China is taking a leadership role in solar and wind deployment for electricity generation: this will accelerate the global energy transition from the thermal system. By 2020 solar and wind could supply over 50% of China’s marginal electricity demand, and non-fossil fuels all 100%.
China’s energy sector is undergoing a major transformation, and doing it quickly.
It is aiming to move swiftly to a new generation of energy technology, replacing its dependence on thermal fossil fuels.
As argued before in this post, this is primarily due to energy security and urban population health issues – in other words, a deep necessity.
It will also provide ancillary benefits: reduced CO2 emissions, and improved manufacturing export capabilities – strengthening political and economic leadership.
Taken together, these factors are propelling and sustaining China’s energy conversion.
Given China’s central importance to global energy demand, this swift conversion will impact the world energy industry significantly and quickly. It will also transform the way energy is managed in the 21st century.
A New Revolution
As a priority, China needs to reduce its dependency on – imported – fossil fuels, and develop local energy production.
Therefore its latest Five Year Plan (FYP), summarised here, focuses on (restrained) investment in capacity growth of the indigenous coal sector, coupled with the rapid introduction of new technological energy sources, primarily wind and solar. Natural gas, hydro and nuclear energies form secondary components of the plan.
The charts below mostly take the FYP at its word. However, given the vagaries of government statistics, which are often subject to revisions, a few assumptions have had to be made.
The calculations assume that coal capacity growth will not hit the imposed cap of 1100GW – only reaching 1050GW. Given that most coal-fired plants are currently only reaching 50% capacity, leading to numerous project cancellations, this seems reasonable.
Solar and wind are expected, however, to reach the top-end of forecasts at a combined 360GW. And overall electricity demand is assumed to grow at 1.5% pa in the period, even though recent data has been volatile.
China Capacity Increases – 2016-20 est based on 13 FYP
The charts tell a simple but surprising story. Solar and wind will provide the largest amounts of capacity addition between now and 2020 – some 134GW. That is the equivalent in capacity terms of 70 medium-sized nuclear facilities.(In fact, actual nuclear growth is some 20GW in the same time-frame, which neatly showcases the superior scalability and flexibility of wind and solar energy technologies).
If achieved, these goals would mean by 2020 China will have more wind and solar capacity than the EU and US have today combined.
By 2020 solar and wind will also provide over 18% of China’s power capacity, and 8% of power supply. At the same time coal reduces in capacity on a percentage basis to 52% from two thirds today.
But here’s the real message – it’s a strategy delivered: by 2020, only months away, the two main pillars of China’s future power generation are a managed and capped thermal coal sector, and a rapidly expanding solar and wind complex – together accounting for 70% of installed capacity.
And whilst solar / wind will account for 8% of China’s total generating power by 2020, it’s the fast growth rate to that level, and beyond, that will be hugely disruptive.
As the chart below shows, assuming total electricity demand growth of 1.5% pa, wind / solar technologies will account for over 50% of China’s new incremental power generation between now and 2020, and in fact non-fossil fuels supply 100% of the total – removing the requirements for any new thermal supply.
This renders the new coal (and possibly gas) capacities potentially redundant, adding to a chronic under-utilisation issue that is gradually being addressed. Who said change was easy?
An IEA chart from 2016 plots similar data – showing how China – and indeed the world at large – has a coming energy paradox: a surfeit of economic energy technology for the limited demand available.
A Path Less Chosen
China has chosen to use this reality to force a new energy path dependency: maintain a long-term base of locally-sourced coal, but pivot heavily toward locally-manufactured energy via solar and wind for long-term future growth.
On the current growth trajectory, over 20% of its power generation could be supplied by solar and wind by 2030, and over 50% by non-fossil fuel sources. The impact in terms of lowering global carbon emissions will be immense.
Capture and Conversion Overhauls Combustion
China’s energy transformation has ramifications well beyond China.
For a long time, China was the poster child of the future demand for thermal fuels – coal, oil and gas.
Unable to be a world leader in the extraction of thermal fuels due to lack of endowment, China is now instead becoming the world leader in manufactured energy – solar and wind.
That creates a far more positive outlook for the investment picture of these technologies, and a much more negative one for fossil fuels.
By 2020, all the major economic blocs in the world – the US, EU and China – will have made more or less equal and significant investments in power capacity and generating capabilities for manufactured energy via wind and solar. India is likely to follow suit.
To be more precise, by 2020 these three blocs will have spent over $2 trilion on wind and solar in the preceding 15years, and by that time wind and solar will account for 20% of global installed power capacity, and 10% of global generating capability.
Compound annual growth rates will likely also still be in double digits, and given the nature of manufactured technologies, the levelised cost of producing electricity per dollar will be lower for wind and solar than for thermal fuels and power plants.
Local energy capture and conversion via scalable PV and turbines will thus have begun, in earnest, to replace the incumbent global electricity supply chain process of extraction, transportation and combustion of coal and gas.
Marginal Change Changes Everything
Kingsmill Bond of Trusted Sources has maintained for several years now for energy transitions we need to focus on marginal change, not total system change.
The Chinese example highlights this – by 2020 solar / wind will provide 8% of electricity supply, but over 50% of marginal demand, squeezing out thermal fuel requirements.
Clearly that will be hugely disruptive – the Chinese coal and steel industry is contemplating over 2 million job losses. But the overall energy sector is looking ahead to over 13 million potential jobs for the incoming solar / wind manufacturing industry.
This is a global phenomenon.
The two charts below from Kingsmill’s work – History is Bunk – highlight the scale of change for electrical power markets. Global electricity demand is growing at about 1-1.5%pa, meaning the world needs about 300TWh of new supply per year.
Solar and wind, even at the lower edges of 15-20% growth, can provide almost all of that, even before hydro and nuclear are included – and fossil fuels even considered.
So don’t be seduced by “gradual transition curves” of total system change – there will be chaos on the ground as a new energy system attempts to supplant the century-old incumbent thermal one.
Kingsmill’s conclusion is stark: using the simple metrics of total power growth versus supply from solar and wind, demand for fossil fuels falls to zero by 2019-20. Peak demand for these fuels has been reached, and they enter long-term decline.
The reality will of course be more complex and subject to policy actions, local market reactions and so on.
But the maths is the maths.
Our world now has more effective and economic energy supply technologies than it has demand for the energy they can produce.
Adoption, Integration, Dependency – Solving Intermittency
Each of the major energy-consuming regions arrives at this energy cross-roads from different directions.
This can be seen in the triptych of charts below from BNEF, analyzing solar and wind investment over the past 10-12 years (they account for over 80% of the renewables data shown).
In the useful framing of Gregor Macdonald he notes this new manufactured technology is entering an adoption phase, whilst the incumbent fossil fuel industry is in its dependency phase, where deep legacy infrastructure and processes may slow the uptake of the new entrant. He also notes that manufactured solar and wind tend to work off local supply chains and deployment, making them more robust than the complex international supply chains required by the thermal fuel industry.
Wind and solar, in all regions, have clearly moved into an adoption phase. In the EU, they are also in the post-adoption and more challenging integration phase with the incumbent thermal technology. This is slowing progress as pricing and capacity utilization issues start to become complex.
But for the reasons we have discussed, China has obviously the most focused and confident investment profile in solar and wind, and will continue with the pace of investment, and thus establish itself as a leader of the new energy technology.
Kingsmill Bond covers the rationale is detail here, but in brief, propelled by the necessity to carve a new energy pathway, the country already supplies about 50% of the world’s wind turbines and 70% of its PV solar panels. It has a deep manufacturing capability and culture suited to the new energy requirements, and it can learn by doing via installation and grid deployment in its own vast territory. In a word, it has Momentum in this arena.
As China deploys these technologies at break-neck speed, they will have to quickly find solutions for solar and wind’s supposed great weakness – intermittency integration with the thermal grid.
China has encountered these issues already, and has had to curtail wind energy grid connections for example, resulting in unutilized capacity of installed equipment. In fact its FYP13 specifically attempts to address this by setting curtailment targets of 5%, down from 15% experienced today.
So it is likely, due to the necessity behind its huge investment, that China will also find solutions quickly regarding storage, high voltage transmission, dynamic modeling, pricing and so on.
When it does, these solutions will be available to all future solar / wind energy installers – likely offering the new path dependency to India and other growth markets.
In addition, it can potentially sell the solutions to mature grid operators in the EU and US.
In short – the integration “intermittency problem” is not going to be some fundamental flaw; it is going to be merely a complicated engineering problem with a transformative solution, comparable to finding a far lighter lithium-ion battery for EVs, or, further back, large-scale extreme low-temperature pressurization for global gas shipments.
In this way, China’s deep investment in the solar and wind market will consolidate the technology’s efficiency, and provide solutions to current adoption issues, accelerating its wider deployment both in developing economies, and mature regions such as the EU facing integration issues.
Timing is Everything
It’s bad luck for the incumbent fossil fuel technology that at a period of declining overall demand, a more effective and attractive technology appears.
And in this case it is not just another thermal variant, but a new scalable, flexible and manufactured alternative whose costs decline quickly over time, and whose long-term environmental effects are far more benign.
It’s also worse luck that the largest manufacturing nation on earth is leading the deployment of this new technology through a potent mix of internal necessity, and the opportunity to on-sell its engineering solutions.
China’s rise to the top of the solar and wind investment league will therefore knock key non-OECD markets off the path dependency toward fossil fuels more rapidly then traditional forecasts expect. It’s likely India will follow suit for example, as it has almost the perfect geographical structure for solar efficiency.
The incumbent fossil fuel industry will now have to confront not a gradual, but a rapid transition to an alternative energy source.
To restate, by 2020 the growth in demand for fossil fuels in the global electricity market will be zero.
The necessity for them will have peaked.
How coal and gas then sort out this decline in demand amongst themselves will be complicated and disruptive; and how fossil fuel dependency clashes with solar and wind adoption also problematic.
But the reality remains: with China’s massive involvement in the manufactured energy market, solar and wind development and deployment will accelerate dramatically.