Thursday, June 12, 2014

Chinese renewables sector

Greetings from the Australian National University in Canberra, where Professor Loren Brandt from University of Toronto is speaking on The Chinese renewables sectors: A case of wilting greens?". He pointed out that manufacturing makes up 85 to 90% of Chinese exports.As ell as economists, he argues that engineers are needed in the analysis of China's industry. An overriding issue for the Chinese government is to maintain economic growth. This is an issue, I suggest the current Australian government sees as an overriding issue, placing climate change as a lower order issue. Professor Brandt showed a photo of Beijing smog as an example of the environmental problems. The issue for the Chinese government is to address serious environmental problems without harming economic development. This I suggest becomes a priority for the government when the environmental problem become so severe it causes dissent by the citizens.

Professor Brandt pointed out that Chinese policy promoted solar and wind power and this has been well received by commentators. As well as providing power, China has established significant international renewable energy industries. China provides about two thirds of the world's photovoltaic panels.

However, Professor Bandt cautioned that the rapid growth of the renewable sector caused inefficiencies, with a lack of coordination within the power system and levels of government. Also the incentives for firms cause distortion. Similar problems occur throughout the Chinese economy.

Professor Bandt expressed concern that half of GDP goes to investment. Half of the investment goes to high return investment and half to very low return investments

While renewables have been expanding rapidly in China, but they are still a small proportion of generating capacity. Professor Bandt showed a graph showing that thermal energy (mostly coal) dominates Chinese energy use.This is of relevance to Australia, which no only can continue to sell coal to China, but also technology for increasing the efficiency of coal use, such as CSIRO's Direct Injection Carbon Engine (DICE) and Direct Carbon Fuel Cell (DCFC).

 Professor Band pointed out that within six years China was able to go from foreign firms in China to Chinese firms supplying their own market. This did not seem surprising to me as the Chinese government has policies requiring foreign firms to partner with local firms to encourage technology transfer. A similar transfer has taken place with high speed railway and automotive industries. Other countries, such as Korea, take a similar approach. In some areas foreign firms have been reluctant to supply advanced products for fear of being copied by Chinese firms (particularly in the defence and aerospace industry with Russian military aircraft).

Professor Bandt  pointed out that the wind turbines are installed in the sparsely populated remote north west and north of China, whereas the demand is in the coastal south east. The result is that perhaps 15% of the potential wind generating capacity is not being used. The generated power can't be transmitted to where it is required. This is where, as Professor Bandt pointed out, some engineering knowledge is needed. Apart from increased grid capacity and installing capacity nearer the users, it may be possible to utilize storage to better use renewable capacity. If wind power can be stored it can then be provided when needed

Professor Bandt argued that China's industry success has been based on incremental improvements on existing western technology. I am not sure that such an analysis make much sense. In particular, major improvements can be made with a product with what appear to be small improvements, by improving the manufacturing process. The end product may not look much different, but it will be much cheaper and more reliable. Cost and reliability are very important in the energy industry and in others (such as transport).

Professor Bandt argued  that the Chinese government policy is distorting company's R&D policy by setting priorities which may not match the customer's requirements. He gave the example of incentives for Chinese wind turbine developers to make larger units. However, there are economies of scale with wind turbines, so it makes sense to aim for size. Professor Bandt argued that China's wind turbine companies were not competitive outside China.

In contrast with wind turbines Professor Bandt argued that the photovoltaic panel industry had been successful with exports, perhaps due to less government policy. I suspect this partly because economies of scale and incremental production processes have favoured solar cells.

One aspect which Professor Bandt did not mention was the need for highly trained and experienced staff to design and build products. Also it would be interesting to consider how much of this analysis would apply to the service sector. As an example, how efficient is China's university sector and can it compete with western universities.

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