Chinese policies could make things challenging for foreign renewable energy, says report

China has enacted a series of policies that have made it one of the largest consumers of renewable energy in the world, notes a report ‘China’s Promotion of the Renewable Electric Power Equipment Industry: Hydro, Wind, Solar & Biomass,’ commissioned by the National Foreign Trade Council (NFTC).

Its Renewable Energy Law, enacted in 2006 and strengthened in 2009, requires utilities to buy all available renewable power and pay full price for it, while offering it at a discount to their customers. A 2007 Development Plan requires large utilities to source 8% of their power capacity from renewable energy by 2020.

The country implemented a US$586 billion economic stimulus plan that is directed to renewable energy, and a new programme will provide a 50% subsidy for grid-connected solar power systems, the report adds. “Policies are transforming China into a major production base for renewable energy equipment at the watershed moment at which total global investments in renewable energy power capacity have surpassed investment in fossil fuel power capacity.”

China must adopt renewable energy

“China faces a dilemma in that its indigenous reserves of oil and natural gas will be depleted within two decades at current rates of extraction,” and planners are addressing this challenge “through a dramatic national effort to promote the development of renewable energy as a larger percentage of China’s total energy consumption.”

The growth potential for hydropower (China’s principal source of renewable energy) is increasingly limited by environmental and social problems associated with construction of large dams and, “as a result, the Chinese government is prioritizing the development of ‘new renewables’ industries - wind, solar and biomass power.”

China imported much of the equipment used to construct its hydropower infrastructure and. until very recently, relied heavily on foreign equipment and technology in the wind, solar and biomass sectors, it notes. “Chinese planners have indicated their intention that eventually most or all of the renewable energy equipment installed in China will be made in China, will be based on Chinese-owned intellectual property, and will embody Chinese-developed standards.”

The country is increasingly closing itself off to foreign companies through policies that require or strongly encourage the purchase of domestically-made goods or products, which is part of an overall Chinese government policy to encourage “indigenous innovation” in most areas of business. Foreign companies are struggling with new regulations that favour Chinese companies and do not protect foreign intellectual property, the report adds.

Share of non-Chinese wind power equipment continues to decline

The study, authored by the International Trade Group of Dewey & LeBoeuf law firm, notes that the foreign share of wind power equipment has fallen steadily from 75% in 2004 to 25% in 2008. Last year, Chinese imports of US-made wind turbines fell to zero after reaching US$15m of imports in 2008.

China has rapidly expanded its production of solar cells, nearly all of which are exported, and these exports have helped to drive down the price of solar photovoltaics, “contributing to financial difficulties for some non-Chinese solar cell companies,” it continues.

“Although governments in the United States, Canada, Europe and Japan have introduced policies to promote renewable industries, China’s effort is noteworthy for its sheer scale and the speed with which it is being implemented.”

Chinese firms stand to gain substantially in renewable energy

“While the study makes no findings about whether the Chinese government’s implementation of policies that favor its energy sector violate international trade rules, it does make clear that Chinese firms stand to gain substantially from these measures,” says Bill Reinsch of NFTC. “The facts the study presents raise serious policy issues for China’s trading partners. With strong potential growth in the US renewable energy sector, this is an important emerging issue to watch.”

The National Foreign Trade Council is a business organization that was founded in 1914 to promote an open, rules-based global trading system.