Shaping the future of energy and materials
December 1, 2020
The World Economic Forum, supported by Accenture, has developed the System Value framework to move beyond cost to a more holistic evaluation of energy sector opportunities across economic, environmental, societal and energy system value dimensions.
Key system value dimensions for China have been prioritized across the framework based on current market dynamics and its relative maturity of transition towards net-zero integrated energy system.
China’s electricity market was one of several markets chosen to demonstrate how the System Value framework can be used to evaluate opportunities that accelerate economic recovery and a clean energy transition.
China recovery solutions
Solutions to deliver peak emissions before 2030.
- Utility-scale Wind and Solar. New utility-scale solar and wind capacity growth and cost competitiveness are boosted by falling levelized cost of energy (LCOE) of variable renewables alongside government mandated renewable share target.
- Distributed Energy. Distributed energy is set to nearly triple over the next five years as urbanization continues, costs fall, and subsidies support distributed and rooftop solar.
- Internet of Energy. Continuous digital transformation of the power grid promotes smart grid developments and eventually the construction of a new digital energy ecosystem – the Internet of Energy.
- Efficiency Investment. Efficiency opportunities across the value chain such as grid, buildings, and industrial energy efficiency can reduce load, driven by government energy saving policies.
- Transport and Industrial Electrification. For transport, accelerate the construction of charging infrastructure and ongoing electric vehicle (EV) purchasing subsidies. For industry, continue to transform and electrify manufacturing processes.
To achieve carbon neutrality by 2060, the 14th Five-Year Plan will need to accelerate the pace towards an integrated energy system.
Energy transition trends shaping China’s electricity industry
Energy security
- Reducing import risk: As a net energy importer, China is dependent on other countries for oil and natural gas. With geo-political relations becoming more strained, government policies have been moving to limit gas power development and support energy security goals. Barriers to the construction of new coal plants have been lowered.
- High renewable investment: During the 13th Five-Year Plan period, China's new investment in renewable energy is expected to reach $360 billion, an increase of nearly 39% over the 12th Five-Year Plan period.
Domestic technology
- Progress in solar PV technology: China has an integrated value chain for its domestic solar PV industry, the world's largest, with the support of a robust research and development arm.
- Technical patents: China leads the world in the number of patents for renewable energy. As of 2016, the number of patents held was around 170k, 1.6 times that of the US and twice that of Japan.
- Power system data: According to the IEA, despite wide use of advanced digital technologies, the timeliness and availability of China’s power data is not as advanced as Europe.
Lower total energy cost
- Tariffs lowered: Regulated gas-fired power tariffs have been lowered by 16-28% in key provincial markets since June 2020, partially driven by political goals of reducing end-user power prices. Power tariffs for industries in China have fallen 25% in the last three years.
- Energy costs discounts: A 5%discount on electricity prices was provided to many industrial customers from February to June, which contributed to revenue drops for both State Grid and China Southern.
Climate change
- Commitment to carbon peak and carbon neutrality: In a September 2020 speech to the UN General Assembly, Chinese President Xi Jinping announced goal to peak its GHG emissions by 2030 and achieve carbon neutrality by 2060.
- Low emissions steel industry: In May 2018, the Ministry of Ecology and Environment of China proposed that qualified steel enterprises should comply with an ultra-low emissions plan and aim to complete the transformation of production capacity of 480 million tonnes of steel by the end of 2020.
COVID-19 impacts to China’s energy transition trends
Energy security
- Price of oil drops: COVID-19 has created a surplus in the global oil market and led to lower oil prices, which is helpful for China to achieve lower energy costs.
- Energy demand: Compared with the previous two years, the growth rate of China's total energy consumption in 2020 will further slow because of COVID-19.
Domestic technology
- Solar PV supply chain: A decline of China‘s exports of photovoltaic modules is inevitable due to the shortage of raw materials and challenges to logistics, transportation, and labor. However, the impact is expected to be short term.
Lower total energy cost
- Slow construction and more cost: Renewable energy projects delayed by COVID-19 may run the risk of not being able to obtain incentives from the Chinese government that will expire by the end of 2020. Furthermore, construction costs face increases as a result of restrictions on the number of workers allowed on site and strict hygiene regulation.
Climate change
- Decrease in short-term emissions: During the crisis, China temporarily saw a reduction in carbon emissions and local air pollution.
- Opportunity in LNG: The epidemic has accelerated the overall easing of global gas supply, provides an opportunity for China to achieve significant air quality gains without compromising industrial competitiveness.
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COVID-19 recovery solutions
Utility-Scale Wind and Solar
Wind power has become China's third largest power source after hydropower and coal power.
The rapid growth of China's solar energy industry began in 2004. A comprehensive solar energy industry policy system was gradually established, including a multi-level policy framework incorporating pricing, subsidies, taxes, and grid connection. Industry standards and testing and certification systems were also developed.
Distributed Energy
Decentralized, flexible, clean and efficient distributed energy will become an indispensable part of China's energy supply.
China is in a critical period of economic structural transformation, with the proportion of heavy industry declining and the proportion of commerce and service industries rising. Thus the proportion of distributed loads (commercial and small industrial facilities) is expected to increase, with energy demand becoming more dispersed and flexible.
Internet of Energy
Energy technology and digital innovation are changing the traditional value chain of energy, leading to the construction of a new digital energy ecosystem in China (“the Internet of Energy”).
The power loss rate is an important technical and economic index for power grid enterprises. Strengthening power loss management can reduce cost, increase efficiency, improve lean management, effectively detect hidden security risks, optimize the distribution network, and provide users with safer, more reliable power supply services.
Efficiency Investment
The Chinese government set a goal to cut energy intensity by 15% from 2015-2020 and invest $270 billion in energy efficiency. After three successful years, in 2019, China fell just short by only 3%. The NDRC noted the rapid growth of steel, building materials, non-ferrous metals, chemicals and the service sector as negatively impacting efficiency goals. However, as of May 2020, China remains on schedule to achieve the upcoming five-year reduction target.
Transport Electrification
The road transport sector has a net-zero emissions target set for 2050.
China targets to electrify an additional 3% of industrial energy demand by 2025.
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