Cutting the costs of clean energy

Addressing energy scarcity and climate change means adopting new energy sources. This poses different challenges for rich than for poor nations, writes Lin Boqiang.

Developing nations are crucial to cutting carbon dioxide emissions. For this reason, their mode of growth and energy structure must move towards a low-carbon, cleaner and renewable energy path. Besides climate change, developing nations like China need to deal with energy scarcity and environmental issues: the development of sources of clean energy needs to be in line with their interests. Clean energy has been given greater prominence than ever before as part of many countries’ economic stimulus packages; it is seen as a new industrial revolution and source of economic growth for the new century. The time for clean energy has come.

In China, clean energy is moving ahead at full speed. Take wind power as an example: by the end of last year, China had installed wind power generating capacity of 12.21 GW, making China the largest wind power generator in Asia and fourth in the world. At Jiuquan, in Gansu province, work has started on the world’s first single-site 10 gigawatt wind farm connected to the grid, which is set to cost over 120 billion yuan (US$17.6 billion). But research by China’s National Development and Reform Commission and State Electricity Regulatory Commission found that one-third of wind power capacity is running idle due to an inability to get the power to the national grid. This means losses for wind power generators and a waste of money and resources all round.

Clean energy costs more than conventional alternatives, which is why China has not developed the sector on a large enough scale. Apart from higher generating costs, clean energy also requires more spending on the electricity transmission grid – large-scale use of clean energy will significantly increase the cost burden for power firms. Current policy and subsidies are targeted at power generation, but the extra grid costs have not been dealt with. Solving those cost issues is crucial. Internationally, this is handled by government subsidy or increased electricity prices.

Developed countries are better able to pay for clean energy. Public concern for the environment is closely related to income – and the Chinese, with their average annual income of US$2,000, should not be expected to be as environmentally aware as an average American, who earns around $40,000. The public in developed nations are both more willing and more able to pay up. It is therefore easier for their governments to mobilise the public in support of clean energy and environmental protection – and to have them pay for it by increasing electricity costs.

The governments of developing nations have different concerns to their counterparts in the developed world. The United States government can claim success if it maintains the current standard of living; in developing nations, governments aim to increase that standard of living and become middle-income nations. These different aims inevitably mean different choices in energy policy. Developing nations have more limited choices when it comes to energy structure. Promoting economic growth requires cheap energy – and coal, the cheapest and most abundant source of energy for many countries– is the first choice. Cheap coal means cheap electricity and a competitive economy. Rising electricity prices would cause public discontent and impact on standards of living.

India – like China – relies mainly on coal for its energy needs. This will only change if the funds and technology to develop clean energy, such as wind and nuclear power, are provided. India will not choose clean energy on its own. Nuclear power is currently the most competitive of clean energy sources. But if it is to be adopted on a large scale by developing nations, technological advances will be needed to make it competitive with coal.

To address climate change, the developed nations need to be more understanding and offer greater financial and technological support. First, developed nations should undertake greater emissions cuts themselves, and assist cuts in developing nations with funding and technology transfers – in line with the “polluter pays” principle. Second, developed nations must recognise and understand the issues of economic growth and resulting energy demand, per capita emissions, the scope for choice in energy policy and the ability to pay for low-carbon growth in developing countries. Third, developed countries should recognise that since we all share the same planet, helping developing nations address climate change is also helping themselves. Fourth, developed nations must help China to find a sustainable low-carbon path and also prepare to tackle the issue of India’s emissions.

China also needs to resolve the problem of the cost of clean energy. In the short term, China should continue its financial subsidies; in the mid- to long-term, it will need to adjust the price of electricity. There is now great public enthusiasm for clean energy, China is making big plans and hopes for new policies are high, although there is a certain amount of unchecked development in the sector. If clean energy is to become the engine of economic growth, planning and enthusiasm will not be enough – the costs that can be borne and the degree to which the cost of electricity can be adjusted need to be considered. The current subsidies are very important, but they are not enough.

China must develop clean energy, but it needs to minimise the costs and avoid the waste of funds and resources, such as idling turbines. There is huge scope for clean energy use in China, but if it is to become a new focus of growth for local economies then, alongside policy support and subsidies, the transmission grid must be linked to generating capacity and able to move large amounts of power over long distances.

Lin Boqiang is professor at the Center of China Energy Economics Research, Xiamen University, and a member of the Changjiang Scholars Program.

Homepage image from Daya Bay Nuclear Power Operations and Management Co., Ltd.