Keep an eye on China’s sector for renewable energy by Nis Høyrup Christensen, Ph.d. DI

In the global struggle to combat climate change China’s sector renewable energy is becoming of increasing importance. High targets for renewable energy (hydro, solar, wind, biomass and biofuel), continued economic growth and the simultaneously increasing needs for energy means that the market looks extremely promising. In this brief note it is argued that five factors will work to make the sector one of the most dynamic places for developing renewable energy solutions.

Sustainable development:  China’s efforts to develop renewable energy is based within a comprehensive understanding of sustainable development entailing sustainable use of natural resources, poverty reduction, rural – urban inequalities, demography and family planning, etc. Renewable energy is thus a part of a wider shift in development track, which has become of increasing political importance with the current Chinese leaderships introduction of the vision of a “harmonious society”. The fact that renewable energy is situated in such a wide framework also means that the hot issue of reducing emission of greenhouse gasses is not the only driver behind the sector. Hence, the ongoing expansion of the sector is not tightly coupled to the results of the COP15.    

Environmental crisis: The backside of China’s impressive growth record has been a massive environmental degradation.  And unlike the emission of green house gasses the environmental problems have reached a state where they are visible to everyone, which means that the government to a greater extent is forced to take action. Renewable energy is one of the answers to this problem, for instance as a way to avoid the air pollution stemming from transportation of coal from the West and North to the East and South. China’s environmental crisis therefore becomes a driver for the renewable energy sector.

Political commitment and financial control: The Chinese leadership has committed itself to develop renewable energy and mobilize the various resources of the Party-state to this end. A key feature in this respect is its tight connection to or even control of the financial actors in China, i.e. banks, investment funds and the huge state owned enterprises with an investment portfolio. Consequently, the Party-state is able to influence the financial underpinnings of the renewable energy sector through politically motivated lending policies and investment decisions.     

Market development and political ambitions: China’s renewable energy sector is a subsidized market – without subsidies the market would be miniscule. However, the Chinese Party-state is keeping its eyes on the longer term and thus focusing on the opportunities that the emergence of the sector presents. The sector is therefore expected to produce what the Party-state calls “National Champions” – strong Chinese based multinational companies – and foster “independent innovations” – innovations owned and controlled by Chinese companies.

Market dynamics and reduction of production costs: The combination of fierce competition and cheap land and labor has made the Chinese marketplace world known for its ability to drive down production costs. The same dynamics are at play in Chinas sector for renewable energy, which means that this will be a main driver in commercializing renewable energy solutions and thus making them available and affordable to a wider audience – not only in China.    

Taken together, I will argue, that these factors will work to make the sector one of and most likely the most interesting place for commercializing and even developing renewable energy solutions. You simply cannot find that combination of factors anywhere else in the world. However, the issue of developing renewable energy technology is often mentioned as the weak spot of the Chinese market. But the fact of the matter is that Chinese companies within solar are fully up to speed, they are catching up quickly within wind, biomass is more about production know how, and only within second generation biofuels Western companies are ahead. This aside, my point is that the nationality of company does not change the fact that if it has global ambitions it has to be in the Chinese market for renewable energy due to its size and future growth and it will also need to be in the sector in order to stay competitive in the longer run.