Renewable Energy in China: Policy analysis and macro economic impacts evaluation

Lele ZOUInstitute of Science and Development, Chinese Academy of Sciences

Outline

} Current Stage of China’s Economy and Energy} Policy Insight of China model} Evaluating Renewable Energy plans: national economy

and industrial development

2

Economic growth & energy consumption

3

GDP per Capita 2017: (US$ current): $9480

Industrialization: 67%;

Urbanization: 58.52%;

Gini Coefficient: 46%;

-5.0

0.0

5.0

10.0

15.0

20.0

1980198219841986198819901992199419961998200020022004200620082010201220142016

Growth rate of GDP

Growth rate of energy production

Growth rate of energy consumption

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

Service industry

Construction

Industries

Agriculture,forest,fishing

Energy consumption & CO2 emissions

4Source: BPWorld EnergyStatistics

China isalready the largest consumer ofenergy andthelargest CO2emitter, although bypercapitaconsumption, itisabout1/5oftheUSA.

During the 1981-2016 period, China's energy consumption increased by 5.82% annually, underpinning the 9% annual growth of the national economy.

0

500

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Total Energy Consumption, mil.t.S.oil

China

US

Russia

India

Japan

Germany

0

1,000

2,000

3,000

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6,000

7,000

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CO2 Emission, mil.t.

China

US

Russia

India

Japan

Germany

Energy supply & consumption structure

} In 2016, the output of primary energy was 3.46 billion tons ce} With country’s energy resource endowment, China may be the most difficult to achieve

low carbon development by the change of energy structure.

0

50,000

100,000

150,000

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350,000

400,000

1980

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Hydro Power Nuclear and other power

Natural Gas

Crude Oil

Raw Coal

104tce

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

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Other Nuclear Hydro

Natural Gas Petroleum Coal

Local environmentThe local environment is deteriorating, while environment awarenessis increasing with the growingmiddleclass.

6

– Larger area surfer worse and worse hazeand fog, with increasing PM2.5;

– The emissions of SO2 and other harmfulelements are also on rise.

– The environment awareness is increasingand domestic political pressures on localenvironment protection and preventionbecome stronger.

Primary source of PM2.5

vehicle40%

household9%

industry20%

powerplant

31%

NOx

vehicle2%

household25%

industry25%

powerplant

48%

SO2vehicle

6%

household29%

industry51%

powerplant

14%

PM10

vehicle50%

household8%

industry38%

powerplant

4%PM2.5

vehicle19%

biomass4%

agriculture5%

plants2%

coal burning26%

dust6%

cooking11%

industry10%

unknown17%

Secondary Source of PM2.5

CO2 emissions reduction and renewable energy Targets in the 13th-five year plan

} The 12th Five-Year Plan (2011-2015) :} By 2015 non-fossil energy will rise to 11.4 % in the total primary energy consumption; by 2020 reaches 15%.

} Energy consumption per unit of GDP will drop by 16% from 2010, and CO2 emission per unit of GDP will decrease by 17% from 2010.

} The 13th Five-Year Plan (2016-20205) :} By 2020, the CO2 emission per GDP decrease 40-45% compare to 2005

} The CO2 emissions will get to peaks around 2030

} By 2020, the energy use per GDP decrease 15% compare to 2015

} China’s NDC: } By 2030, the CO2 emission per GDP decrease 60-65% compare to 2005

} Targets of Renewable energy:} By 2020, all utilization of renewable energy will be 730 million TCE.

} By 2020, all renewable energy power generation capacity will be 680 million kilowatts, generating capacity 1.9 trillion kwh, represents 27% of all generating capacity.

Requirements on energy transition

2006: Renewable Energy Law

Coal à oil and gasFossil à renewable

Dual replacement:

General guide Targets

Total energy consumption

Primary energy consumption <5 billion tce

Coal consupmtion<4.1 billion tce, <62% in all

Electricity consumption 6.8-7.2 trillion kwhEnergy security Self-supply rate >80%

Energy supply

Primary energy supply 4-4.2 billion tceCoal supply 3.9 billion tceOil supply 0.2 billion tNatural gas supply 220 billion cu-mNon-fossil energy supply 0.75 billion tcePower generation installed capacity

2 billion kw

hydro 0.35 billion kwwind 0.2 billion kwSolar PV 0.1 billion kwGeothermal 0.05 billion kw

Energy consumption

Proportion of non-fossil energy

>15%

Proportion of Natural gas 10%Coal <58%

Energy efficiencyEnergy use per GDP

decrease 15% (compared to 2015)

CO2 emission per GDPdecrease 40-45% (compared to 2005)

Energy Development Targets in 2020

China Energy Policy and Regulation 1990-2018

asiapacificenergy.org

Renewable energy No of policies

RE1: RE priorities 43

RE2: RE targets 21

RE3: RE action plans 26

RE4: RE prioritization, portfolio standards

7

RE5: feed-in tariffs 12

RE6: Net metering 1

RE7: Biofuels obligation/mandate

2

RE9: RE capital subsidy, grant, or rebate

9

RE10: RE investment or production tax credit

1

Rapid development in renewable energy} By the end of 2015, the installed generating capacity of hydropower reached 320 million kw, ranking first in the world.

} The installed generating capacity of wind power connected with the country's power grids reached 131 million kw, ranking top in the world.

} Photovoltaic power generation also reported speedy growth, with a total installed capacity of 43 million kw. Biomass power 13 million kw.

} Solar water heating covered a total area of 300 million sq m.

} Non-fossil energy accounted for over 10 percent of the total primary energy consumption, which means an annual reduction of more than 600 million tons of CO2 emissions.

http://nyj.ndrc.gov.cn/nyfhb/nyf.htm

Small hydro Wind Solar Policy, laws and plans 5 4 3

Governmental direct subsidies × 2 1

R&D funding × 2 2

Taxing preferential policies 3 5 1

Investment policies 43

1

Products subsidies 2 1 1

Special funds 1 × ×

Financial institution loaning 2 3 2

Total 15 20 11

How about the impacts on national economy?

� Use macroeconomic models to evaluate the total or general equilibrium impacts of the policies or plans to the national/regional economy

� Micro side analysis of costs and benefits only pertains to the site of mitigation option application

� Both increases and decreases in economic activity generate “ripple” impacts throughout the economy

� Macroeconomic impact is some multiple of the original direct on-site impact

� Price decreases and increases can also stimulate or mute the macro effects

Policy Insight of China (PIC) model

Input/Output Econometric

General Equilibrium

New Economic Geography

PIC

l Basic scenariosl Sectors and Industriesl Cost-Benefit of policies

• Analyze the interactions between sectors

• Incorporate the responses of producers and consumers to price signals

• Bring into play economic geography linkages, evaluating changes in competitiveness over time

• 31 provinces * 68 sectors• 10 kinds of energies and 6 GHG/air

pollutants accounts

The PIC model

Steps of Macro Analysis with the PIC model

Ø Building and calibrating the macroeconomic model to forecast

Ø Obtain data on mitigation options from microeconomic analysis

Ø Translating the policies to economic variables

Ø Simulating a single policy to see impacts

Ø Simulating all the policies to see impacts

Ø Analyzing the results

Ø Evaluating the impacts on economy and industries

PIC model Linkage

PIC model Linkage(Economic Geography Linkage)

Baseline forecast

ØCost àTarget à Investment Demand à impacts

2015 2020 2025 2030 2035 2040 2045 20501. economic growth

GDP growth rate (%) 7.1 6.8 6.2 5.2 4.6 4 3.7 3.5

GDP (in trillions RMB，) 59 82.37 112.18 147.98 185.91 228.51 276.3 328.86

2. population

Annual growth rate (%) 0.53 0.47 0.41 0.11 -0.06 -0.11 -0.13 -0.23

Total amount (in millions)

13.77 14.1 14.49 14.57 14.53 14.45 14.36 14.2

3. urbanization rate(%) 56.4 60 63 66 68.3 70.5 72.8 754. economy structure

Agriculture (%) 8.45 6.8 5.55 4.3 3.7 3.1 2.8 2.5

industry (%) 47.09 45.7 44.1 42.5 41.1 36.7 33.5 32.3

Service (%) 44.46 47.5 50.35 53.2 55.2 60.2 63.7 65.2

02000400060008000

1000012000

2015 2020 2025 2030 2035 2040 2045 2050

H2030 CO2排放总量 H2025 CO2排放总量

50

100

150

200

250

300

2015 2020 2025 2030 2035 2040 2045 2050

H2030 GDP

700

750

800

850

2015 2020 2025 2030 2035 2040 2045 2050

H2030 就业 H2025 就业

0

50

100

150

2015 2020 2025 2030 2035 2040 2045 2050

H2030 投资 H2025 投资

Cost estimate of renewable energy} NPV

Factory gate Equipment

On site equipment

Project cost LCOE

Operation & MaintenanceCost of financeResource qualityCapacity factorLife span

Project developmentSite preparationGrid connectionWorking capitalAuxiliary equipmentNon-commercial cost

Transport costImport levies

} LCOE

Onshore wind: USD 0.06 to USD 0.09/kWh

Solar PV: USD 0.06 to 0.08/kWh without financial support

Large-scale hydro: USD 0.02/kWh to USD 0.05/kWh

Biomass: USD 0.05/kWh to USD 0.25/kWh

Geothermal: USD 0.1 to 0.14/kWh

Cost change trend and investment demand (to 2020)

风电上网电量/万千瓦时 光伏上网电量/万千瓦时

0.05

0.06

0.07

0.08

0.09

0.1

0.11

0.12

0.13

5000 6000 7000 8000 9000 100001100012000130001400015000

USD

LC

OE/

kWh

地热上网电量/万千瓦时

Billion USD 2016-2020 2021-2030

All renewable energy 384.6 169.2

Wind 107.7 46.2

Solar 92.3 30.8

Hydro 24.6 13.1

Biomass 53.8 38.5

Geothermal 46.2 30.8

0

0.05

0.1

0.15

0.2

0.25

0.3

5000 6000 7000 8000 9000 100001100012000130001400015000

生物质能上网电量/万千瓦时

0

0.05

0.1

0.15

0.2

0.25

7000 8000 9000 1000011000120001300014000150001800020000

水电（小）上网电量/万千瓦时

Impacts on energy sectors

-0.16%

-0.14%

-0.12%

-0.10%

-0.08%

-0.06%

-0.04%

-0.02%

0.00%2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Total Employment Intermediate Employment Personal income

Labor intensity Relative capital cost

-1.20%

-1.00%

-0.80%

-0.60%

-0.40%

-0.20%

0.00%

0.20%

0.40%

0.60%

0.80%

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Self Supply Total export Total Imports Output

} Labor cost in energy supply sector decrease slightly, due to the shrink of coal fire plants and the less labor intensed in renewable power.

} Demands on electricity increased a bit, caused by the equipment manufacturing for renewable power generation and storage.

} The general production costs increase at the beginning and then decrease

} the increment of electricity supply effectively stimulate the exports of other energy, mainly fossil, as well as lower the import demands.

Energy supply sector employment

Energy supply sectorImport & export

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Relative Composite Labor Costs Demand Relative Cost of Production

Electricity production sectorCost & Demand

Impacts on the economy and emission intensity- nation wide average

(1.80)

(1.60)

(1.40)

(1.20)

(1.00)

(0.80)

(0.60)

(0.40)

(0.20)

0.00 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

-0.25%

-0.20%

-0.15%

-0.10%

-0.05%

0.00%

0.05%

0.10%

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Total Employment Gross Domestic Product

Personal Income PCE-Price Index

Real Disposable Personal Income

Negative impacts on the national wide economy in short term, but positive ones in long term.By 2030, the employment and GDP both higher than baseline.Personal income increases >0.05%Real disposable personal income >0.08%The CO2 emission intensity decreases 1.71% average annually.

Renewable energy development to local endowments

http://www.biotech.org.cn/information/144259 (3.00)

(2.50)

(2.00)

(1.50)

(1.00)

(0.50)

0.00 20142015201620172018201920202021202220232024202520262027202820292030%

-0.10%

-0.05%

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Total Employment Gross Domestic Product

Personal Income Disposable Personal Income

PCE-Price Index Real Disposable Personal Income

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大庆齐齐哈尔

伊春

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同江

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黑河

五大连池

长春德惠榆树

敦化图们

四平梅河口

本溪沈阳鞍山

盘锦

阜新锦州兴城

凌源 丹

东大连

松原

白城

吉林

铁岭

北京

秦皇岛

迁安

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张家口 廊坊天津

保定定州沧州衡

水邢台邯郸

石家庄

太原

原平忻州

朔州

大同

阳泉

离石介休临汾侯马运城

晋城

长治

上海余姚

杭州

南京

合肥 嘉

兴宁波

义乌金华 温州

台州

丽水

衢州

黄山

安庆

苏州

无锡

常州

南通

扬州泰州镇江宣城

湖州池

州

铜陵

巢州芜湖

六安

淮南

蚌埠

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景德镇上饶

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聊城泰安荷

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青岛

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呼和浩特

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呼伦贝尔

满洲里

阿尔山 兴安

盟霍林郭勒

通辽

赤峰

锡林郭勒

乌兰察布盟

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包头鄂尔多斯

乌海阿拉善盟

崇左

南宁

贵阳

昆明

钦州防城港

玉林

贵港

来宾

柳州

桂林河

池百色

安顺

六盘水

黔南

黔东

黔西

文山

玉溪

楚雄

曲靖

丽江大理

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遵义

同仁毕

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贺州梧州

昭通

瑞丽

武汉黄石咸宁

随州

十堰

宜昌

荆门荆州

黄岗恩

师

长沙

常德

张家界湘西

娄底绍阳永州 郴州

株洲湘潭

岳阳

怀化

襄樊

驻马店

南洋

漯河

周口

商丘

新乡

鹤壁

安阳濮阳焦

作三门峡

许昌平顶山

洛阳

开封郑

州

兰州

嘉峪关

金昌武威

白银

定西 庆阳平凉

天水陇南

甘南

张掖

玉门敦煌

银川吴忠

石嘴山

中卫

固原

西安

宝鸡

铜川

安康

汉中

商洛

延安

榆林

重庆成都

广元巴中达州

南充广安

绵阳

乐山自贡宜宾

凉山攀枝花

甘孜

阿坝

资阳

雅安

拉萨

昌都那迪

林芝

山南

日喀则

阿里

西宁

海南

黄南

临夏

果洛

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格尔木

乌鲁木齐

喀什

阿克苏

伊犁

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石河子

克拉玛依

阿勒泰

吐鲁番巴音郭

楞

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唐山

Impacts on the economy and emission intensity- based on local endowments

GDP EmploymentBeijing 0.020% 0.025%Tianjin 0.030% 0.033%Hebei 0.030% 0.061%Shanxi 0.020% 0.057%Inner Mongolia 0.070% 0.078%Liaoning 0.020% 0.067%Jinlin 0.030% 0.054%Heilongjiang 0.043% 0.074%Shanghai 0.020% 0.028%Jiangsu 0.020% 0.044%Zhejiang 0.020% 0.060%Anhui 0.030% 0.062%Fujian 0.030% 0.030%Jiangxi 0.059% 0.065%Shandong 0.063% 0.078%Henan 0.060% 0.075%Hubei 0.062% 0.067%Hunan 0.064% 0.097%Guangdong 0.043% 0.011%Guangxi 0.061% 0.060%Hainan 0.051% 0.016%Chongqing 0.056% 0.147%Sichuan 0.056% 0.138%Guizhou 0.060% 0.091%Yunnan 0.056% 0.069%Tibet 0.084% 0.008%Shaanxi 0.060% 0.071%Gansu 0.059% 0.075%Qinghai 0.058% 0.062%Ningxia 0.059% 0.062%Xinjiang 0.070% 0.056%

Impacts on industriesChange of value-added of industries Change of employment of industries

Investment demand of industries Change of demand of industries

Summary

} From the overall analysis, renewable energy consumption growth will cost a certain amount of economic growth, but renewable energy consumption influence on economic growth may exist differences in different situations.

} Renewable energy consumption growth in different areas and different industry lead to different impacts on economic growth. Residential, industrial and transportation industry bear negative impacts while service industries have positive impacts. Therefore, it is necessary to formulate differentiated energy substitution policies based on the energy substitution rate of various industries, so as to achieve balanced development of renewable energy in various industries.

} For different types of renewable energy, the impact of consumption growth on economic growth is different. The economic cost of biomass energy growth is relatively high, followed by water energy, while the impact of wind energy growth on economic growth is positive.

} China's target of 20 per cent renewable energy consumption by 2030 will also pose challenges to economic growth. China needs to formulate different renewable energy policies for industries and regions.

Myanmar Renewable Energy related Policies and Plans} National Energy Policy (Effective Years: 2014-)

} Programme of Action for the Least Developed Countries for the Decade 2011-2020 (Istanbul Programme of Action) (Effective Start Year: 2011)

} National Sustainable Development Strategy (Effective Start Year:2009)

} ASEAN Plan of Action for Energy Cooperation (APAEC) 2016-2025 - Phase I: 2016-2020

} The Myanmar Climate Change Strategy & Action Plan (MCCSAP) 2016-2030

} National Biodiversity Strategy and Action Plan 2015-2020

} ASEAN Economic Community Blueprint 2025 (Effective Start Year: 2015)} ASEAN Petroleum Security Agreement (APSA) 2009

} ASEAN Vision 2020 (Effective Start Year: 1997)

Thank you!

zoulele@casipm.ac.cn

Structure of economy

27

1 2 3 4 5 6 Producers Investors Household Export Government Inventories Size ← I → ← I → ← 1 → ← 1 → ← 1 → ← 1 →

Basic Flows C×S ↑ ↓

V1BAS V2BAS V3BAS V4BAS V5BAS V6BAS

Margins C×S×M ↑ ↓

V1MAR V2MAR V3MAR V4MAR V5MAR n/a

Taxes C×S ↑ ↓

V1TAX V2TAX V3TAX V4TAX V5TAX n/a

Labour O ↑ ↓

V1LAB C = Number of Commodities

Capital 1 ↑ ↓

V1CAP I = Number of Industries

Land 1 ↑ ↓

V1LND S = 2: Domestic,Imported

Production Tax 1 ↑ ↓

V1PTX O = Number of Occupation Types

Other Costs 1 ↑ ↓

V1OCT M = Number of Commodities used as Margins

Joint Production Matrix

Import Duty

Size ← I → Size ← 1 → ↑ C ↓

MAKE

↑ C ↓

V0TAR