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Promoting China’s Energy Transformation through Deepened Supply-side Structural Reform


By Li Wei, DRC


Energy is the basic industry in China’s economic and social development, and energy transformation has been one of the major issues with social concern. As the largest energy consumer and producer, China has made remarkable progress in recent years relating to overcapacity reduction in the traditional energy sectors such as coal production works and coal-fired power plants, as well as the development of photovoltaic and wind power and clean use of fossil energy. China has played a leading role in global energy transformation. Looking into the future, we need to make more efforts to further deepen the supply-side structural reform in the energy sector and the transformation toward a clean, low-carbon, secure and efficient modern energy mix.

I. Green and low-carbon transformation is the general trend for future global energy development.

The history of human civilization has witnessed the course of energy transformation and evolution. Coal, petroleum, natural gas and other fossil energy propelled the industrialization drive of mankind and enabled many countries to realize modernization and become developed nations. However, after over two centuries, the energy mix dominated by fossil fuels has led to increasingly evident problems of environmental pollution and greenhouse gas emissions, and it has become a formidable challenge for human society to improve the environment and cope with climatic change, thus making the green and low-carbon transformation of global energy become a common consensus of most countries. According to research findings by the Energy Transitions Commission (ETC), for a certain period of time in the future, global energy transformation will advance simultaneously in five aspects including clean electrification, accelerated decarbonization, efficient energy use, smart energy development and global integration. Toward the end of green and low-carbon energy transformation, it is expected that by 2030, USD 6 trillion will be invested in new energy technologies and USD 9 trillion in infrastructure improvement. This could be a huge opportunity together with numerous challenges. Therefore, joint efforts are to be made by various governments and enterprises across the world to create a better future.

II. There are still some problems facing China’s energy transformation despite the progress China has made.

In recent years, as China’s economic development has entered a state of new normal, some changes have taken place in the energy sector. Generally speaking, along with slower economic growth, industrial structure adjustment and the transformation of driving forces, China has gained a different impetus for energy consumption growth, the quality standards for energy demands has become higher, and the fundamental environment of energy development has changed. Therefore, China’s present energy system must undergo a fundamental, thorough and long-term transformation, which is closely related to various factors connected with China’s economic and social development stage. These factors include: first, in order to adapt to the trend of slowed growth and the turning point of energy consumption after reaching the peak demand in the traditional high-energy consumption industries such as steel and iron, building materials, nonferrous metals and the chemical industry, it is necessary to place the incremental market focus on residents’ living, the service industry and strategic emerging industries. Second, the supply capability of high-quality clean energy services in terms of electricity, geothermal resources, ice-storage system and natural gas needs to be strengthened. Third, in order to adapt to the valley-peak difference and the daily load curve fluctuation that are to be expanded in the future as well as the trend of diversified functional area layout, it is necessary to enhance flexibility of the energy supply system. Fourth, it is necessary to make best use of big data, “Internet Plus” and other information technologies, integrate and coordinate the energy supply and demand system, and enhance the overall efficiency of the energy system. In 2016, China’s energy transformation made some progress. However, we must be aware of the fact that energy transformation is a long-term process and some deep-seated conflicts and problems remain to be solved in order to realize a clean, low-carbon, secure and efficient modern energy system. These problems include: first, coal overcapacity has not been entirely removed, and overcapacity reduction still remains the major task for coal industry development for a certain period of time. Second, slower electricity demand growth runs in conflict with the rapid growth of new energy capacity installation, and new policies and mechanism designs are required to effectively address wasted hydro-, wind- and solar-power generation capacities. Third, natural gas as a type of clean energy is hindered by high cost for its development and we still face huge pressure in reaching the target of 10% taken up by natural gas in primary energy consumption by 2020.

III. We need to construct a clean, low-carbon, secure and efficient modern energy system.

First, we need to steadfastly deepen energy reform to give a sound systematic support to energy transformation. Second, we need to make an overall plan for overcapacity reduction and efficient and clean use of coal so as to enhance the coal use efficiency. Third, multiple measures are needed to accelerate the market-based natural gas development so that by the end of the 13th Five-Year Plan period natural gas can take up 10% of total primary energy mix. Fourth, utilization of fossil fuels, renewable energy development and energy system optimization need to be given simultaneous consideration so as to enhance the flexibility and overall efficiency of the energy mix. Fifth, international energy cooperation needs to be enhanced in advancing the “Belt and Road” Initiative. China’s economic and social development is experiencing a critical historical period, so is the country’s energy transformation. Currently, the new round of industrial revolution is brewing, the global energy technological innovation is raging on and new technologies, new models and new operation types are springing up whereas the global energy price is at a low ebb. We must seize this critical window period, take the new development concept as the guideline and the supply-side structural reform as the major task and accelerate China’s energy system transformation toward a clean, low-carbon, secure, efficient and more environment-friendly energy mix.