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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In 2015, the UK and China Offshore Wind Industry Advisory Group (IAG) was established to promote commercial, innovation and policy exchanges between both countries on offshore wind and to support the development of offshore wind and reduce its global costs. The IAG is made up of  Renewable UK (RUK) and China Renewable Energy Engineering Institute (CREEI), and more recently, the Chinese Renewable Energy Industry Association (CREIA) has joined as the new leading partner from China.

A recent meeting by the IAG was held to discuss the potential collaboration between the two countries following the 14th Five Year Plan announcement. Britain is a world leader when it comes to offshore wind production, and the skills and expertise that the UK possesses will be in growing demand as China moves further towards sustainable and green energy production.

The 14th Five Year Plan is the new strategic transitional period of the offshore wind power industry, according to Hu Xiaofeng of CREEI. China will strive to achieve a 20GW grid-connected installed capacity of offshore wind power by 2025, which will account for about 6% of the total installed capacity of wind power plants in China.

According to Isabel DiVanna of RUK, the UK’s offshore wind industry already deploys over 10GW of capacity, and the RUK predicts it will reach 40GW by 2030 and 92GW by 2050 – ahead of government commitments of 30GW by 2030, she says.

Britain – as something of a windy island – has been ideally positioned to become a world leader in offshore wind energy production. The UK is currently home to the world’s largest offshore wind sector with 10.1 GW installed, which will rise to 19.5GW by the mid-2020s.

Nevertheless, China is expected to overtake the UK soon, with projections of achieving more than a fifth of global offshore wind capacity by 2030, according to the Global Wind Energy Council (GWEC). These numbers illustrate the UK and China’s complementarity, and the two country’s cooperation, as embodied by the IAG, allows the UK to share its unique strengths, create opportunities, and reach a common goal of accelerating the transition to low carbon.

Li Dan of CREIA explains that one of the challenges of the Chinese market is the need for China to ensure that it improves its quality whilst growing at a rapid rate. She also outlines the importance of market-oriented reforms in opening up new opportunities for investment, which will be important for securing future financing flows. China wants to promote investment and strengthen its industrial chain, so there are ample opportunities for UK-China engagement.

David Findlay of the Offshore Wind Energy Catapult said that heavy investment will be injected into the growth of offshore wind energy production in a bid to meet the UK’s Net Zero 2050 goal. Investment between now and 2030 will total £40 billion, he adds. This provides an interesting opportunity for Chinese companies, including developers, investors, OEMs and supply chain engagement.

The Prosperity Fund supports the UK-China Clean Energy Partnership and contributes to China’s transition to a low-carbon economy. Similarly, the British embassy has also been working closely with China’s National Energy Administration and CREEI on developing offshore wind projects to generate policy impact on China’s renewable energy development without subsidies.

Prosperity Fund projects have recently included case studies of UK offshore wind projects, recommendations on improving China’s policy framework, a framework for the localisation of the UK’s successful Offshore Wind Accelerator programme, studies on investment risk for Chinese investors in offshore wind, a proposed cost-reduction framework for China’s offshore wind sector, and policies and policy recommendations for Jiangsu and Guangdong provinces.

Following this series of successful meetings and follow ups from the IAG, a number of plans will be put in place to forge closer ties: further exploration relating to new technology such as distributed energy and hydrogen production, health and safety requirements and government regulations as well as further funding with green finance.

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For a while it seemed like China’s grip on the 21st-century’s electric vehicle market was unshakeable. For decades Beijing has led the world in terms of investment in the new energy vehicles needed to tackle climate change and create a low-carbon economy.

With liberal financing and strategic purpose, China has cemented its sectoral dominance. Ambitious EV targets have for years been enshrined in the country’s development plans. Today China is home to around 99% of the world’s electric buses. Nine of the world’s top ten electric automakers are Chinese, according to research institute Bloomberg NEF.  

But in the wake of the coronavirus pandemic, and with a ‘new cold war’ between the US and China brewing, that outlook is changing. The outlook will have a bearing on the integration of the world’s two biggest economies, as well as how (as a planet) we travel and use fuel.   

Amid mounting supply-chain vulnerability, climate change and growing enmity between the US and China, the EV innovation race has become a key frontier. But quite who will “win” it, or how, is not yet clear.

What is certain is that the EV sector has faced a reckoning this year. As the coronavirus hit in January and national governments imposed their lockdowns, the international manufacture and sale of EVs ground to a halt. Now that restrictions are being lifted and parts of the economy reopening, green shoots are appearing. 

But China has undergone a double shock. The chill in US-China relations has made competition for consumers all the fiercer, particularly in technology. The arrival of Tesla, the US auto giant, in Shanghai in February was an invitation for local manufacturers to throw down the gauntlet. 

Since then EV production in Shanghai in the first half of 2020 exceeded 70,000 vehicles – around a 130% year-on-year increase.

The response of Chinese EV makers has been bullish – at least among the ones that have survived. At the same time, the government has swiftly realigned its policy sending a clear message that Beijing is backing EV makers and will do what it takes to keep the sector afloat.

EV production in Shanghai in the first half of 2020 exceeded 70,000 vehicles – around a 130% year-on-year increase.

According to Daniel Atzori, a research partner at Cornwall Insight, the most significant decision to affect the EV market in recent months has been China’s extension of direct subsidies for EVs (that were due to be phased out this year) until 2022. 

This was done to “shield the EV market from the adverse economic effects of the crisis”, says Mr Artozi. But overall Chinese policy is gradually moving away from direct subsidies to more indirect forms of financial support.

However, China’s measures taken to support the broader automotive sector could, in fact, have a negative impact on EVs as regular cars become cheaper and easier to attain. 

“The Chinese government seems to have chosen the automotive sector as a key driver of the post-Covid-19 economic recovery,” says Mr Atzori. “To this end, some provincial and municipal measures to promote EV mobility have been eased or paused, to allow revitalisation of the automotive sector as a whole.” For example, caps on car purchases have been lifted in some provinces.

“Though this might be detrimental to NEV sales. They maintain a 5% share [of the auto market] and we have not observed any huge drop. Also these restrictions are only temporary,” says Marine Gorner, energy analyst at the International Energy Agency.

According to IEA data, the market share of EVs began to rebound in April and has held steady following the immediate post-pandemic crash. 

Tesla’s arrival in China has forced domestic manufacturers to raise their game

The second big event has been Tesla’s arrival on the mainland – a symbol of American assertiveness. According to some analysts, this has had a dramatic effect on domestic manufacturers with investors pumping billions of dollars into Chinese EV startups, sending their share price soaring. This month Xpeng Motors’ share price rose by 40%, while Li Auto was up 70% this month, reported the FT. 

“This increase is mostly due to the Tesla Model 3 production in Shanghai,” according to Hyoungmi Kim, senior policy specialist at Natural Resources Defense Council, an American environmental group. “It is true that Tesla’s arrival has been driving competition among Chinese manufacturers, which is a good thing. And more importantly, the policymakers and industry in China can see that it is not the subsidy that attracts customers. If the vehicle is attractive enough, there exists an enormous market for EVs in China.”

Yet there are growing concerns that without the infrastructure needed to support a collective transition to electric power, the EV bubble could simply burst into thin air. 

The US looks at EV strategy as a climate change solution, while China takes it as both a climate change solution and an industrial policy

“You have to look at the whole ecosystem in EVs, including battery recycling, EV grid integration and charging infrastructure,” says Ms Gorner. 

“The fundamental difference between the US and China is the driver of EV strategy. The US looks at EV strategy more like a climate change solution, while China takes it as both a climate change solution and an industrial policy,” says Ms Kim. 

While data indicates some degree of recovery for China’s EVs in the past few months, its 2 million car sales target for 2020 will not be met. The realistic goal is only half that – at around 1 million vehicles by the end of the year, according to Ms Kim. 

A recent report “China Oil Cap Project”, released by the NRDC and think-tank China EV100, highlights the huge potential of rural areas to achieve large-scale transport electrification.

If nothing else, the Tesla rally shows how intertwined Chinese and US interests around trade and energy continue to be – rather than how separate. 

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Approaching the China market can be overwhelming, especially for small businesses. It is necessary to weigh the costs and benefits of trading in a new country and a new business context. HR, customs challenges, different business cultures, and other considerations can be a lot to work through.

However, Kevin Shakespeare, director of stakeholder engagement at The Institute of Export & International Trade, says that many of the areas that give businesses reason to pause when considering trade with China – such as inspection certificates – will soon also apply to trade with the EU. It is something that all exporting businesses will have to get used to and prepare for, so China will not necessarily be significantly more complex than any other export market.

Many of the areas that give businesses reason to pause when considering trade with China – such as inspection certificates – will soon also apply to trade with the EU

One of the most common concerns among businesses interested in China is that of intellectual property (IP) protection. St. John Moore, Chairman of the British Chamber of Commerce in China, says that for many years, IP has featured among the top three areas of concern for UK companies responding to the Chamber’s surveys. However, last year, it dropped out of the top ten, indicating that businesses operating in China are becoming less concerned with IP issues as the Chinese government implements more regulation to confront counterfeiting. “As long as businesses take a thoughtful approach to IP, it should not hold them back,” he says. The same can be said for many of the market access challenges facing businesses in China.

Companies looking to enter or expand within the China market will need to explore the different regulations, registration processes, and rights protection strategies that apply to their business, and learn about China’s unique commercial environment, including different payment methods and market leaders. E-commerce and social media both drive consumer spending and if companies are looking to produce sales in China, they must be willing to invest in understanding and building a strategy around China’s key e-commerce and social media platforms. Even if on-the-ground development in China is still a few years away, businesses should familiarise themselves with the commercial environment and look at making initial enquiries into areas such as IP now, in order to help protect their businesses later on.

Specific areas of opportunity for British businesses include green energy, legal services, education, consultancy, finance, and cross-border e-commerce. Kevin Liu, head of China and head of energy Asia Pacific for Scottish Development International, says that there are opportunities for the UK and China to draw on one another’s strengths in specific areas such as offshore wind technology, and that “China is looking towards the UK to resolve these questions.”

There has also been increasing inbound investment into the UK from China in recent years. Damon Peng, regional director, East and West China of Invest Northern Ireland, says there has been strong inbound investment in the technology and education sectors in Northern Ireland in recent years. There has also been “a dramatic increase in food and drink exports to first- and second-tier Chinese cities too.”

Kevin Liu also says that there is great potential for boosting trade between China and Scotland, as Scotland currently accounts for less than one percent of UK-China trade.

Chinese students in the UK continue to be an important factor for international investment and student visas have been a key indicator of UK-China diplomatic relations in recent years.

The British Chamber of Commerce in China’s Position Paper 2020, highlights the need for a robust, long-term strategy for UK trade with China, and suggested that China must be a priority for a Free Trade Agreement (FTA). UK products and services are well regarded by Chinese consumers, however, amid ongoing global tensions and following Brexit, there is a need for a comprehensive approach to supporting ongoing trade between China and the UK.

In addition to supporting the need for an FTA, Guy Dru Drury, the chief representative for China, North East and South East Asia at the Confederation of British Industry, says that university education is the soft power association with this exchange and a “core asset” to UK-China relations. Chinese students in the UK continue to be an important factor for international investment and student visas have been a key indicator of UK-China diplomatic relations in recent years.

The British Chamber of Commerce in China’s Position Paper 2020 also notes that British businesses are “cautiously optimistic,” when it comes to relations in a post-Covid-19 world. Whilst current events have posed temporary challenges to conducting trade with China, the paper highlights recent positive steps regarding trade, regulation, and market access for UK businesses in China. As companies around the world work on overcoming challenges posed by the global pandemic, it is important to engage with China, to read past the headlines, and act on the wealth of experience of British businesses already operating in China.

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China’s draft energy law is really a consolidation of lots of other things that were already in place or that had already been developed. So for example, renewables in the electricity sector have been a focus of the government for some time, and the law on the gas sector was really an amalgamation of lots of laws that were already in place but hadn’t yet been consolidated. So it is really a home for existing legislation. Therefore, when it was put out for public comment there weren’t any real surprises.

The overall tone in prioritising renewables, the environment, and energy security was not a surprise, as these themes were identified in the last 5-year plan and can be seen in existing legislation. Whilst the previous draft talked about energy conservation, the focus now is on energy security and how to get private companies into the sector.

Previously, China’s economic drive was on infrastructure and was export-focused. Now, as we know, it has moved to consumption and the domestic market, and this law aims to get the private sectors to talk up some of that slack.

China’s oil and gas consumption has grown significantly over the last 15-20 years and there has been growing concern about energy security, which runs through decision making. There has been a push to reduce the rising import dependence of oil and gas and increase domestic production.

Privatisation and the NOCs

For private companies – international or Chinese – the big barrier was how to reduce the dominance of the three big National Oil Companies or NOCs – Sinopec, CNOOC and CNPC – and increase incentives for private entities to have ownership of resources rights.

We saw in December that there were legislation rules removing obligation with production-sharing agreements with the three NOCs. This is welcome as it has been a major barrier in international investment in the upstream, and is a step in the right direction. It does, however, have to be one part of a number of measures such as increasing tax incentives.

Gas demand has grown significantly in China in recent years as China aims to clean up Chinese cities,  reducing smog and air pollution. The measures put in place to curb coal production in the north led to a big uptick in Chinese gas demand in 2017-2018.

The gas demand in China 15-20 years ago was something similar to Belgium’s. Now it is a 300 billion cubic metres a year market – the biggest growth market for a number of years.

Demand overtook ability to meet demand both in infrastructure and market, so the Chinese government is now focused on trying to increase demand. Whilst it is trying to reduce reliance on coal, China is simultaneously trying to increase gas and renewables as a share of the total energy market.

To increase the gas market, long term measures are needed. It took the UK ten 15 years to do this, to ensure there is a framework to incentivise investment, and to make sure participants can get a rate of return on their investments on infrastructure for things such as pipelines,  storage facilities, LNG (Liquified Natural Gas) terminals, power stations and so on. Every participant wants to know what rate of return is going to be.

Investors need signals from both the state and provincial-level government and that has been absent to a certain degree. The market has traditionally been controlled and planned. It is heavily regulated and monopolised by the three NOCs and by provincial governments. When a market is heavily regulated there are no market signals which means there are no signals on the rate of return.

When a market is heavily regulated there are no market signals which means there are no signals on the rate of return.

A number of things need to be put in place, and one of the things we have seen in reforms that have been implemented into the draft energy law is directed at transforming the infrastructure, and specifically the main pipeline network.

In order to stimulate investment and for private companies to feel comfortable, they need to be able to get access to the infrastructure. If the infrastructure is dominated by the three NOCs forcing private companies to build out their own infrastructure, it is not appealing to most private companies. To build out your own domestic customer base and market share has been a real inhibitor.

China has the biggest gas market in the world with demand at 300 billion cubic metres a year

A national pipeline corporation

One thing that has been put in place is the creation of one national infrastructure company. It was announced in December and it amalgamates ownership of CNPC, SINOC and Sinopec. The China Oil and Gas Pipeline Corporation will oversee the main gas trunk line. If you have one company overseeing the trunk link that offers access to the pipeline network to private companies, it creates a more level playing field.

In any market that starts to deregulate, the official timelines are always very ambitious: In China, if it wants to do something, it gets it done. However, even the Chinese administration realise all of this will take time. There are a number of signals you have to make to create a deregulated market where pricing signals match demand. There needs to be the correct incentives for investment, and everyone has to get access to infrastructure to be able to import to the customer base.

Further reforms needed

The draft energy law includes a number of measures that advance this but we think that there are a number of things that it still doesn’t include.

It doesn’t include things that we know might slow the process down or slow down bringing international investment into China; it doesn’t mention whether this new pipeline corporation has control over the trunk assets. It would presumably have control over the main part of the infrastructure, importing gas internationally from Central Asia or Russia, but what hasn’t been clear in the draft law is whether this new pipeline corporation will have ownership of all provincial pipelines rather than just the national pipeline.

If bringing in gas from overseas, you still have a barrier to get it to the end customer because the local pipeline grid is owned by provincial-level governments. There’s a more complex ownership process – all of the 20 local provincial owners are both distributors and shippers – which causes a conflict of interest. At some point, these roles will have to be separated.

Regulation challenges

It also doesn’t really explain who oversees this process. What is the ability of the provinces to enforce and penalise non-compliance and who deals with dispute resolution? Is it the NEA or the transmission company? What are the powers and who is the authority or overseeing body? This is something that needs to be clarified and needs to be addressed before we will see significant private investment.

The reason that deregulation and reform of the energy sector in the UK, the US or Europe worked so well was because there were clear divisions between what the regulator did and what the transmission operator did. The body overseeing it is independent. In the UK it’s Ofgem. Until there is an independent energy regulator that has powers to enforce and oversee reforms, it will slow down the deregulation process and therefore the international willingness to invest.

Currently, the National Energy Administration is doing the regulating – in other markets, it is split out. The regulator tends to be independent and has the powers to fine or set tariffs, as well as the costs to access the network and rate of return if you invest in the infrastructure. And decisions on tariffs and pricing is generally consultative, whereas at this point they are not consultative or clear.

There are various ministries and government bodies who have been involved in the draft energy law. The National Development and Reform Commission has been involved alongside various ministries including the Ministry of Justice, and it was the National Energy Administration that published the law. But there are a number of stakeholders and when embarking on a reform like this, having clear lines of responsibility, indicating what powers each body has, and what responsibilities fall under state or provincial bodies is essential. Currently, the draft law does not do that and it will take time for this to be clarified which will be one of many things that will restrict investment.

Opportunities for private business

Overall, the report is focused on getting the private sector to take more of the heavy lifting in terms of energy security, but when you look at the details it is clearly a long term process.

Much of the supply of LNG coming into China has been signed on long term deals by the big three NOCs who all play a dominant role in providing energy security in China. Many of the deals to import gas from Russia, Australia, Qatar and other places are 20-year deals, meaning that the opportunities to supply gas to China is still limited for other private international companies. The pipeline network is going to be full with existing clients, which means that there needs to be an unbundling of those supply contracts. But forcing the monopolists to give up some of the market share will be a tough process.

Many of the deals to import gas from Russia, Australia, Qatar and other places are 20-year deals, meaning that the opportunities to supply gas to China is still limited for other private international companies.

A significant amount of UK Inc’s gas exports or projects are in places such as Australia, where Shell has interest, or Indonesia where BP has a big interest. BP has an interest in one of the import companies that brings LNG into China in Guangdong. As China continues as a growth importer in oil and gas, there will be interest from these big British companies

If the Chinese government is determined to open up for private investment and we start to see city gas companies – such as Beijing Gas – responsible for providing gas to Beijing, they will start to invest in private solutions, so there is an interest from international suppliers, to structure their own agreements with these potential customers and circumvent the three NOCs.

If the draft energy law creates an efficient market, it will unlock more demand and create a customer base. And as you go further downstream, you can come to the logical conclusion that it will unlock investment opportunities for companies that make equipment and provide services.

The draft energy law improves the investment climate a little bit. It is by no means a panacea – we won’t see a tidal wave investment in upstream blocks or building out own subsidiaries to capture a city gas company. But it unlocks private investment potential and we may yet see more joint ventures emerge.

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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.

The post What does China’s new draft energy law actually mean? appeared first on Focus - China Britain Business Council.

Heat accounts for 50 percent of global final energy consumption, and in some countries as much as 81 percent of household energy is used for heating and hot water. Realising this, technology company Sunamp has developed special heat batteries that can cut both fuel costs and carbon emissions by storing energy as heat and releasing it on demand. The Scottish company’s super-compact heat battery technology has been intelligently designed to provide a clean, efficient, and cost-effective heat energy storage solution. The technology also helps to ensure a positive impact on the environment and Sunamp’s long-term ambition is to significantly impacting the global campaign to stop climate change.

Working with everything from gas boilers to solar panels and heat pumps, Sunamp’s UniQ range of heat batteries delivers hot water and highly responsive space heating with superb efficiency and proven savings of up to 75 percent on utility bills. This technology comes at an accessible price and offers limitless scalability for residential, commercial, and industrial projects. 

Sunamp in Scotland

Sunamp supplied 2,028 heat battery cells for 724 installations in residential homes for the EastHeat project. The Renewable Energy Association recorded EastHeat as the biggest energy storage trial in the world at the time and the project continues to receive local, national and international recognition. The benefits of heat storage system combined with solar PV include:

• Replacing a hot water tank with a compact heat battery to enhanced energy efficiency, reducing heat losses by typically 75 percent, saving money, and freeing-up much-needed space in the home.
• Old systems suffered from poor water pressure. The new heat batteries provide hot water at mains pressure, and tenant feedback was overwhelmingly positive.
• Adding a heat battery to an electrically heated home allows it to be heated with nearly 100 percent off-peak (low cost) electricity and the heat battery increased comfort by avoiding temperature fluctuations seen by tenants with older heating systems.

Sunamp in China

Sunamp CEO Andrew Bissell with Trina Solar VP John Ding

With help and support from CBBC, Sunamp had its debut in China by attending the Shenzhen Innovation Competition in 2016 and received the First Award in the final round.

In the same year, Sunamp secured the China-UK Newton Fund and commenced collaboration with the University of Glasgow, Beijing University of Technology, and China Investment Yixing Red Sun Solar Energy Technology, to develop an ORC power plant, integrated with thermal energy storage to utilise renewable heat sources for distributed heating and power.

Since 2018, Sunamp has established itself in the UK and EU markets and started OEM partnerships with companies including Flamco and Fisher Future Heat. It has also signed MOUs with Trina Solar, Gomon New Energy, and BCCY New Energy, with the first contract signing ceremony with Gomon witnessed by trade minister Ivan Mckee in Shanghai.

In September 2019, Sunamp hosted the China-Scotland Heat Pump Industry Summit, with China Energy Conservation Association Heat Pump Professional Committee, the China Heat Pump Industry Alliance and the European Heat Pump Association. This was the first summit that brought together thought leaders on the development of the global heat pump market and the role of thermal storage in decarbonising domestic heat. Delegates from 15 top Chinese companies representing China’s heat pump industry attended including those from Haier, Phnix, Trina Solar and Weyee. The delegates were welcomed by First Minister Nicola Sturgeon and trade minister Ivan McKee at a special reception held at Bute House, the First Minister’s residence in Edinburgh.

Sunamp International Business Development Manager Maurizio Zaglio with Gomon New Energy Chairman Chaohong Fan

Going forward

Sunamp’s thermal storage technology has been fully patented, tested in the market, and is in commercial development. As China’s new Draft Energy Law has been released, Sunamp’s technical advantages, which include over 100 worldwide patents and a proven commercial history in the UK and EU, will enable the company to benefit from the new proposed law. Furthermore, Sunamp’s technology eases the transition towards renewable and low-carbon heating, and is an innovative solution for heat storage requirements in all sectors. This aligns well with the new draft energy law’s decarbonisation and energy transition visions. Sunamp’s technology has the added benefit of being able to provide storage in locations where space is at a premium as it is in so many Chinese cities.

Over the last year, Sunamp has established strategic partnership relationships with Trina Solar and Gomon New Energy, and is in technical discussions with Haier. These partnerships will enable access to local manufacturing and supply chains with the possibility to import components, sub-assemblies, and full assemblies at a lower cost than from current suppliers. Sunamp will have speedier access to the local market through collaborators’ market intelligence, sales channels, information about local technical requirements, and compliance with local legislation. Strong local partnerships will also aid efficient expansion into the marketplace, build better relationships with local government, and allow close monitoring and any necessary enforcement of any IP issues.

The new Draft Energy Law addresses China’s energy issues regarding an over-reliance on coal-fuelled power generation and focuses on decarbonisation technology and digital technology to reduce greenhouse gas emissions. This will open new opportunities for Sunamp’s future development in China, as its technology is designed around ensuring a positive impact on the environment by reducing carbon emission associated with generating energy for heat and hot water.

By eliminating the need for fossil-fuels and supporting renewable energy, Sunamp Heat Batteries reduce CO2 emissions, NOx emissions and enable individual or large scale organisations and housing developments to be more energy efficient.

The post Sunamp energy expands in China appeared first on Focus - China Britain Business Council.

Can you tell us about your upbringing, where you were born, raised and educated?

I was born in Shenyang in north China and came to Manchester in 2003. I hold an engineering degree from China, a PhD in mechanical engineering from the University of Manchester and a Masters of Business Administration (MBA) from Alliance Manchester Business School.

In 2018 I became the first Chinese person to be elected as a fellow of the Nuclear Institute, and I am also a fellow of the Institution of Engineering and Technology.

Outside of work, I have held voluntary roles in the arts and education sectors, serving as Vice Chairman of the Centre of Chinese Contemporary Arts (CFCCA) and as a school governor of Chetham’s School of Music in Manchester.

I enjoy cycling and have completed a number of cycling challenges and raised more than £20,000 for charities including SOS Children Villages and the Chinese Streamside Garden, a unique fusion of Chinese and British horticulture that is being created by the Royal Horticultural Society in Greater Manchester.

Can you also tell us about your career and the path you took to get to where you are at Wood?

I began my career at EDF Energy as a reactor operations engineer and went on to lead major projects and world-class engineering and operations teams. In 2012, I joined Wood’s nuclear business (formerly Amec Foster Wheeler), a leading reactor technology, consultancy, engineering and project management provider in the nuclear sector.

My work has involved various reactor types including advanced gas-cooled reactors (AGRs), pressurised water reactors (PWRs) and the HPR1000, and has encompassed ageing management, plant lifetime extension and regulatory generic design assessment (GDA).

I’m currently account manager in charge of Wood’s relationship with China General Nuclear Power Corporation (CGN) as co-lead of China Outbound Investment; my role is to continuously grow Wood’s business associated with China and to achieve medium and long-term objectives by providing strategic direction and insights.

I am a proactive advocate of shaping and developing collaborations between the UK and Chinese supply chains through sourcing and developing crucial expertise and capacity building. I have been integral in developing Wood’s business with China in areas such as energy transition, digitalisation, smart urbanisation, environment and infrastructure. In addition, I am Nuclear Envoy for the Manchester China Forum, which was launched by Chancellor George Osborne in May 2013. I am also Deputy Chair of Nuclear Future, the official journal of the UK Nuclear Institute. Since January 2018, I have been guest lecturer for the International Masters Programme in Nuclear Engineering and Management at Tsinghua University.

China is one of the largest energy consumers in the world – do you see changing energy use habits in China either centrally or locally?

Energy usage in China is changing rapidly. The country has the largest nuclear reactor build programme in the world and is also developing the largest renewable fleet, underlining its strong commitment to clean energy and the creation of a low-carbon economy.

Wood is involved with a number of energy transition projects in China, including a coal liquefaction plant, which hugely reduces the emission of greenhouse gases.

China is developing the world’s largest electric vehicle fleet and is interested in hydrogen power, which is another area where Wood is offering its expertise and experience.

Will the Belt and Road Initiative encourage more people to use clean or renewable energy?

Promoting clean energy is one of China’s commitments under the Belt and Road Initiative. Wood is working with Chinese companies on a number of projects related to this in the UK and Europe.

Why did you decide to take a position on the board of CBBC?

Thanks to the breadth and depth of my experience in the UK, I believe I can help Chinese and British businesses, including world-leading corporations, to understand each other better and thereby help them to collaborate and find innovative solutions to the challenges they jointly face.

We all need to be agile enough to respond to the changes and trends shaping tomorrow’s world: the global energy transition, accelerating digital technology, growing urbanisation and demand for sustainable infrastructure. China is a global leader in these areas and I am well placed to observe and pass on the learning from its experience.

What do you hope CBBC can achieve in the near future?

As a membership organisation, I believe CBBC should be member-centric, putting ourselves in our members’ shoes, whether they are large corporates or SMEs, in order to understand their broadest objectives, greatest ambitions and biggest challenges. I will ensure CBBC will at all times advise, support and network with our members, blending teams across our services to respond to those evolving customer needs.

What advice would you give for people looking to work with China for the first time?

Building trust and long-term relationships are crucial in order to do business with Chinese companies. This requires patience, time and the willingness to invest in understanding each other’s perspectives.

Chinese companies are keen to learn about advanced technologies and know-how. Using WeChat, a social media and messaging app, can improve your communication with Chinese customers and business contacts. Last but not least, do visit your customers in China. You will be inspired by what they are doing.

The post Zhi Shengke discusses China’s changing energy habits appeared first on Focus - China Britain Business Council.

China is switching to renewables, especially wind and solar, as well as natural gas, to meet growing energy demand. Coal demand has probably peaked, although coal will continue to be the largest element in China’s energy supply for several decades to come. And just as important as the switch to cleaner energy sources will be a massive drive to improve energy efficiency, as well as environmental regulation more generally.

China has embarked on a major programme of investment in renewables. In 2016, according to the International Energy Agency (IEA), China was already the world’s largest market for renewables, accounting for 41 percent of all new capacity. Investment in China’s energy sector in 2016 was almost one-fifth of the estimated world total of $1.7 trillion. Most of this was in renewables and in the electricity transmission / distribution that will be needed to deliver the power where it is needed. The IEA predict that Chinese investment in renewables will be around $80 billion per year to 2040, and investment in distribution and transmission only slightly below that. These are vast sums by any standards.

Neil Hurst

Gas is also expected to play an important part in China’s new energy economy. Gas emits about half the greenhouse gases of coal and is far less polluting of the local atmosphere. So switching from coal to gas, especially for small industrial and domestic use, can contribute to improving air quality. China is expected to become a major importer of natural gas in the coming decades.

China has embarked on a major programme of investment in renewables

Just as important for the environment, China has been running a programme to improve energy efficiency that now covers over 16,000 enterprises. The energy intensity of the economy, that is to say energy demand per unit of GDP, is also declining as China re-balances away from heavy industry. According to the IEA, China achieved an impressive reduction of 5.7 percent in energy intensity in 2016 compared to 2015. They estimate that again until 2040, China will spend around $90 billion a year on improving the efficiency of buildings, transport, and industry.

As car ownership grows, China is on course to become the world’s largest oil importer, and oil security is an increasing factor in China’s geopolitics. However, China is also the world’s largest market for electric cars. When will this electrification start to moderate the growth in oil demand? In the IEA’s projections oil demand plateaus from about 2030.

Neil Hirst’s is the author of ‘The Energy Conundrum: Climate Change, Global Prosperity, and the Tough Decisions We Have to Make’, published by World Scientific Publishing Company. It is available now on Amazon.

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