If collaboration in creating renewable energy sources between the two countries takes off, it could lead to winds of change thawing even further their bilateral ties.
Forty metre long, sparkling white rotor blades lie stacked against each other for as far as the eye can see. Icarus himself would have coveted these elegant wings, should he have found himself in this 22,500 square metre site in the Chinese port city of Tianjin, an hour’s drive east of Beijing. This substantial facility is, in fact, the Indian wind energy major Suzlon’s largest manufacturing site in the world, capable of producing wind turbines with an annual capacity of 600 MW. The facility was set up with an investment of $60 million and came on line in April 2007, making it the first investment by an Indian company in China’s rapidly expanding energy sector.
When talking of India, China, and energy it is usually the competition for hydrocarbon resources between the two countries that tends to grab the headlines. However, given the soaring oil prices and the threat of climate change and pollution, the development of renewable energy resources has emerged as a matter of priority for both countries. Thus, as was repeatedly stressed during Prime Minister Manmohan Singh’s recent visit to Beijing, renewable energy is, in fact, a major potential area of collaboration between what are two of the world’s fastest growing economies.
In this regard, Suzlon’s story in China is instructive. Although only a newcomer, the Indian company already accounts for eight per cent of the lucrative wind energy sector in China, having manufactured and sold turbines of 220 MW capacity in 2007. Nine wind farms across the country are currently supplied by Suzlon, the majority of which are located in the wind-rich, northern province of Inner Mongolia.
According to Paulo Soares, CEO of Suzlon’s China branch, the goal for 2008 is to generate turbines with a 600 MW capacity, a target he is confident will be reached.
MW stands for a megawatt which is a million watts, sufficient power to light 10,000 100-watt bulbs or enough daily electricity for up to 1,000 households.
Wind energy in China has seen a steep ramping up in recent years. In 2004, the country had a mere 194 MW of new installed capacity. The next year, in 2005 this figure had risen to 488 MW. By comparison, in 2007 a staggering 3,031 MW of wind power was installed in China, second in the world to only the United States. India which had for long stolen a march over its northern neighbour in the wind energy sector was left trailing behind, with less than 2,000 MW of new installed capacity last year.
This change in the fortune of China’s wind market is the result of a massive governmental push for renewables, according to Mr. Soares.
The demands of China’s double digit economic growth have led to a gargantuan appetite for energy with the country having overtaken Japan to become the world’s second-largest energy consumer, after the U.S. Currently, coal provides around 70 per cent of China’s energy but with pollution becoming a major drain on the economy, Beijing is keen on reducing the share of coal on the country’s energy mix.
According to a World Bank report 16 of the world’s 20 most polluted cities are in China. Another of the Bank’s reports found that the health costs related to outdoor air pollution in urban China in 2003 amounted to between 157 billion yuan ($21 billion) and 520 billion yuan ($69 billion) — depending on the method of calculation used — or between 1.2 per cent and 3.8 per cent of the country’s GDP.
Moreover, China’s energy production has failed to keep pace with its GDP growth rate for many years now. The Ministry of Electric Power has estimated that 15-20 per cent of the country’s present energy demand cannot be met. Faced with the combination of energy shortages, rocketing oil prices, endemic air pollution and the threat of climate change, Beijing has thus made it a priority to aggressively develop renewable energy technologies. As a result in January 2006, a new Law on Renewable Resources came into effect aimed at ensuring that by 2020, 10-12 per cent of the country’s total energy mix will come from renewable resources.
The new law obliges grids to purchase the more expensive renewable energy at prices fixed by the government. The extra costs are borne by consumers as a result of slightly higher prices for power. The law also offers financial incentives such as preferential loans and tax breaks to boost renewable projects.
For wind energy in particular, the government’s target was to reach 5 GW of installed capacity by 2010. However, this target was already met more than two years in advance. China’s current total installed capacity stands at 5.6 GW. The next target is to reach 30 GW of installed capacity for wind energy by 2020, a goal Mr. Soares says should be comfortably attained as well.
The really meaningful law when it comes to wind energy, Suzlon China’s CEO believes, is the regulation that stipulates that the share of non-hydro renewables should reach one per cent of total power generation by 2010 and three per cent by 2020. He points out that power generation, rather than installed capacity, is the key indicator. Wind currently only accounts for 0.29 per cent of China’s power generation but 0.8 per cent of its total installed power capacity.
Wind energy is one of the few sectors in which India is ahead of its Himalayan neighbour. Currently, India’s total cumulative installed capacity in wind energy is around 8 GW compared to China’s 5.6 GW.
However, Mr. Soares predicts that China will overtake India in terms of total installed capacity within the next two years. Ultimately, China has a much larger potential for wind energy than India: the country’s onshore potential for wind energy is estimated at a staggering 250 GW. Combined with the ability of China’s one-party system to push through land acquisitions for wind farms much more easily than is possible in India, this fact leads Mr. Soares to conclude that India’s days as the leader in the Asian wind energy market are numbered.
For the moment though, India has much to teach China as is evident at Suzlon’s Tianjin plant where dozens of Indian engineers scurry around in the sub-zero temperatures giving instructions and training to Chinese colleagues. Moreover, no domestic Chinese company can currently match the might of Suzlon which is, in fact, the world’s fifth largest producer of wind turbines. Around 50 per cent of China’s wind energy market is currently serviced by foreign investors.
How Suzlon fares in China in the long-term will be an important development, since investments in renewable resources across the border are a viable and mutually beneficial way to boost cross-Himalayan investments more generally. During Dr. Singh’s China’s visit, the Chinese side expressed a strong interest in investing in India’s hydro power sector, an area in which China is a clear world leader.
Should collaboration in renewables between the two countries really take off, it could lead to warm winds of change thawing even further the once frosty ties between the neighbours.