By Paul Davies and Andrew Westgate

China has made notable strides to transition towards a lower-carbon economy. Most recently, local authorities were ordered to halt construction of coal-fired power plants in 13 provinces where capacity already outstrips demand. Demonstrable of its efforts to end reliance on coal and invest in green alternatives, China is ramping up efforts to increase renewable energy use.

China is rapidly emerging as a renewable energy leader and has committed significant investment to achieve a low-carbon future:

  • China invested US$110.5 billion in clean energy in 2015 – a 17 percent increase on the previous year, and nearly double the USA’s investment of US$56 billion.
  • China’s capacity for solar power has grown 169-fold and its wind power capacity has quadrupled in five years.
  • The total share of non-fossil fuels in energy consumption increased to 12 percent in 2015, putting China on track to meet its Paris pledge of 20 percent by 2030.

Whilst encouraging, these figures mask a common challenge faced by all countries seeking to diversify energy resources – renewables capacity going unused. For example, nearly 10 percent of China’s solar capacity remained untapped during Q1 and Q2 of 2015, and 15 percent of wind power remained unused across the year. Daiwa Capital Markets analysts forecast this figure could rise to 18 – 20 percent in 2016. This problem is also common in Europe and referred to as “curtailment”, which typically occurs because the market is structured to source energy from fossil fuels. Consequently, the market must evolve to achieve a fuller transition to renewables.

Combatting curtailment

China has taken steps to tackle the curtailment challenge via three initiatives:

  1. Reducing coal power construction: China is curbing the development of new coal-fired power plants to reduce competition with renewables.
  2.  Rules to guarantee grid sales of generated renewable energy: The directive, launched in March and available here (in Chinese only) set an annual minimum purchase guarantee for grid companies for wind and large-scale solar generation. Additionally, this measure helps to attract investment in renewable energy projects by locking in an end market. This directive is one of the climate change initiatives President Xi Jinping announced in his US-China Joint Presidential on Climate Change in September 2015.
  3.  Imposing non-hydro renewable energy quotas on provinces and power companies: The National Energy Administration has imposed quotas for 31 provinces ranging from 5 to 13 percent, the exact figure depending on the energy production characteristics of a province (for example, the quotas are higher in wind and solar-resource rich Inner Mongolia and Liaoning). Furthermore, power companies must generate at least 9 percent of electricity from non-hydro renewable sources by 2020.

Curtains for curtailment?

The measures discussed above are a timely and ambitious attempt to boost renewable uptake and reduce curtailment. However, as ever, the success of those measures will depend on how China is, like all countries, able to monitor developments and sanction against counter-productive market activity – a sentiment echoed by the World Resources Institute.

This post was prepared with the assistance of Glen Jeffries in the New York office of Latham & Watkins.

Read more on the development of China’s environmental policy:

Shanghai Issues Draft of Revised Environmental Protection Regulations for Public Comment

China Cuts Down on Carbon as Coal Falls Out of Favour

New Chinese Soil Pollution Law Planned for 2017 Could Be Accelerated

China One of First Countries to Sign Paris Agreement

China’s 13th Five-Year Plan – Planning for a Greener Economy

China Revises Hazardous Substances Restriction Laws

China’s NDRC Issues New Carbon Trading Guidance

China Progresses with Increased Environmental Accountability for Industry and Government Authorities

China Gives Green Light for Green Bonds

What Multinationals Need to Know About China’s Amended Environmental Protection Law