China specified its carbon neutrality goal during the Climate Ambition Summit on Saturday, Dec 12th, 2020. Chinese President Xi Jinping told the summit that China has set the goal to cut carbon emissions per unit of GDP by “at least” 65 percent compared with 2005 levels, on top of its goal of reaching carbon emission peak in 2030 and carbon neutrality by 2060. As of the end of 2019, China’s installed renewable energy power generation capacity reached 438 million kilowatts. In the next 10 years, 762 million kilowatts of additional capacity will need to be installed. [Source: China State Energy Bureau]
Wind energy as the first priority for carbon neutrality
The Institute of Quantitative & Technology Economics and the Presidium of Academic Divisions of the Chinese Academy of Sciences released its report “Energy Transition in the Perspective of Carbon Neutrality: Choices and Paths – A Future Energy System with Carbon Peak in 2030 and Carbon Neutrality Targets in 2060”. The report elaborated the current challenges in achieving the goal of carbon neutrality in China:
- Coal accounted for about 58% of China’s primary energy consumption in 2019
- Current energy solutions have no carbon reduction or carbon fixation effects
- The cost of various technologies to achieve carbon neutrality remains high
The report recommended that in order for non-carbon and carbon neutral energy to account for more than 50% of total energy consumption when carbon peaks, the following aspects need to be promoted:
- The faster construction of wind power generators, so it will account for 30% of total power generation when carbon peaks
- Developing nuclear power appropriately so that nuclear power projects under construction go live on schedule
- Realise the commercial utilisation of hydrogen energy technology and energy storage technology, and using electricity that cannot be connected to the grid, such as wind, solar, and water to produce hydrogen
- Realise the commercialisation of ethanol fuel to effectively reduce the final carbon dioxide emissions of carbon-based energy
More than 400 companies signed the declaration at the China Wind Power 2020 conference in Beijing setting out a schedule for a steady acceleration of wind power capacity. The so-called Beijing Declaration also calls for a science-based industrial development plan to reach carbon neutrality, incentives to boost green energy demand and increase international cooperation to facilitate freer trade and sharing of expertise. It calls for average annual installations of 50GW in the next five-year period (2021-25), at least 60GW after 2025, to reach at least 800GW by 2030 and 3,000GW by 2060. [Source] Whether it can be realised or not depends on whether natural resources such as wind power and land can be made available, and whether the resources of the industrial chain are sufficient; these two aspects mainly depend on the Chinese government’s policies and should thus be fully controllable and feasible.
Chinese imagination for powering investment in renewables
On December 1st, 2020, Bloomberg NEF (BNEF) and Bloomberg Philanthropies released “China’s Accelerated Decarbonisation” – a new white paper detailing how China could take major steps toward its recently announced carbon neutrality pledge. Launched at the Bloomberg NEF Summit Shanghai, “China’s Accelerated Decarbonisation” shows that China’s journey to carbon neutrality will generate trillions of dollars in new investment across all major low-carbon technologies. The solar, wind, electric vehicle and, increasingly, hydrogen sectors will play a central role, creating new opportunities for China’s industry at home and internationally. Accelerating the decarbonisation of China’s economy will require reforms to continue and the mobilisation of all public and private stakeholders of the energy sector. The full report is publicly available via the following link.
According to the average construction cost of onshore wind farms in 2019 of 8619 yuan/kW, it implies that at least RMB 5 trillion new investment in wind power will be required in the next 10 years, that is, RMB 400-500 billion new wind power investment every year. Is this feasible? Data shows that China’s wind power investment reached 117.1 billion yuan in 2019, an increase of 81% year-on-year. [Source: China State Grid] China’s wind power investment continued to decline from 2015 to 2018. The downward trend ended in 2019, and the wind power industry has showed signs of recovery since.
To achieve the installed scale of wind power in 2030, the average annual wind power investment in the next 10 years must be 4-5 times the wind power investment in 2019. Driving such a large increase in market momentum should undoubtedly be a substantial increase in the return on wind power investment.
The Chinese industry requires 6-9% of total investment return on wind power projects (Source: China State Grid), to compare, the relevant market return in Western developed countries is about 10%. For example, the ROE of NextEra Energy Inc, invested by KKR, is around 10.3% [Source: CNBC] Given that market electricity prices are uniformly issued by the National Development and Reform Commission in China, the return on investment could be increased via operational improvement, assuming given market kw-price of turbines. It would be necessary to implement innovative methods for managing renewable assets, especially wind power asset productivity, thus enabling the target transition towards carbon neutral energy generation.
He Guangyuan, the former minister of the Ministry of Machinery Industry, pointed out “that the goal of carbon neutrality is not just empty talk but needs to be implemented and fulfilled. In everything, we must seek truth from facts, keep our eyes down, and develop pragmatically, and do well what our generation should do. We need to use China’s energy structure as the foundation to carry out energy transformation and clean energy utilisation to prevent unrealistic energy transformation from harming economic development and energy supply. At the same time, we should advocate the energy system to break the “wall” and emphasise integration and inclusiveness.”
According to Zhang Tao, vice president of the Chinese Academy of Sciences, his model of “liquid sunshine” is essentially a technique turning water and carbon dioxide (a major greenhouse gas) into methanol fuel harnessing solar power. “In order to achieve the goal of carbon neutrality, it is necessary to accelerate the construction of a clean, low-carbon, safe and efficient energy system, break the ‘walls’ between different types of energy, and integrate various energy varieties organically,” Zhang added. [Source]
Liu Qiang, director of the Energy Security and New Energy Research Office of the Institute of Quantitative Economics and Technical Economics of the Chinese Academy of Social Sciences, said that the pressure of carbon neutrality will be transformed into an opportunity for the development of new energy industry technologies and new energy formats, and transformed into a driving force for the industrial upgrading of the Chinese economy. This is the key to achieving the goal of carbon neutrality.
Best Practices for carbon neutral power generation in Germany: Applications of AI and machine learning
In 2019, Chinese wind power accounted for 5.6% of the national electricity consumption structure, photovoltaics accounted for 3.1%, the total amounting to just 8.7%. In Germany last year, wind power accounted for 24.67% of the total grid capacity, and photovoltaics accounted for 9%. The two totaled more than 33%. This means that about one-third of Germany’s electricity in 2019 came from renewable energy. Germany is expected to reach 40% in 2020 [Source: China Statistics Bureau, German ZSW,BDEW3/2020]. This also means that even without the aforementioned macro improvement measures, technological advancement proposals, and requirements outlined by Chinese think-tanks, Germany has already achieved the Chinese targets of renewable power generation, with wind power as the main energy source. How did Germany do it?
The answer is actually very simple. Applications of artificial intelligence and machine learning, for managing renewable assets in Germany, and the real-time transparency of investment performance at the operational level, are the biggest difference compared to China.
From my personal project experience and observation, I’d like to make a comparison: The common management practice of China’s top-ranking wind power companies is to wait for equipment failures before carrying out repairs and maintenance, then to wait for spare parts to be supplied so defect components can be replaced. The common operational practices of Germany’s top wind power companies is real-time monitoring the operation of all wind turbines and their core components to foresee and prevent their failures. All the required maintenance, repair and replacement of defect components takes place when there is no wind and/or only a breeze.
This difference results in the high performance of wind power generation systems in Germany, with e.g., KPI energetic availability as high as 95-97% in Germany on average, implying 95-97% readiness of wind turbines for power generation by available wind; while in China, for top wind power generation companies, the share of wind turbines, reaching the KPI energetic availability 95-97%, represents less than 20% of above average performing wind farms in China observed. [Source]
The reason mainstream wind power companies in China have not yet achieved the best practices of German wind power generation is their weakness in the management of big data. The collection of the right status data, automatically and in real time, subsequent generation of required management information from these huge datasets, and predictive maintenance via AI/machine learning all require non-existing software competencies and hardware infrastructure. These need to be developed and/or gathered via e.g. international partnerships.
Therefore, for China to realize its carbon neutral target by 2060, the application of AI and machine learning would be one of the key enablers to achieve needed return. This is essential for attracting trillions in investment into renewable power generation.