The Potential Of China’s Wind Energy Industry

Policies outlined in the 13th Five Year Plan could tremendously increase China’s contribution to the fight against climate change. In fact, it is already regarded as one of the most successful cases of renewable energy transition, generally XXX to a strong state and effective top-down policy execution. Yet, wind curtailment rates are at 15-30% as compared to an average in developed countries of about 1-3%. Hence, even though China’s wind energy capacity promises great potential for global climate change fight, there seem to be factors in place withholding large parts of this. To identify what the intentions are, where some of the problems lie and what can be done to solve them, it is essential to understand the political environment.

In broad perspective, fundamental changes in the energy market are most commonly viewed as part of an underlying socio-technical transition. In the case of China, there is an incumbent regime that supports fossil fuel-based energy, primarily focused on coal as it currently accounts for about 70% of Chinese power demands. Most prominently, coal-based companies and provincial governments are associated with this group. On the other hand, there is the new regime that advocates for renewable energies to replace its opposite. This draws on support from actors engaged in the production and installation of wind turbines as well as the central government. Mechanisms to facilitate this change consist largely of market incentives and hierarchical policy directives.

Challenges to this socio-technical transition are generally associated with conflicts between the two regimes. In the Chinese wind industry, there are multiple obstacles the new regime is required to overcome. While many of these are economically inclined, political considerations rotate around the concept of fragmented authoritarianism, i.e. the structural allocation of authority within and between vertical and horizontal stakeholders. Within this system, the two major spheres consist of the aforementioned old and new regime. The central government intends to meet international environmental standards by distributing targets and obligations as directives to subnational governments through the overall party-state’s command and control system. On the opposite side, provincial governments continue to reframe central policies to promote coal power plants and carbon intensive industries, motivated by regional goals of economic growth, employment.

All policy directives pass through a bureaucratic hierarchy. Primary authority lies with the National Energy Administration (NEA), which oversees investments and regulates the market. As the major macro-economic policy making agency, the National Development and Reform Commission (NDRC) issues the Five Year Plan and is responsible for the NEA’s administration. However, the NEA has no binding authority over grid companies, similarly being the case for the influence of ministerial departments over provincial governments. As renewable energy policies currently require grid companies to purchase all grid-connected wind energy generation, these horizontal institutional misalignments drive a wedge between policy directives and implementation, widening the gap between wind power deployment and utilization. More generally adding to this effect, there are further misalignments in incentives issued by the current Five Year Plan. A combination of over-incentivized capacity installations and under-incentivized energy utilization directly increase the wind power curtailment rate. Similarly, a disproportionate allocation of infrastructural costs of wind energy on grid companies as opposed to its producers and consumers exacerbates utilization of wind generations. As the average distance of transportation already makes wind uncompetitive vis-á-vis coal, this lack of policy incentives for grid companies to internalize trade-offs between transmission investments and curtailment costs stands out as one of the most obvious misjudgements the Five Year Plan has to account for.

Finally, the plan still warrants competing incentives for renewable as well as non-renewable energy resources. Both the wind and the coal sector are heavily subsidized by subnational governments, which slows down the socio-technical transition, aggravates wind power curtailment and in more extreme cases even cancels out certain policy directives. These national drawbacks to the success of wind energy serve as a remark on what is necessary to reach the targets pinpointed in the Five Year Plan. Looking at the greater international picture, it becomes clear that the central government and therein all of China have tremendous reasons to pursue dominance in the renewable energy sector. Geopolitical and socio-economic changes in recent years are likely to change patterns of trade and new alliances are going to be developed in the future. Following a recent report from the Global Commission on Geopolitics of Energy Transformation, China is in the best position to become the world’s renewable energy superpower with innovation as an important factor. Continuing growth in renewable energy around the world undermines the influence of major oil exporters like Russia and Middle East countries and provides a unique opportunity for global leadership.