Last month’s launch of the EU China Energy Cooperation Platform (ECECP) should serve as great encouragement for EU energy firms looking to participate in the developing Chinese energy system. Up until now it’s been possible but challenging as firms have not been competing on a level-playing field. But that is set to change as a whole raft of factors mean the time is ripe for meaningful cooperation between the world’s two leading energy mega-markets. From shared goals under the Paris Agreement to shared concerns as net gas importers, it seems the stars are genuinely aligned. Energy Post’s Matthew James was in Beijing.
The headline of the newly-strengthened EU-China energy partnership is straight-up good news. Namely: the EU and China commit to support one another to meet global climate change targets.
This positive development can be linked directly to the moment Trump decided to put America first, back-tracking on the previous US administration’s global warming commitments and breaking from various multi-party trade accords. Recent conditions favour closer EU-China ties and have opened up a leading role for China on climate which it has willingly embraced.
China’s climate commitment
According to post-COP24 reports, including by China’s state news agency, China stepped quickly and enthusiastically into the void left by the US. Last month, EU Commissioner Miguel Arias Cañete confirmed this when he underlined “the role of China as one of the main brokers of the Paris agreement”. This had two significant implications. Firstly, on a superficial level, it was concrete evidence that China believed in the climate change threat and was prepared to collaborate with other like-minded states – even to take a leading role in the global Transition. But there’s a kind of catch too. Secondly, in doing so, it finds that it needs to consider the efficacy of its current energy strategy not only for its own objectives but also insofar as how it looks internationally.
If China is now the self-proclaimed leader of the Global Energy Transition on which we all depend, everyone wants to see that they know what they’re doing and, crucially, that it’s working. The fact that they really have skin in the game now is good for all of us but how are they doing? Currently, the evidence is mixed at best.
On the one hand, China boasts incredible numbers when it comes to installed and planned renewables capacity, on the other, it has a far less sophisticated energy system overall meaning horrible levels of curtailment, terrible yields (capacity factors) compared with other (European) wind and solar farms and an un-integrated, un-competitive, provincially segregated energy system.
Furthermore, published carbon reductions can be misleading as they are measured in carbon intensity rather than net emissions. In short, China has (a) a lot of catching up to do and (b) strong motivations to do so fast.
The objective of the ECECP is the “development of energy systems and markets, expansion of renewable energy sources, promotion of energy efficiency and the role of innovative companies and their technological solutions” Miguel Arias Cañete told Energy Post. “It commits the EU and China to further joint efforts towards the clean energy transition. Together, we are responsible for one third of final energy consumption worldwide. Without us, the global energy transition will not happen.”
So what does the cooperation platform likely mean in practice? The event in Beijing was broken down into roughly the same four key areas laid out in their joint statement.
The platform calls for collaboration to achieve a Chinese energy sector driven by:
- lower carbon energy mix including more renewables
- more widely integrated cross-provincial energy system
- greater energy efficiency
- and “reciprocity” in the form of genuine competition for all actors in the sector
As mentioned earlier, more renewables isn’t necessarily the problem. Making proper use of them is. Not easy when you have a partitioned grid, a propensity for the bulk of renewables farms to be positioned in the North and West, and a lack of investment in state-of-the-art tech. These are things the EU, thanks to its depth of experienced “innovative actors”, knows all about.
Fast-tracking modernisation of the Chinese state energy system
Tellingly, both ENTSO-E and ENTSOG were on hand at the launch. Both organisations were conceived approximately ten years ago to coordinate the revolutionary changes in the electricity and gas networks as the EU set about fulfilling a vision for an enormously complex, cross border internal energy market, both technically and legislatively. According to European Commission Director of Energy Policy, Megan Richards, this is valuable know-how which the Chinese can draw upon when it comes to creating innovative, integrated large-scale markets.
According to Richards, the ENTSOs equivalent, opposite numbers at China’s National Energy Administration will be able to use the platform to see how these organisations, working with the EU, have been able to pull it off – across European markets – to drive increased efficiency, productivity and consumption for renewables.
“Our joint TSO organisations have 10 years’ experience of the level of network sophistication (codes, smart grid, cross-border exchange-based trading etc.) necessary to take advantage of efficient, intermittent renewables at scale. How these mechanisms operate alongside, for example, the EU ETS and even balancing markets, is not something you can simply cut and paste” according to Richards. “It’s the innovative actors who’ve been part of the development of such processes in the EU, and who also have some knowledge of the Chinese challenges, that can be leveraged for a successful integration” she said, alluding to increased opportunity for our EU businesses under the new partnership.
Future Energy Mix – Increasing vRES plus secure, low-carbon back-up
The platform will help pave the way to a Chinese energy mix similar to that of the EU. Coal phase-out, modest increases in nuclear, strengthened and diversified secure, lower-carbon gas supply and, even, renewable gas for storage using existing infrastructure. This will ultimately depend on proper competition.
Just like the EU, China sees gas as the quick way to decarbonise and support renewables in place of coal. And just like the EU, China has to import most of it. The platform provides an opportunity to fast track China to the position Richards now identifies as preferable which is “to secure your gas supply based on the combination of a liquid, transparent global LNG market as well as (and in preference to) fixed A-to-B pipelines”. As Richards points out; China already buys about 11% of the LNG that the US produces but, if the current tariff spat continues, it may not always be relied upon due to price increases. A network connecting to other Asian, Australian and even more remote global LNG suppliers makes a great deal of sense.
Both sides are agreed on cutting coal. The gap to be filled by increased gas via a diversified supply chain coupled with modest growth in nuclear – sound familiar? – is how it will be done at home in China. But Richards also sees a need to reduce China’s support for coal fired power stations internationally too. This is all part of the platform’s promise for closer, unified planning to address the top-level climate ambitions of the new alliance.
Whilst availability of storage for increased variable RES is an issue, the latest research into renewable gas, using existing infrastructure, to help with heating, heavy transport emissions and harnessing excess renewable power, can also be shared. According to Richards, the “EU is 100% convinced that hydrogen and other green, man-made gases are destined to play a bigger part in the mix and will have an important role in energy storage”. This cooperation gives EU initiatives a tangible, global dimension and deeper meaning for the world’s shared global warming challenge.
Reciprocity – creating a level-playing field
One of the cornerstones for affordability of such a system is a proper energy market economy based on fair regulations. This is fundamental to the platform and between ENTSO-E and ENTSOG, the EU has the ability to pour in the distilled combination of 20 years’ experience from 100s of EU utilities and market actors.
Both ENTSO organisations have built their expertise on the back of their members, members that are currently unable to fairly participate in China in the same way Chinese firms can already participate in the European sector. The platform calls for reciprocity going forward – no special advantages, merely parity of opportunity for Chinese and EU firms in either market.
And in return…
As always, common ground makes a good starting point for discussions on addressing shared challenges. The over-arching threat of global warming is recognised by both sides involved in this platform. However, China needs to modernise its energy system if it is going to fulfil its leading role on the global climate stage, and that should facilitate fair market conditions for international firms who wish to play a far greater role in the development of that system.
The EU and China have been discussing deeper collaboration on energy for years. Whenever they get together for the annual EU-China summit, there is a separate, well-documented ongoing Energy Dialogue. However, this new foreign policy instrument comes at a time when the visions of the EU and China for a world in urgent need of a lean, clean, global energy system are reassuringly aligned and at a time when that of the US is not. The US government has side-lined itself and China has welcomed a natural partner in the EU. The EU is perfectly positioned to help it deliver and reap the rewards for doing so. It all fits rather well and if that means a faster, more efficient global energy transition then that’s really good news for the rest of us too.