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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In April, China released its draft energy law that aims to regulate, control and reform the energy sector.

“The aim of this law is to reform a sector that is very traditional but is going through a lot of change,” explains Jessica Henry, First secretary for energy policy for the FCO, based in the Embassy in Beijing. “That involves working with some of the large, state-owned enterprises, some of which are keen to stick to their traditional models and are quite reluctant to change. So it needs a gentle and nuanced approach to moving forward that reform effort.

“The lead drafting party on this law is the Ministry of Justice, which shows how seriously they are taking it and how they are convening and managing the different ministries and the input from lots of different interest groups. The Ministry of Justice should be more objective in setting the legal basis for this law which would include ministries not only in charge of energy, but also in charge of everything from the environment to forestry, to the oceans.”

Adds Henry: “It’s very complicated to provide a legal basis for the world’s largest energy consumer and producer.” It is, after all, “quite a big job.”

Indeed it is. Henry, who is responsible for government-to-government relations on energy policy, explains that the bill has been 15 years in the making, with the first draft being published around the same time the National Energy Administration (NEA) was created as a separate energy ministry.

“At that time, it was very short and was more of a declaration than a comprehensive energy law, but has had many revisions since then. In 2017 there was a major revision that took into account technological and market developments over the period. It included context from the Paris 2015 Climate Conference, but also reflections on Xi Jinping’s speech on the four major energy revolutions from 2014, so you could see it become broader and reflect some of the wider political and economic features of the time.”

This latest revision continues to reflect current themes, including energy security and low carbon development as key parts of China’s energy strategy.

One of the reasons it has taken such a long time is because it is trying to keep up with fast-paced technological developments. The cost of renewables has fallen dramatically, and China has become a world leader in renewables and low carbon transport in recent years, so it’s a challenge to update laws as fast as technological developments.

This version is the latest in a draft law that has been open for comments. As of now, there has been no specific timeline laid out for when the draft will actually be turned into law.

As of now, there has been no specific timeline for when the draft will actually be turned into law.

The drafting process is done by officials from various different ministries who work with research institutes and academic experts. Having drafted the law, there was a period until May 9^th during which people could comment on this law either directly, informally or through trade and lobbying organisations.

What does the law include?

The law focuses heavily on plans to open up, reform and liberalise the energy sector in China. Foreign investment will be welcomed into the sector, which has traditionally been dominated by state-owned enterprises. Allowing foreign investment into the market will not only allow foreign companies to compete, but will also force Chinese companies to become more competitive.

“It is welcome that the draft law is to reform the energy sector and lower investment barriers,” says Dr Zhi Shengke, director of strategy and development at energy company Wood Plc. “British companies such as BP, Shell and Wood can take advantage of China’s energy market reform and introduce various technologies and engineering solutions to the sector. Meanwhile, this draft law delivers a clear message that the Chinese energy sector won’t just focus on energy security and energy transition, but also invest more on decarbonisation and digital solution. The government is sending a clear signal to domestic companies that they need to be more competitive in terms of technology and digital.”

“There is a welcome focus on low carbon development,” adds Henry. “There are new measures to monitor emissions and limit environmental damage and to promote low carbon technologies, including renewables. There is also a welcome focus on continuing market reform making markets more open and more competitive,” she says.

“However I think there are still a few areas that need more detail. At the moment the draft is still quite high-level and we’d like to see a bit more detail on how markets will be regulated, and the enforcement mechanisms for those,” she says.

But overall the law, “is about creating a more open, transparent, competitive market so that (both Chinese and international) private companies are able to compete with state-owned enterprises on more of a fair basis. State owned enterprises are going to have to make improvements if they are going to keep competing with private companies.”

What does it mean for British business and intergovernmental collaboration?

“This could be the start of the transformation,” says Dr Zhi. “A rapid energy transition is happening due to the impact of COVID-19, environmental pressure and the development of digital and decarbonisation technology. China is positioning to be a dynamic energy market, which is attractive to foreign investment.

“Over the last decade, many international oil companies, chemical companies and engineering companies have invested in the China market. Lower trading barriers means that cost benefits from using the latest technologies and supply chain are less constrained.  Hence, more low carbon technologies could be brought into the Chinese energy industry.

“In China, the overall energy demand is still growing but the energy production predominantly relies on coal for power generation, as it’s low cost and plentiful. It is delightful to notice that the energy law is to spearhead and develop decarbonisation technology and digital technology to reduce the greenhouse gas emissions while meeting developing nation’s growing needs for energy. I look forward to the transformation led by Chinese SOEs,” says Zhi.

Matt Ashworth, commercial counsellor for energy and infrastructure at the Department for International Trade (DIT) explains that new marketisation opportunities will arise for competitive businesses who are able to bring in international expertise and find collaborative projects.

“We have a lot of strong relationships in the energy sector between UK and China from large multinationals to SMEs,” he says. Companies like BP and Shell have been taking advantage of some of the opening up and the relaxation in terms of foreign investment into retail oil and gas markets,” he explains. “Both BP and Shell will be opening petrol stations in parts of China and both are actively looking at expanding their operations.

“Then you have new energy opportunities. Offshore wind is a key area of strength in the UK.” There are many major offshore wind programmes planned in China, Ashworth points out, and the UK has world-beating technology in this area. There have been some great examples of collaboration already.

For example a UK-China joint centre on offshore renewable energy has been established in Yantai, Shandong province in a collaboration between the UK’s Renewable Energy Catapult and TusPark, anchoring the relationship in science, innovation and trade as well.

“There are lots of opportunities on energy transition, not just from offshore wind, but other aspects of renewables, including energy storage and how that is transmitted and connected to the grid. Areas we have a lot of experience and expertise in, which we can share with China,” says Ashworth.

“Our strategy has a high alignment focusing on decarbonisation, energy transition and digitisation, including connected design, connected work and connected operation into China,” says Dr Zhi. “We are in discussion with one of our clients about how to digitise their large scale complex asset. We also believe there is a huge potential for offshore wind and floating wind in China. Therefore, the transformation for the Chinese energy industry is a welcome change as it is highly aligned with our expertise.”

Ashworth goes on to explain that there are many other interesting areas of innovation that the DIT are keen to watch develop, including a collaboration between BP and Chinese ride-sharing company Didi on electric vehicle charging stations in Guangdong.

Britain is a global leader in renewable and wind farm technologies

Another key UK strength is building a strong regulatory environment that creates certainty for investors and also being very open to international investment, explains Henry. “It goes both ways – it’s not just about the UK exporting to China but about the role that China can play in the UK’s own energy infrastructure. So whether that’s major projects like Hinkley Point C and the nuclear sector or investment into North Sea oil and gas, into offshore wind – there is a very healthy two-way relationship there on trade and investment, which underlines how much collaboration there is between the two countries that plays to our mutual strengths.”

“We have a lot of different types of collaboration, whether that’s science and innovation, or early-stage research; on policies and regulation and providing the right framework for investment into clean technologies; or on the DIT commercial side. It’s a broad range of collaborations, not just in Beijing but in all consulates (Shanghai, Guangzhou, Chongqing and Wuhan). Given that the UK has so many strengths on low carbon energy and China is also a global leader on low carbon energy, it’s a natural area for practical collaboration.”

International collaboration

The law also included a plan to set up a ‘cross-nation energy information service system,’ which will hopefully see China becoming more involved in international cooperation platforms and committing to open markets and foreign competition:

“Article 89 says that the energy department will establish an information platform for international energy cooperation,” says Henry. Our first response is to say that this seems to be a positive step and we would love to have more data transparency around how China engages internationally. It looks like a great initiative and if they are open to working with others on the platform then we would be interested to work with the Chinese government.”

However, according to Dr Zhi from Wood, there are still obstacles that could make collaboration difficult. “Cybersecurity is one of the hot topics in the energy industry in China. More and more, clients are required to keep their project data and engineering data in China, which is a challenge to international companies like Wood. A mega project normally requires global assistance, meaning project data often flies through systems that are located in multiple countries. If the data must remain within the Chinese border, it will take more time and push a higher budget.”

Dr Zhi also says that it is vital for China to think about how to retain the total values that can benefit social and economic development, contribute to the national capability, and stimulate productivity of local economy when more inbound investments come: “In-country values could help China to further develop its supply chain and benefit local communities.”

Britain has stringent long-term targets such as the legal commitment to reach net-zero emissions by 2050. Although China doesn’t have a net-zero target, it does have Nationally Determined Contributions under the UN climate change agreement, which fulfil medium-term contributions.

“The value of a long term net-zero target is something we are talking to China about as part of our wider climate change collaboration,” says Henry. “There’s some very positive activity at the sub-national level, with some cities and regions adopting very ambitious targets and plans for low carbon development. This draft law doesn’t include a net-zero target, but the focus on low carbon development and measures to integrate renewables integration and greater use of clean technology does lay the foundation for moving towards this in the future, so that’s really positive.”

Finally, Ashworth is keen to point out that this law is just a draft, and that ultimately, we will have to see how it is implemented and how it might work in practice:

“There’s a lot of interest in what it might mean for the next stage in terms of goods and services that we might be able to provide, and business environment or market access issues. And that’s what we (DIT) are here to help with,” he says.

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