China’s slumping renewable-energy industry should be learnt from, not dismissed.
These are testing times for the renewable-energy boom in China. On 3 August, the head of a Chinese solar-energy company leapt to his death because his firm couldn’t pay off a loan. Last month, LDK Solar in Xinyu City cut its earnings forecast for the second consecutive time, and watched its stock drop to one-quarter of what it was a year ago after it defaulted on payments. Suntech Power in Wuxi, the world’s biggest producer of solar panels, announced plans to slash production and was forced to accept a loan worth US$32 million from the local government to stay afloat. China’s wind-turbine manufacturers are also being forced to watch sales drop in an overcapacity market.
China — which produces more solar panels and wind turbines than any other country — likes to promote its renewable-energy industry as a glowing symbol of a technology-driven, green future. But, over the past few years, a glut in the international market, a drop in prices and import tariffs introduced by countries including the United States have left companies with over-supply and debt.
Observers have jumped on the downturn with criticisms of how the Chinese government has supported and protected renewable-energy companies. A widely quoted piece in the Shanghai-based newspaper First Financial Daily claimed that the slump signalled the “imminent collapse” of the country’s photovoltaics industry. A gloating editorial in The Wall Street Journal in August used events in China to warn the US government against support for its own renewables industry.
Strong stuff, but perhaps not unexpected. It is clear that some companies overshot the market, and there are some grounds for claims that China has engaged in unfair trade practices. When the country entered renewable energy, it instituted protective measures such as requiring that 70% of turbines sold in China be produced with domestically made parts, but those measures have been removed. Many renewables firms have failed and can no longer be propped up by supportive local governments.
“ It is foolish to decide that China’s renewables industry has been a failure. ”
However, it is foolish to decide that China’s renewables industry has been — or will be — a failure on the basis of its current problems. The scale of some of these problems has been overstated. The Wall Street Journal, for instance, blamed decreased revenue at power companies on underperformance at wind farms, when in fact it had more to do with the increasing price of coal.
By whatever means it has been achieved — and whatever else might be said about it — China’s investment in renewables has been a remarkable project. Just seven years after a renewable-energy law threw government support behind the industry, China went from having almost no stake in the international market to leading the manufacture of solar photovoltaics and wind turbines, in very competitive industries. China has developed know-how and manufacturing bases: it has the engineers, and it is ready to lead the industry into the future.
The country’s targets will carry the industry forward. Some 62 gigawatts of wind power are currently installed — more than in any other country — and the government has set a target of 200 gigawatts by 2020. An even bigger difference will come when the domestic demand for solar energy picks up, which it surely will. Until now, nearly all of China’s photovoltaic units have been exported; domestic use has increased but remains at a relatively low 3.1 gigawatts.
The Chinese government is establishing policies that will encourage this. A new renewable-portfolio standard, to be implemented by the end of this year, will force power companies to generate a mandatory proportion of their energy from renewables, with penalties for those that do not. An upgrade of long-distance power lines, to transfer energy from wind farms or megasolar plants in the west of China to the energy-hungry east, was approved last year. Consumers will be forced to share the burden when a surcharge on electricity from renewables kicks in.
Chinese renewable energy has certainly hit a low point. Many of the 80 or so companies that produce wind turbines will probably have to close. But what The Wall Street Journal called a waste of time and money can be seen as healthy competition in an immature market. As China’s renewables industry reorganizes and restructures itself, there may be reasons not to emulate it. But the government, for reasons relating to pollution, climate change and energy security, is firmly behind the industry. And it has built itself a solid platform from which to push on.