China World Leader in Alternative Energy Resource Generation

China has jumped past several developed companies to become the world’s largest maker of wind turbines. This is in addition to its status of the last two years as the world’s largest manufacturer of solar panels. And the country is pushing equally hard to build nuclear reactors and the most efficient types of coal power plants.

These efforts to dominate renewable energy technologies raise the prospect that the West may someday trade its dependence on oil from the Mideast for a reliance on solar panels, wind turbines and other gear manufactured in China. Even President Obama sounded an alarm saying that the US was falling behind other countries especially China on energy.

In order to keep up with China, the US and other countries have started offering incentives to set up alternative energy sources. Yet many Western and Chinese executives expect China to prevail in the energy-technology race. Renewable energy industries here are adding jobs rapidly, reaching 1.12 million in 2008 and climbing by 100,000 a year, according to the government-backed Chinese Renewable Energy Industries Association. Yet renewable energy may be doing more for China’s economy than for the environment. Total power generation in China is on track to pass the United States in 2012 — and most of the added capacity will still be from coal.

China’s plan is for alternative energy sources to contribute at least 8 per cent of the country’s needs by 2020. Two-thirds of the energy will still come from coal, and the rest from other sources like hydel and nuclear. As China seeks to dominate energy-equipment exports, it has the advantage of being the world’s largest market for power equipment. The government spends heavily to upgrade the electricity grid, committing $45 billion in 2009 alone. State-owned banks provide generous financing.

With the carrot in place, the government is also chasing companies to switch over to sustainable energy sources. With the domestic demand increasing at 15 per cent, the market size of China is far larger than the US, which is more mature and therefore has lesser incremental demands. This means Chinese producers enjoy better efficiencies of scale. In the US, sunk costs on already operating fossil fuel plants makes it expensive for companies to spend on newer alternative energy resources without significant losses or support from the government.

It is in this area that the government has been providing support, with low cost loans and other support measures. However, the Chinese model has one problem. In spite of the economies of scale, producing energy from wind and other sources is still more expensive. Another problem is that the renewable energy sources like wind turbines and solar power stations have to be built in remote areas, which need to be connected to the national grid, adding to the cost. Plus, as the distance increases, more the transmission loss occurs, adding further dents to the bottomline.

Every country wants cheap renewable energy, but since China has made it possible for the others, the rest of the world is critical as it increases their dependence on China even further. The day may not be far off when they may trade their dependence on Gulf oil for trade dependence on China. And this may create barriers to a greener, cleaner planet.

Resource: Test Funda  published on 02.02.2010

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