China gas finalized its 2021-2025 renewable industry development plan and released the critical policy last month (2022/06.)
The plan reflects changes in China’s energy and decarbonization strategies, impacted by the historical electricity supply shortage in 2021. These changes also reflect the global energy price surge and the geopolitical challenges facing the nation.
Energy security is once again the centre of China’s energy strategy, which heavily sidelined the task of reforming the nation’s energy markets. Investing in stable, flexible, and much more power supply sources of renewable energy—domestic energy— becomes a critical strategy for China to secure economic development, decarbonization, and energy supply.
Wind and solar have become China’s key focus for building up electricity capacity. The role of hydro has been sidelined.
However, the decarbonization agenda would need to make some compromises. In the new energy and renewable FYPs, the regulators emphasized transforming its coal-fired power capacity into a backup power or an energy storage solution. The nation will not progressively shelve its coal power capacity.
Finally, the plan put an unprecedented emphasis on energy storage, which is unsurprising. What is somewhat surprising is the detailed plan to promote green hydrogen production and its industrial applications, which marks a whole new chapter for the nascent hydrogen sector. [EXTENDED READ: China’s National Hydrogen Development Plan that has an underwhelmed green hydrogen target for 2025]
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China’s Top Priorities Have Changed Regarding Energy
Below are our detailed breakdowns of what changes in China’s 14th Renewable Five-Year Plan.
The new renewable development reflects the changes in China’s fundamental energy strategy.
These changes have been determined by the top authority in a series of statements between late 2021 and early 2022, after a severe electricity supply crisis. The 14th “Modern Energy” Five-Year Plan, the overarching FYP for different energy sectors released in February, has crystalized these strategy changes.
- Energy security has become the No.1 priority of the top authority in the 14th FYP period—it is again a top priority after a decade of sufficient energy supply (and oversupply)
- Environmental development and decarbonization are the second priority. But the economic planner’s emphasis on decarbonization has significantly increased—compared to that in the 13th FYP
- The previous top task for 2016-2020 (set in the 13th Energy FYP) was energy “market reform.” This is no longer the priority. The phrase “Energy Reform” is barely mentioned in the new FYPs.
Decarbonization’s Strategies Also Changed
The top planner also has distinctly different emphases and priorities regarding how to advance the decarbonization agenda:
- “Control” was the keyword in the 13th FYP. The prime strategy is to curb energy consumption amount and energy intensity via the “Double-Control” (能效双控) policy.
- “Expand” is the new strategy. In the new “Modern Energy” FYP, Beijing believes the predominant approach should be “greatly expanding renewable capacity.”
- Beijing almost made a 180-degree turn on the “Double-Control” policy. It now aims to prevent oversimplified carbon-capping “movements.”
- The clean utilization of coal and coal-fired power is promoted by the 14th FYP, a sharp contrast to the 13th FYP that emphasized “capping coal consumption” unconditionally.
The New Emphasis Regarding Renewable
These fundamental strategy changes are clearly manifested in the 14th FYP for the renewable industry.
Renewable has become the main character of the electricity market
Renewable capacity expansion becomes the most essential policy toolkit to enhance domestic energy supply and advance decarbonization. Wind and solar power have become the dominant sectors of China’s electricity market. Compared to the previous renewable FYPs, the new plan has clearly put wind and solar development the top priority, calling for “increasing the market size exponentially.”
Electricity System to Support Wind and Solar
To support the main goal of ramping up renewable capacity, the FYP addressed the many aspects of China’s electricity system and requires changes in different areas including grid connection (to increase RE penetration), renewable consumption, and energy storage. Moreover, coal-fired power and hydropower are set to increase flexibility and team with wind and solar to tackle the intermittency features.
No Separated Installation Targets for 2025
The policy did not specify the separated installed capacity targets for 2025 PV and wind—neither are there targets for biomass and CSP. Instead, it reiterates that China aims to raise total wind and solar capacity to 1.2TW by 2030, almost double the 2020 rate.
Focusing on Renewable Consumption instead of Installation
The new FYP shows that the energy regulators aim to focus on supervising the industries based on renewable consumption, as targets of renewable consumption rates are set. These rates reflect renewable’s role in China’s electricity generation, which is still low.
Energy Storage and Green Hydrogen the Rising Stars
The new policy uses two separated chapters calling for development in energy storage and green hydrogen—for the first time in any renewable energy FYPs. The detailed discussion of green hydrogen’s production and applications is unprecedented.
Technology innovation has been put into a higher place compared to that in the 13th FYP. The previous plan mainly referred to market reform and business model innovation, while the new plan pinpoints the new innovation areas including electrolysis
Strong Support for Green Hydrogen
It is well expected that the new renewable FYP would mention green hydrogen production as a promising business for renewable consumption, energy storage, and grid optimization. That said, the strong emphasis on green hydrogen is still exceptional. [EXTENDED READ: China’s Green Hydrogen Market update 2021]
Green hydrogen is discussed heavily in the new renewable FYP, which is a separate session— next to energy storage, near-production utilization, and grid connections. All these are considered prime measures to promote renewable consumption.
The policy suggests the following directions to pursue the green hydrogen agenda before 2025:
- Carry out industrialized-scale renewable power-to-gas in regions with low renewable power prices and relatively established gas storage & transportation facilities.
- Push ahead green hydrogen (to replace fossil fuel) in critical chemical, coal mines, and transportation industries.
- Innovate and develop on-grid and off-grid renewable large-scale electrolysis technology.
- In other chapters, offshore wind power-to-gas and green hydrogen production equipment innovations are also touched upon in the policy.”