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Economics: Manufacture renewables to build energy security

Countries should follow China's lead and boost markets for water, wind and solar power technologies to drive down costs, say John A. Mathews and Hao Tan.

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Wang Dingchang/Xinhua Press/Corbis

Some of China's most powerful wind turbines, at the Donghaitang wind farm in Wenling.

China's rise to become the world's largest power producer and source of carbon emissions through burning coal is well recognized. But the nation's renewable-energy systems are expanding even faster than its fossil-fuel and nuclear power. China leads the world in the production and use of wind turbines, solar-photovoltaic cells and smart-grid technologies, generating almost as much water, wind and solar energy as all of France and Germany's power plants combined1. Production of solar cells in China has expanded 100-fold since 2005.

As the scale of Chinese manufacturing has grown, the costs of renewable-energy devices have plummeted2. Innovation has played a part3. But the main driver of cost reduction has been market expansion. Germany and South Korea are following similar paths. In short: industrialization can go hand in hand with decarbonization.

Too many countries have yet to take notice. The United States and European Union are pursuing counterproductive policies, such as increasing trade tariffs on imported Chinese photovoltaic panels. Restricting global trade in renewable devices will only slow the rate at which costs decrease and will decelerate the world's retreat from fossil fuels.

As a result, uptake of renewable energies globally has been too sluggish to seriously reduce greenhouse gases and tackle climate change. For 15 years, countries have failed to deliver their carbon-reduction commitments under the Kyoto Protocol, hindered by the vested interests of the fossil-fuel industry and fears that the alternatives are costly.

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John Mathews on China’s trend for renewable energy

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The narrative around renewable energies needs to change. As in China, renewables must be seen as a source of energy security, not just of reduced carbon emissions. Today's discussions about energy security focus almost exclusively on maintaining access to fossil fuels. But unlike oil, coal and gas, the supplies of which are limited and subject to geopolitical tensions, renewable-energy devices can be built anywhere and implemented wherever there is sufficient water, wind and sun.

Green growth

As the scale of manufacture and use of renewables rises, market forces will make them more accessible, affordable and efficient. Energy policies should therefore focus on promoting manufacturing, trade and competition in low-carbon technologies, rather than supporting ever more expensive, dangerous and inaccessible fossil fuels. Emissions reductions will follow.

China generates more than 5 trillion kilowatt-hours (kWh) of electricity, about 1 trillion kWh more than the United States. China's rapid economic expansion since it joined the World Trade Organization (WTO) in 2001 has been based on fossil fuels: it consumes around 23% of the world's coal production for electricity. But fossil fuels alone cannot power the industrial growth the country needs to keep up with the West.

Since the mid-2000s, China has also pursued a low-carbon energy strategy. Investment in hydroelectric, wind, solar and nuclear-power generating facilities increased by 40% between 2008 and 2012 — from 138 billion renminbi (US$22 billion) to about 200 billion renminbi. The share of investment in fossil-fuel power facilities in China, meanwhile, fell from around 50% to 25% over the same period.

Source: EIA/China Electricity Council

As a result, China's wind-power capacity has increased fivefold in the past four years (see 'Wind speed'). And in 2013, the generating capacity from new water, wind and solar sources exceeded4 that of new fossil-fuel and nuclear facilities for the first time (see 'Renewables powerhouse'). Zero-carbon sources now contribute 9.6% of the energy used in China, up from 5.6% in 2000. This is a considerable achievement.

In 2013, China also hit its target — two years early — to generate almost 30% of electricity from renewables. The Chinese government aims for renewables capacity to reach 550 gigawatts (GW) by 2017, or 48% above the 2013 level. No other country is investing so much money or generating so much renewable energy.

Economies of scale

China is upgrading its power grid to accommodate power fluctuations and distributed generation for intermittent sources. In one demonstration project, the State Grid Corporation of China (SGCC) is investing 9.4 billion renminbi to integrate wind and solar-photovoltaic generation and storage devices into the main grid. The SGCC is helping to set international product standards for smart-grid elements that will underpin the export of these technologies to countries such as Brazil.

How has China's energy security improved? China became a net importer of oil in 1993, of natural gas in 2007, and of coal in 2011. Hitting its 2017 wind, water and solar power targets, we calculate, would translate into a saving of 45% on current imports of oil, coal and natural gas.

There are two keys to China's success in renewables. Focused policies drive investment in selected sectors and encourage domestic take-up by measures such as feed-in tariffs. And industrial dynamics, including economies of scale and efficiencies gained through learning, drive down unit costs as the global market expands.

Source: Renewables 2014 Global Status Report

Renewable-energy generation requires the manufacture of many components, such as wind turbines, solar-photovoltaic cells, mirrors, lenses, batteries and energy-storage systems. From 2010 to 2013, while total global photovoltaic installation more than tripled from 40 GW to 140 GW, China's installation expanded 22-fold, from 0.8 GW to 18 GW. Supplying the international market, as well as the domestic one, has helped to drive down costs of photovoltaic panels by 80% since 2008. Solar-power users around the world have benefited from lower prices.

A few other countries are following a similar strategy. South Korea, for example, is committed to 'green growth' — expanding its smart grid and focusing its production on emerging clean sectors such as zero-emission vehicles. And Germany has been expanding its manufacture and use of solar and wind power (under its Energiewende energy-transition programme) since the early 2000s, with the aim of replacing its nuclear power with renewables.

The same principle of industrial-scale production established US supremacy in the automotive industry a century ago. Between 1909 and 1916, Henry Ford reduced the cost of his Ford Model T by 62%, from $950 to $360. Each year, sales doubled — from fewer than 6,000 in 1908 to more than 800,000 in 1917.

Yet US energy policy emphasizes exploiting domestic coal seam gas and shale oil, through innovations such as hydraulic fracture (fracking) and horizontal drilling. The problems of diminishing returns and environmental costs of fossil fuels remain5. The United Kingdom, too, is inclined to build up its supplies of coal seam gas by fracking, and to expand its fleet of nuclear reactors, a portfolio approach that will leave the country importing others' technology.

Changing the conversation

Reframing the emissions debate in terms of energy security has profound implications for international negotiations under the terms of the United Nations Framework Convention on Climate Change. In December, national representatives will gather in Lima for the preparatory meeting to the Paris conference in 2015. Their agenda remains negotiating voluntary national carbon-emissions reductions, rather than promoting renewable-energy industries, as the fastest route to decarbonization.

But governments that build strong renewables sectors can achieve those emissions reductions while enhancing their energy security and building their manufacturing industries. Another advantage of the market-oriented approach is that renewables are not burdened with the task of resolving the entire climate-change problem. Few countries will be able to rely on water, wind and solar power alone, and some fossil fuels will continue to be used.

“No other country is investing so much or generating so much renewable energy.”

Our critics will counter that technology-based solutions raise concerns over the availability of industrial materials and land for building solar and wind devices and farms. But our calculations suggest6 that a global renewables push for an extra 10 terawatts of power-generation capacity could be achieved on current industrial scales over the next 20 years, by which time the world energy system would be well on the way to total conversion. Producing the extra 10 terawatts from renewables needed to transform global electric power would require more than 5 million square kilometres (about twice the size of Kazakhstan) filled with around 3 million wind turbines, 14,000 concentrated solar-power installations and 12,500 solar-photovoltaic farms. These technologies could perhaps be accommodated in the world's desert and semi-desert regions. The targets are large — but they are manageable compared with current world production levels of 1.75 billion mobile phones per year or 84 million vehicles per year6.

Trade solutions

The main obstacles to expanding renewables uptake are failed policies and continuing subsidization of fossil fuels.

All governments should enlarge the market for renewable power by encouraging manufacture and trade of devices. Countries should foster export and import of renewable electric power (from, say, North Africa to Europe under the DESERTEC project, or from Mongolia to China, Japan and South Korea under the east Asian super-grid proposal). Above all, the narrow agenda that the Kyoto process has enforced needs to be broadened.

How? One way involves expanding free trade in renewable devices. Here, the WTO could complement the Kyoto process7. A preliminary agreement to free up trade in renewables was adopted by Asia-Pacific Economic Cooperation countries in 2012, and could be proposed to the WTO. A precedent exists with trade in personal computers and other information-technology products. It was expanded from a voluntary agreement to reduce tariffs, signed up to by most major industrial countries, and adopted by the WTO in 1997.

Private finance must also play a part. The Kyoto-process negotiators have so far considered that financing for climate-related initiatives should come from tax-based public finance rather than from private or even government-backed development banks. This emphasis needs to change. Green bonds lower the costs of capital and facilitate the scaling up of investments. One example is the $500-million bond issued by the Export-Import Bank of Korea last year allocated exclusively to finance green projects around the world.

China is leading the way. By placing the emphasis on production scale and market growth, it is contributing more than any other country to a climate-change solution. Its build-up of renewable-energy systems at serious scale is driving cost reductions that will make water, wind and solar power accessible to all.

Journal name:
Nature
Volume:
513,
Pages:
166–168
Date published:
()
DOI:
doi:10.1038/513166a

References

  1. BP. BP Statistical Review of World Energy 2014 63rd edn (BP, 2014).

  2. World Energy Council World Energy Perspective: Cost of Energy Technologies (World Energy Council, 2013).

  3. Trancik, J. E. Nature 507, 300302 (2014).

  4. Mathews, J. A. & Tan, H. Asia Pac. J. 12, (2014); available at http://go.nature.com/z6job5

  5. Mathews, J. A. & Reinert, E. Futures 61, 1322 (2014).

  6. Mathews, J. A. & Tan, H. J. Sustain. Energy Eng. http://dx.doi.org/10.7569/JSEE.2014.629505 (2014).

  7. Helm, D. Nature 491, 663665 (2012).

Author information

Affiliations

  1. John A. Mathews is professor of strategic management at Macquarie Graduate School of Management, Macquarie University, Sydney, Australia.

  2. Hao Tan is senior lecturer at Newcastle Business School, University of Newcastle, Callaghan, Australia.

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  1. Avatar for Dr. A. Cannara
    Dr. A. Cannara
    Very good article. China has indeed the greatest need to move forward as fast as possible with non-emitting power. One correction to be considered -- "renewable" is an unfortunate term, since no energy source is renewable, simply from conservation of energy. In addition, some sources, misnamed "renewable" are subject directly to climate change, such as wind and hydro. thus China doesn't have adequate water flows to generate significant power, as exemplified by the Three Gorges Dam's shortfall, as well as its great environmental costs. Wind 'farms' in some regions are also not doing what was expected, as climate change alerts flows and pressure differences across regions. What China is indeed wisely doing is expanding solar (especially local) and nuclear as quickly as possible. Despite its great efforts, the Chinese forecast is that by 2035 China will be burning twice as much coal as today (see picture), if economic growth is as forecast. This is an impossible environmental situation. And the most important critique of this, or any piece on climate issues, is that the proximal dangers are not simply warming or sea rise, but acidification. Ocean chemistry is already causing large fishing/farming losses. Species extinctions are only years, not decades away. and with those extinctions comes loss of the dominant carbon-sequestration cycle to seafloor limestone. This will mean loss of about 15% of all human food protein and permanent loss of food chains dependent on calcifying sea creatures. We have emitted >1.5 trillion tons of CO2 in the Industrial Age and only about 1/3 of that has yet dissolved in seas. Reducing all CO2 emissions to zero today will have little effect, as the 1 trillion tons continues to dissolve and bring ocean chemistry to the extinction of calcifying life and sea food sources. Far more needs doing, than emissions reductions. Fortunately, advanced nuclear power can indeed be used to address both emissions and ocean chemistry, and China is proceeding with some R&D. But again, billions of tons of CO2 must be mitigated/sequestered per year to protect ocean pH from dropping the next 0.1 to extinctions. We might think of this as a worldwide Apollo 13 Moment -- the end is clear and near. Some examples: http://tinyurl.com/nqfem24 https://www.youtube.com/watch?v=wtQxF_3BSxQ TEAC6 -- Dr. A. Cannara 650 400 3071
  2. Avatar for David W
    David W
    We should be clear on the issue of what renewables are. The debate is not over countries like New Zealand, Norway, Venezuela, Ecuador and Brazil where in-place and even slightly expanded hydro capacity equals real base load capacity for the grid. We are talking about once hydro is effectively maxed out, can solar and wind take up the rest of the grid at a price or even capacity needed? S. Korea, also noted in the article, like China, is massively expanding it's nuclear share. Again, the problem with this article is that it acts as if nuclear in either country doesn't exist or isn't relevant. This is a HUGE error and I know enough people in the anti-nuclear / pro-renewable communities in the U.S. who really are upset about this false portrayal of developing countries energy expansion plans. You are giving a false sense of security to renewable energy advocates.
  3. Avatar for Michael Kelly
    Michael Kelly
    Keith, Your assumption is profoundly in error, and your consequences follow from an inappropriate premise in this case. Do take a look at the studies quoted. I am not pushing nuclear as the solution, but it is a more technologically tractable part of the solution for the megacities where over half the 2050 population will live, and where the surrounding land is prioritized for food production at present. See also: http://bishophill.squarespace.com/storage/ECMA.Aberdeen.actual.pdf for my own views.
  4. Avatar for keith williams
    keith williams
    Hi Michael, I'm sorry but I disagree profoundly with your views. If you will not accept the evidence of 1000's of scientists about the impending climate emergency, then of course we can stay with business as usual and burning fossils fuels. I accept the science and this means we have to decarbonise if humankind is to survive. The latest IPCC report (distillation of the findings of the world science in this area) is chilling. Lots of studies (and even the big investment banks) are accepting that the cost of decarbonising is considerably less that the cost of inaction. And it is happening. As an engineer I find is curious that you suggest that new technologies should only be introduced when they are finished. It is clear that the process of introduction dramatically changes the game. Look no further than the heroism of Germany on solar, and now China. Solar is already cheaper in some places and close in others than fossil fuels, with none of the health and environmental costs (which aren't paid for currently by the fossil fuel generators). Ditto wind. The group that will be hurt is the incumbent fossil fuel industry, and this is to seek a few short years of additional profits.... massive price for humanity to pay. The market is starting to swing behind the change. China is forcing the issue not only because of climate issues but also energy security as indicated in the article. I think there is a third driver in China (and India), which is the pollution caused by burning fossil fuels. When your citizens can't breathe there is a powerful incentive to do something.
  5. Avatar for David W
    David W
    Greeting, it's very odd that nuclear energy gets shut short mention and, basically inaccurate at that. That 'statically' and only in 'capacity' (which means little in terms of wind and solar) do non-hyrdo renewables mark as stronger than nuclear. It avoids what China IS doing with regards to nuclear and, where it is going *as the policy of the Chinese gov't*. It gives pro-renewable acitivsts a false sense of security. To wit: Prior to 2008, the government had planned to increase nuclear generating capacity to 40 GWe by 2020 (out of a total 1000 GWe planned), with a further 18 GWe nuclear being under construction then. However, projections for nuclear power then increased to 70-80 GWe by 2020, 200 GWe by 2030 and 400-500 GWe by 2050. By around 2040, pressurized water reactors are expected to level off at 200 GWe and fast reactors progressively increase from 2020 to at least 200 GWe by 2050 and 1400 GWe by 2100. The actual *policy* of the Chinese gov't is that by the end of this century, 75% of all electrical generation will by by nuclear energy. If the article was at all honest, it would at least discuss this. So where does this lead the renewable industry in China? Not very much, not even double digits in terms of actual *capacity factor*.
  6. Avatar for keith williams
    keith williams
    David, Fukushima dramatically altered the nuclear landscape not only in the west, where it effectively stopped everything (and led to plans by France to move from 70% back to 50% nuclear), but also in China. I agree that before Fukushima the estimate for China nuclear by 2020 was 70-80GW, but now the estimate is 40-50GW. It is instructive to consider the trajectories for wind and solar in a similar time frame. Solar was going to be 1GW in 2008, now it is going to be at least 90GW and most probably more than 100GW. For wind in 2008 the projection was ~8GW, with the latest projection for 2020 being 239GW and by 2050 1000GW wind. There are no reliable projections for solar beyond 2020, but it is clear that it will be heading towards 1000GW. We'll have to see what happens post the 28 nuclear reactors planned and under construction in China. If the current trajectories continue, nuclear will be substituted by wind, solar and storage (esp EVs). The centralised grid is an outmoded concept and nuclear is inherently inflexible. Various major reports from investment banks indicate that solar is the game changer (but I think that wind, including offshore, shouldn't be overlooked) and this is impacting on nuclear planning as the cost structure and time to build are unattractive. Solar and wind are really fast to implement as we are seeing in China. A large slice of the US nuclear plants are in danger of close down through age and inability to compete on price. France is reassessing its plants as the post-Fukushima refit costs are huge. Britain has 25% of its nuclear plants closed at present and the whole of the British nuclear facilities are due for close down in the mid 20's. It isn't clear that Hinkley Point C will get built and even if it does, it will not contribute until 2023. The urgency for climate action is now.
  7. Avatar for Michael Kelly
    Michael Kelly
    Readers should also consult three references that come to a diametrically opposite conclusion on the feasibility of current generation renewables, versus fossil fuels, for energising modern society. P.A. Prieto and C.A.S. Hall: ‘Spain’s Photovoltaic Revolution: The Energy Return on Investment’, Springer 2013. D. Weißbach, G. Ruprechta, A. Huke, K. Czerski, S. Gottlieb, and A. Hussein, ‘Energy intensities, EROIs (energy returned on invested), and energy payback times of electricity generating power plants’, Energy 2013; 52: 210-221. http://theenergycollective.com/barrybrook/471651/catch-22-energy-storage
  8. Avatar for keith williams
    keith williams
    Michael, I suspect your study started with the answer about nuclear and worked back to get to how to make it necessary. There has been a consistent theme from anti-renewables groups over the years seeking to argue on theoretical grounds and then in increasingly convoluted ways that 100% renewables is impossible. Even 10%, then 20% and then 50% were "impossible" to achieve, with each of these barriers being knocked down by demonstration. Denmark led the charge and now it is heading for 50%, as is South Australia, and of course New Zealand and Tasmania are already way beyond 50% (80%+). Germany is 30%. Meantime the impossible keeps happening. I suspect part of the problem with your study is the assumptions made about how renewable energy gets handled. The best way to analyse this is to check out a real world operating system. Denmark has a website that shows real time electrical energy generation and consumption. This involves a networked grid that exports/imports energy with neighbouring countries, as Europe has the most integrated networked grid. See it live at : http://energinet.dk/Flash/Forside/UK/index.html A couple of Australian groups modelled how 100% renewables would work for Australian electricity generation. See: http://media.bze.org.au/ZCA2020_Stationary_Energy_Report_v1.pdf and http://www.sciencedirect.com/science/article/pii/S0960148113006745 These reports were widely ignored by the fossil fuel industry and the established energy heirachy. They were conducted by University groups with limited resources, but they both showed that 100% renewables was feasible and cost effective. Now there is a much more extensive study of the German energy system where 100% renewables are modelled over 12 mths hour by hour. It is an interactive website that allows you to dig into how the energy mix works throughout the year: where it is generate and where and who uses it. A significant aspect of the system is the way energy generation is distributed and the way both major AC and DC transmission lines are central to the system. Interestingly I don't think it includes a significant role for Electric Vehicles, which are surely going to have a major impact (watch China again)... so there is room for even more interesting innovations. Check out the site and then you'll see why nuclear is neither needed nor do-able in the time frame we have available. http://www.kombikraftwerk.de/100-prozent-szenario/leistungsflussanimation.html The problem is now and renewables are a rapid solution as the Chinese are showing. The trajectory for wind and solar implementation is dramatically greater than nuclear in China.

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