the UK’s relatively advanced technological capabilities in certain fields to lower the unit investment cost and LCOE of floating offshore wind.” The report also recommends key R&D topics for China and the UK to undertake in order to reduce the cost of floating wind technology, including mooring optimisation, cable dynamics, modular systems, and how to minimise environmental impact. Alongside the potential commercial and technological benefits, this creates the opportunity for greater exchange and understanding between engineers in both countries.

“Offshore wind has developed from a niche sector to a booming industry. I hope that we can implement the report’s recommendations together to develop better technology, a larger global capacity, and stronger industry-to-industry relationships,” says Edwards. Cooperation with the UK to co-develop commercial floating wind projects in China also has the potential to create components, systems, and processes with high export potential. China could have a key opportunity to capture and supply the international market by providing the necessary products to accelerate floating wind deployment around the world.

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Click to read the full report in English and Chinese.

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When it comes to international relations, many focus solely on the loud noise and high drama of politics. What those commentators may be missing is the quieter, but no less important role of business and commercial relationships. How do British and Chinese people actually work together?  

China is the UK’s third-largest trading partner. The UK and China have a £118 billion trade relationship, which increased by 11.3% year on year in 2021. In many ways, this is a statistic about trust. It shows that there are large numbers of Chinese and British people who know that each one offers a solution to the other’s problem. Even where two people live totally different lives, win-win collaboration can take place.

So, forgetting the “hot air” of politics for a moment, let’s consider the strong winds which will power both country’s energy grids, from Hainan to the Humber.  The China-UK partnership in renewable energy is how I think we can strengthen our cooperation during 2022.

Why is cooperation on renewable energy important to both China and the UK? 

When President Xi Jinping and Prime Minister Boris Johnson spoke during their phone call in the autumn of 2021, they agreed that working together to achieve the transition to a carbon-neutral energy system is a top priority for the UK-China bilateral relationship. A high domestic capacity for renewable energy has many benefits, including a reduction of harm to the population and economy from the effects of climate change and pollution, enhanced energy security, and greater technical capability. 

Following the UN Climate Change Conference of Parties (COP26), hosted by the UK in Glasgow, President Xi wrote to PM Johnson stating that “accelerating the green transition” was a priority for China in tackling climate change. President Xi stated that “successful governance relies on solid action”, expressing a hope that all parties “will take stronger actions to jointly tackle the climate challenge and protect the planet, the shared home for us all.” 

As shown at COP26, solid action and international collaboration is key to the UK approach as well. The UK was the first major economy to make our commitment to reaching net zero carbon emissions by 2050 legally binding, and energy transition is central to our industrial strategy. In our Nationally Determined Contribution (NDC), we have committed to reducing greenhouse gas emissions by at least 68% compared to 1990 levels before 2030. As Boris Johnson said to global leaders at COP26, we must “get to work with all the creativity, imagination and goodwill that we possess.”

How are the UK and China cooperating to build renewable energy capacity?

Fortunately, the UK and China are building from a strong base of existing collaboration. China’s National Energy Administration and the UK’s Department for Business Energy and Industrial Strategy host an annual UK-China Energy Dialogue that will reach its 10^th session in 2022. British Embassy Beijing and the China Renewable Energy Industry Association, in partnership with the China Renewable Energy Engineering Institute, hosted the UK-China Industry Advisory Group on Offshore Wind in 2015, which will reach its eighth session in 2022. In addition, Vice Premier Hu and Chancellor Philip Hammond committed “to deepen the clean energy partnership, and support a structured energy transition” during the 10^th UK-China Economic and Financial Dialogue in 2019.

Over the past decade, the UK and Chinese governments have jointly supported wide-ranging policy and market cooperation. We have supported collaboration on green finance and facilitated knowledge-sharing on innovative market mechanisms. This includes the UK’s Contract for Difference (CfD) competitive auction, competitive power market design and regulation, carbon trading, and renewable energy incentive schemes.

We have also jointly facilitated projects and in-depth discussions on many technical areas, including: the installation, operation and maintenance of deep-far-sea fixed and floating offshore wind projects; energy storage design and deployment; cross-provincial HVDC (high-voltage, direct current) transmission; hydrogen generation, deployment and use-cases; carbon capture utilisation and storage (CCUS) projects; and smart grids and grid flexibility.

This has supported sustained commercial collaboration. The UK government directly supported UK companies to provide an estimated £1.2 billion in renewable energy exports to over thirty projects within China since 2017. We have also supported UK-China renewable energy partnerships around the world. In 2019, the UK Department for International Trade and China’s NDRC signed a Memorandum of Understanding on cooperation in third countries, supporting partnership on sustainable, low-carbon projects built to high international standards. 

For example, we have worked with China’s Shanghai Electric and UK-headquartered Lloyds Register on the ongoing construction of Dubai’s flagship 700MW Mohammed bin Rashid Al Maktoum Concentrated Solar Power (CSP) Park. UK export credit agency UK Export Finance continues to offer financing for renewable energy projects jointly delivered by UK and Chinese partners internationally. 

Investment trends to watch out for in 2022: Offshore wind manufacturing

In December 2021, the Department for International Trade signed a Memorandum of Understanding with Ming Yang Smart Energy Group, providing our support for Ming Yang’s ambition to establish a turbine blade factory, and conceivably, a turbine assembly factory in the UK. Described by UK Trade Commissioner to China John Edwards as “game-changing,” it marks an exciting development in terms of Chinese participation in the UK wind supply chain.

Chinese investment into offshore wind manufacturing builds on an ongoing trend of investment into the UK renewable energy sector over the past ten years. Previously, the majority of Chinese investment has been equity investment into UK offshore wind projects, and, more recently, the development of energy storage projects. For example, the UK Government supported China’s State Development & Investment Corporation (SDIC) to invest in the UK’s 588MW Beatrice offshore wind project and 1GW Inch Cape offshore wind project in 2016, 50MW Afton onshore wind project in 2020 and 72MW Benbrack onshore wind farm in 2021. 

In terms of energy storage, the UK has worked with Huaneng to develop Europe’s biggest lithium-battery storage plant in Minety, England, using Sungrow technology, which was connected to the grid in 2021. And already this year, in February 2022, Trina Storage delivered its first energy storage project in the UK, a 50MW battery facility in the east of England. There are many current opportunities within the UK’s wider low-carbon sector that will be of interest to suitable investors (some online here).

In 2022, we expect further investment into the UK’s offshore wind and lithium-ion battery manufacturing capability. Crucially, the UK has the biggest offshore wind pipeline in Europe and is working with developers to maximise the percentage of UK-based manufacturing and services, with an expectation of 60% local content. Manufacturers like Ming Yang will be positioned to take advantage of this. They join other international investors, including American-firm General Electric and South Korean-firm SeAH, who also announced plans to establish UK factories in 2021.

Thinking beyond 2022: strategic collaboration on floating offshore wind?

Within the renewable energy industry, fixed-bottom offshore wind is already crucial to both the UK and China. We have the world’s two largest offshore wind industries by operational capacity, and both have significant pipelines for future capacity. However, many of the available near-to-shore sites in shallow waters (required for fixed-bottom turbines) are being used up. Floating offshore wind is the next frontier of technology development, with a huge potential to expand. 

Floating wind is an area where the UK can share its experience with China. The world’s first two commercial floating offshore wind farms, Hywind and Kincardine, were developed in the UK, with Hywind in operation since 2017. It has been fantastic to see China National Offshore Oil Corporation (CNOOC) partnering with the UK’s Flotation Energy to co-develop Green Volt, a floating offshore wind project which will be used to electrify the Buzzard oil rig in Scotland. Green Volt is expected to be the biggest floating project in the world once operational in 2026.

The UK has the biggest offshore wind pipeline in Europe and would welcome Chinese engineering and manufacturing for floating turbines and foundations in our offshore wind projects

Partnership with the UK could both help China to scale its floating offshore wind capacity and help the UK to build our supply chain capability. Within China, UK and Chinese developers could work together on projects (with UK developers taking minority stakes). This could help to build on the pioneering work of China Three Gorges and MingYang, who launched China’s first floating offshore wind turbine in Yangjiang in 2021, using Chinese-engineered components. 

The UK would welcome Chinese engineering and manufacturing for floating turbines and foundations in our offshore wind projects, clusters and ports. The UK government ring fenced £24 million in funding per year for floating offshore wind via the CfD scheme in September 2021. Investment in UK-based floating wind manufacturing would give Chinese companies a great basis for bidding into our 8.8GW floating wind pipeline. 

As the world’s two leading offshore wind markets, we should lead by example. We can create mutually acceptable standards for the technology and work together to scale the floating offshore wind industry. There is no solution to climate change without China. May the ferocity of the tiger guide us to develop the renewable energy market with vigour in 2022!

The UK will be running a media series featuring university researchers, policy makers, engineers and business leaders sharing their insights on challenges and opportunities in the green energy and low-carbon industries throughout 2022. Email Elizabeth at elizabeth.daviskumadiro@fcdo.gov.uk or follow DIT’s WeChat account UKCN_Trade_Invest to receive updates.

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As the 26th Conference of the Parties (COP26) approaches, the signs of climate change are ever more visible around us. July 2021 was the hottest single month the world has ever experienced; while record heatwaves hit Canada and North West America in June, wildfires have raged as far apart as California, the Mediterranean and Siberia, and severe flooding has hit many parts of the world.

Amidst a gathering sense of emergency, the report in August from the United Nation’s Intergovernmental Panel on Climate Change (IPCC) warned starkly that the situation has become “code red for humanity”. Its assessment concluded that some effects of climate change such as continued sea level rise are irreversible at least for centuries – but that, if the world can reach Net Zero by the middle of the century, it is not too late to avoid the worst impacts of climate breakdown.

It is clear that the entire global community must pull together and every nation must stretch itself to make the biggest contribution it can. That being the case, what are the particular challenges and opportunities in front of the UK and China – and what potential is there for the two nations’ business communities to support and invest in each other as part of the effort?

The two countries are in quite different positions as they each face up to the challenges ahead. KPMG’s Net Zero Readiness Index, published in October and comparing the likelihood of 32 major economies reaching Net Zero by 2050, places the UK at number two while China is further back at number 20. This is because the two economies are at different stages of development, with China having to accelerate its industrialisation phase and at huge scale. See our separate box-out section for a fuller analysis of the Index findings.

The UK, which accounts for under 1% of global emissions, has already enshrined in law its commitment to achieve Net Zero by 2050. To enable this, it has further set what the government describes as “the world’s most ambitious climate change target” of cutting emissions by 78% by 2035 compared to levels in 1990. This would take the UK more than three quarters of the way towards hitting Net Zero by 2050. The UK’s major achievement to date is the decarbonisation of its power sector and the simultaneous shift to renewables. The carbon intensity of the power sector has fallen from 481gCO2/kWh in 2010 to 181gCO2/kWh in 2020; while renewables’ share of power generation has risen from around 7% to over 40% in the same period.

The government has also announced some significant plans and aspirations for the coming years, such as the creation of four major industrial clusters for carbon capture usage and storage (CCUS) and hydrogen production by 2030; a ban on the sale of new internal combustion engine (ICE) vehicles from 2030 as the nation moves to electric; the full rollout of smart meters to help households more efficiently manage their energy usage and support the transition to a more flexible energy market by the end of 2025; and a potential ban on the sale of new gas-fired boilers by the mid-2030s in favour of hydrogen and heat pumps.

With a 10 Point Plan for a green industrial revolution setting the over-arching framework and an Industrial Decarbonisation Strategy in place, together with a recently published Hydrogen Strategy, the UK has many of the building blocks in place – but still has a long way to go if it is to deliver on its ambitions, as the Climate Change Committee warned in its latest progress report to UK parliament.

The next phase of decarbonization in the UK will involve changes in almost everything we do: the cars we drive, the way we heat our homes, our travel patterns, how we use our land, what we eat. — Simon Virley, Vice Chair and Head of Energy & Natural Resources, KPMG

One challenge is the need – in common with all developed economies – to bring citizens with them on the journey and bring about changes in how people live, as Simon Virley, Vice Chair and Head of Energy & Natural Resources at KPMG in the UK observes: “The next phase of decarbonization in the UK is going to be much more intrusive than what has come before. It will involve changes in almost everything we do: the cars we drive, the way we heat our homes, our travel patterns, how we use our land, what we eat. There needs to be much greater engagement with the public on the choices ahead and what we can all do as individuals and in our communities if we are to get to Net Zero at least cost and ensure a Just Transition.”

China, meanwhile, has a population about 25 times the size of the UK and accounts for around 30% of global carbon emissions. However, its carbon usage per head of population is around half that of the United States and is also considerably lower than that of some other Western economies. While its fossil fuel usage is still growing, China has pledged that this will peak in 2030 and then decline, with a Net Zero target of 2060. It is backing this up with real action – already being the world’s largest producer of renewable energy. In 2020, it had solar power capacity of 254,355 megawatts, far ahead of the US in second at 75,572, and it had triple the wind power installations of any other country too. China hopes that a quarter of its energy will be produced from non-fossil fuel sources by 2030 – and many analysts believe it may hit that target early.

China’s commitment to reducing carbon is becoming clearer. Xie Zhenhua, China’s special envoy on climate change, has spoken publicly of the imminent release of a top-level design of China’s so-called “1+N” policy framework for reaching peak carbon and carbon neutrality targets together with specific action plans for key emitting sectors. China also opened a national carbon emissions trading scheme in July 2021 covering more than 2,000 power plants, with plans to add other industrial sectors.

With China producing a significant proportion of the world’s carbon emissions, its progress in reducing carbon is clearly of huge importance in itself. China has also taken steps to embed sustainability practices into its international Belt and Road infrastructure initiatives – with the Ministry of Commerce and the Ministry of Ecology and Environment jointly releasing in July an updated set of green development guidelines for overseas development and investment. With an emphasis on compliance with international practices, the guidelines reflect encouraging aspirations for higher environmental and green investment standards. More recently, China’s President Xi Jinping made the surprise, but most welcome, pledge at the UN General Assembly in September that China would stop financing coal-fired projects abroad.

Since President Xi’s announcement of China’s top-level commitments in September 2020, Chinese companies have started committing to or setting science-based targets to reduce greenhouse gas emissions through the application of innovative energy saving initiatives and technologies, increased use of renewable energy, etc. — Daisy Shen, Partner, Climate Change and Sustainable Development, KPMG in China

China indeed has a crucial role to play in enabling the global community to drive down carbon, as Simon Virley explains:
“China can leverage immense economies of scale and
reach price points that other countries simply can’t match. We have seen that with solar, and the same can be true of other low carbon technologies, like electric vehicles and hydrogen. The lower the cost of these green technologies, the easier it will be to maintain public buy-in around the world for the energy transition.” By extension, this means there is significant potential for UK and Chinese businesses and investors to work together in the coming years in the pursuit of a common goal.

On the UK side, there is an opportunity for London to build on its pre-eminent position as a financial services centre and become the global centre for carbon trading. The various carbon trading schemes in existence around the world will need to be linked up at some point – and London could fit the bill. There is clear potential for the UK to become the standard setter for green finance – how to define it, verify it and audit it. Alongside this, the UK could become the leading pioneer for climate risk disclosures and reporting. There will be significant opportunities for UK professional services organisations in providing consulting, legal, assurance and accounting advice around these and related areas to businesses in China, and opportunities for testing, inspection and certification organisations too.

Other export opportunities for the UK to China include offshore wind where the UK has built up considerable expertise around the integration of wind into national energy systems and the skills and services needed to support that. Smart energy systems are another fertile potential area, with UK businesses like Octopus Energy developing leading-edge systems that utilize smart technology and AI to optimize energy usage and efficiency across different needs. The UK could also lead the way – and make some in-roads in China – around carbon capture technology as well as the shift to low carbon heating.

On the Chinese side, there has been some significant investment already into UK renewable energy, particularly offshore wind, and in the UK’s nuclear industry and smart grid networks. There are likely to be increasing opportunities to invest in UK infrastructure projects such as the construction of its planned Carbon capture, utilisation and storage (CCUS) clusters. China already has a strong track record of investment into major UK energy and infrastructure projects and this can continue in Net Zero related endeavours, bringing mutual benefit – generating a return for Chinese investors and bringing down the cost of capital for the UK.

UK-Chinese links should include collaboration over the scaling of new green technologies. It will not be possible to meet Net Zero targets by solely relying on the technologies available today. Britain has a strong track record in ground-breaking scientific R&D; China has the ability to scale new technologies to market. Finding synergies through co- operation could unlock success.

Then there is energy transition. Major oil and gas businesses have become leaders in decarbonising their business models and diversifying away from hydrocarbons towards renewable energy sources, although they themselves recognise there is a long way to go. The UK’s oil and gas industry can export its knowledge and experience around this, including to the Chinese super-majors. There are win-wins to be gained here on both sides.

The UK and China have a strong trading history with each other. UK financial institutions and businesses in other sectors are benefitting from reforms and license approvals designed to increase foreign investment into China; while Chinese businesses have historically found the UK to be a welcoming and cosmopolitan place to do business.

There should be a focus on continuing and indeed increasing this where climate action is concerned, as Simon Virley says: “For the first time ever, we have China, the EU, the UK and the US all committed to Net Zero. Chinese companies are already investing heavily in the low carbon sector in the UK as the UK seeks to meet its Net Zero target, whilst a growing number of UK companies are investing in China. So, we have a great platform on which to build collaborative partnerships between the UK and China on the low carbon technologies and financing solutions needed to meet the global challenge of climate change.”

Daisy Shen, Partner, Climate Change and Sustainable Development, KPMG in China, echoes this sentiment: “Since President Xi’s announcement of China’s top-level commitments in September 2020, the momentum has accelerated. Chinese companies have started committing to or setting science-based targets to reduce greenhouse gas emissions through the application of innovative energy saving initiatives and technologies, increased use of renewable energy, etc. There is an increasing need for international cooperation to support Chinese companies’ business transformation to fit the future low-carbon economy and achieve sustainable growth. There are opportunities for China and the UK to work together across aspects of policy, infrastructure, technology, financing and best practice sharing.”

Now, through COP26 and beyond, we need to use the opportunity to deepen collaboration between the UK and China on the Energy Transition in key areas such as:

• Offshore wind
• Hydrogen
• Carbon capture
• 
Electric vehicles
• Smart energy platforms
• Carbon trading
• Climate risk reporting

Focus on hydrogen/decarbonisation

The UK government’s Hydrogen Strategy envisages a “world-leading hydrogen economy” supporting over 9,000 UK jobs and unlocking £4bn investment by 2030. The government predicts that 20-35% of the UK’s energy consumption by 2050 could be hydrogen-based. A twin-track approach is planned – bolstering blue hydrogen and CCUS production through four industrial clusters whilst also supporting the development of green electrolytic hydrogen. Companies such as ITM Power are already leading the way in green hydrogen using Proton Exchange Membrane (PEM) technology – such technological innovation could become a significant export for the UK.

China is one of the biggest manufacturers of green hydrogen technology with a particular emphasis on alkaline technology. However, alkaline technology is suited to large-scale baseload industrial electrolysers, whereas PEM technology works better with intermittent renewable technologies such as solar and wind which will give it an increasingly prominent role in global deployment. China is also a leader in hydrogen fuel cell technology – hydrogen being potentially a key power source for heavy transportation, where electric batteries are less viable. There are already some 7,000 hydrogen fuel cell buses in operation in China.

With the UK’s clear hydrogen focus, and China’s 14th Five Year Plan labelling hydrogen a “frontier” area that the country pledges to advance, there could be scope for the two nations to cooperate and cross-invest.

Focus on renewable energy

Several of China’s generation companies (gencos) have already made investments into renewables in the UK, such as:

• SDIC which acquired Edinburgh-based Red Rock Power in 2016
• CGN has extended its nuclear partnership with EDF to onshore wind assets
• China Resources Power, subsidiary of the Hong Kong-based conglomerate China Resources Group, has invested in a major operating offshore wind project alongside the Norwegian energy giant Equinor

More broadly across Europe:

• CGN has been highly active since 2015
• China Three Gorges has built significant stakes in a wide range of Renewables assets including offshore wind, both through its participation in EDP and relationship with Energias de Portugais Renewables (EDPR); and also on a stand-alone basis
• We have observed several further major gencos actively seek to enter the European Renewables market as they look to achieve their own international growth KPIs in Renewables

Looking in the other direction, a few western strategic energy companies are active in China:

• EDF has a partnership with China Energy Investment Corporation (CEI), focused on 502 MW of offshore wind projects in China.
• Other major western oil & gas companies are already well established in China and may well be considering extending operations to offshore wind, in line with their strategic growth ambitions

The focus for many of the major European (in particular) offshore wind developers is in neighbouring markets in the region – Japan, South Korea, Taiwan. Given the exciting growth potential of the Chinese offshore wind market, requiring an enormous scale of capital and strategic capability, it would be really positive to continue this trend of partnering across the major offshore wind activities.

Supply chains, meanwhile, are relatively settled. China already manufactures the great majority of the world’s solar panels. Of the world’s ten major wind turbine manufacturers, three are Chinese and these mainly supply their own national market. Of the other seven, some have factories in China.

Focus on clean transportation

With both countries already embracing progressive plans for EV adoption, but with battery life and range still potentially limiting factors, there may be scope for the nations to cooperate on R&D development in order to explore new battery technologies and chemistries, as well as to establish an effective circular economy in the battery value chain. As well as extending battery life, more cost-effective methods of recycling batteries – and/or extracting the valuable metals from them for re-use – are needed. There are also opportunities to drive cooperation across many areas of the mobility ecosystem.

Then there is hydrogen, which may have a key role to play as the powertrain for heavy and industrial vehicles. China leads the way in hydrogen buses. The UK has a leading hydrogen and low/zero-emission bus maker in Alexander Dennis (that uses hydrogen fuel cells from Chinese manufacturer BYD), while operators like First Bus have launched hydrogen fleets in some locations. There will be scope for closer ties between China and the UK in this growing area.

KPMG Net Zero Readiness Index 2021

KPMG’s Net Zero Readiness Index (NZRI) considers 103 indicators that are key drivers to achieving Net Zero in each of the 32 countries studied.

The UK ranked second in the NZRI, and China 20th. The top five countries were Norway, UK, Denmark, Sweden and Germany. Other major jurisdictions include the US (13th), Australia (14th) and Russia (25th).

China

China’s target of peak carbon emissions before 2030 and Net Zero by 2060 may be later than the dates pledged by many other countries in the NZRI, but they mean the country would move from peak carbon to Net Zero in three decades – about half the time of other countries.

China already has the world’s highest level of renewable energy capacity of 925GW in 2020, around three times as much as the US. It added 72GW of wind and 48GW of solar in 2020, both big increases on 2019. Despite this effort only 33 percent of its electricity came from low carbon sources in 2018, highlighting the need for the country to continue its rapid expansion of renewable generation.

Some key companies in high-emission sectors have announced timetables and goals to achieve carbon neutrality through measures covering energy consumption, energy efficiency and increasing use of renewables.

China is rated second among the 32 countries in the research on agriculture and land use, due to factors including relatively low consumption of dairy per person, and strong performance on limiting food losses and waste.

The country is ranked fourth in the transport sector, partly due to the high availability and use of public transport, having developed the world’s longest high-speed rail network over recent decades. China also has the world’s largest electric vehicle market, with 5.4 million in use in 2020 – nearly half of the global fleet. China’s national target is to have ‘new energy’ vehicles making up 20 percent of new car sales by 2025.

UK

Cross-party political support and clear legally-backed targets have enabled the comparatively swift decarbonisation of the power sector in the UK, with the country ranking second in the electricity and heat sector. The last coal-fired power station is due to close by 2024 and the proportion of renewable energy used in electricity production rose from 7 percent in 2008 to above 40 percent in 2020.

Progress is also being made on converting industrial processes to using hydrogen and carbon capture, with the UK ranking third in the industry sector. On transport, overall adoption may be low at present, but electric cars and small vans are increasing in popularity; their lifetime costs may now be comparatively lower than fossil fuel alternatives, which the government has banned the sale of after 2030 (with new heavy good vehicles banned from 2040 at the latest).

However, regarding public engagement, most of the work which will directly affect citizens is yet to come. Despite mandatory building energy certification and high levels of household energy security which contribute to the country’s fourth-placed rating in the buildings sector, many Britons live in poorly-insulated houses which were built many decades ago and around nine in ten are heated by natural gas. The government says that 600,000 homes a year will need to install a heat pump by 2028, while its Climate Change Committee puts the figure at 1 million annually by 2030. However, last year only around 30,000 heat pumps, which usually require the retrofitting of better insulation to be effective, were installed.

Click here to read CBBC’s Targeting Net Zero: The Role of UK-China Business Report

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