The success or failure of China’s $736 billion plan to invest in solar, wind, biofuel and nuclear energy is likely to depend on one thing – the price of coal.
Policy and industry analysts warn that if the costs of these new technologies are not commensurate with that of coal, China’s clean tech push may fizzle and fail to attract the private sector investment it needs for long term success.
“The government must gradually lift fossil fuel prices while granting incentives to non-fossil fuels to establish a long-term price signal,” said Wang Yi, deputy head of Policy and Management at the China Academy of Science. Without changes in tariff structures, there would be little incentive for private firms to invest, analysts warn.
State-run firms would be the only ones able to operate at a loss as “they are the ones who can afford to lose money,” said Lin Boqiang, head of Center of Research on Energy Economics at Xiamen University. “The private sector can’t afford waiting around for 5 to 10 years operating at a loss.”
China’s low-carbon energy potential is enormous. The government is aiming for a 45% cut in carbon intensity from 2005 levels by 2020 and a 15% increase in share of renewable vs. primary energy consumption. Certain estimates say that China is ready to build at a minimum 20 nuclear power plants over the next 5 years, each with a capacity of 2GW.
Coal, however, is the elephant in the room. Providing 80% of all electricity for its growing economy, China is the world’s #1 coal user. It constructs, on average, one new coal-fired power plant every week. Switching away from such a plentiful albeit highly polluting resource will be difficult for the economic giant.
On top of that, China has been making improvements to its coal plants to make the burning process cleaner. These generators are called supercritical plants, and they produce approximately 15% less CO2 that conventional plants at about $500-$600 per kW less than in developed OECD nations.
China has overtaken the U.S. as the world’s top emitting country, and it faces tremendous pressure from the international community to wean itself off its coal addiction and get serious about reducing its emissions levels.
Foreign firms such as nuclear Areva of France, wind power equipment producers Gamesa of Spain, U.S.-based First Solar and India-based Suzlon are just a few that will be waiting to see how China’s investment plans develop and how it meets this coal-pricing challenge.