China readies for an energy revolution

China is the world’s largest consumer and producer of energy and emitter of carbon. The country’s voracious appetite for oil, coal, gas and renewable energy is fundamentally re-shaping the global energy landscape.

China’s slowing economy and the transformational structural change will have a profound impact on the ways it produces and consumes energy. The growth rate for the country’s energy demand is set to decelerate from about 8.4 per cent to between 4 and 5 per cent, according to the Development and Research Centre of the State Council, the Chinese cabinet. However, the absolute size of demand will continue to rise.

In light of the country’s economic structural shift, worsening environmental problems, and advances in new technology, Chinese President Xi Jinping has called for an energy revolution in China.

Speaking on Friday night at a meeting of the Central Leading Group on Financial and Economic Affairs, the country’s highest decision-making body on economic issues, Xi said China must work to safeguard its energy security.

“To ensure national energy security, China needs to take steps to rein in irrational energy use and control the country’s energy consumption by fully implementing energy-saving policies,” he said.

Xi, who arguably has greater power vested in him than any Chinese leader since Deng Xiaoping, made five important points about China’s energy industry that could have lasting consequences for the global energy sector.

The one that will have the most impact on Australia is the push to diversify China’s energy sources. Xi emphasised the importance of having a diverse range of energy suppliers and sources to ensure the country’s energy demand and security. Chinese authorities will place new prominence on clean coal technology and upgrade polluting coal fired power stations.

In addition, China will explore and develop new sources of energy beyond coal and petroleum including natural gas, renewable energy such as solar, and wind and nuclear power. Evidence from past years is already showing strong signs of change.

For example, China’s coal consumption only increased 1.85 per cent between 2012 and 2013, compared to an annualised growth rate of 8.3 per cent between 2002 and 2011. On the other hand, the country’s demand for natural gas increased 15.4 per cent in 2012 and 13.9 per cent last year.

Meanwhile, the country has experienced explosive growth in renewable energy production, with wind and solar power increasing 35.3 per cent and 122 per cent respectively in 2013. At the moment, nearly two thirds of China’s energy consumption is powered by coal. Beijing wants to reduce that reliance to 52.4 per cent by 2023.

 Xi also called for more international cooperation in energy production, exploring further opportunities in Central Asia, Middle East, Americas and Africa. Beijing clearly wants to diversify its sources of energy supply to ensure better energy security. China recently sealed the $400 billion natural gas supply contract with Russia, securing China a major source of cleaner fuel from its neighbour.

State-owned giants dominate the country’s energy sector from petroleum exploration to electricity generation. The cosy monopoly is a source of corruption as well as inefficiency. Xi promised more market-oriented pricing reform to build a competitive energy market.

There have been calls to open up the country’s closed exploration sector to private capital and especially for unconventional gas industry.

The Chinese president also emphasised the need to invest more in renewable energy sector as part of the broader strategy to upgrade the country’s industrial structure. The country is already the world’s largest builder of wind turbines and the largest producer of solar photovoltaic cells.

Chinese authorities see the development of renewable energy not only as a solution to address its energy demand and worsening environmental problem but also part of the plan to overtake Western competitors in emerging sectors.