China's renewable energy sector wary of impact of geopolitical tensions

China's renewable energy companies are wary of an increasing number of countries looking to reduce their dependency on the country's equipment manufacturing in clean energy sectors like solar and wind, which could lead to overcapacity and stranded assets.

While China's economies of scale have helped reduce the cost of renewable energy projects, enhanced net-zero commitments mean countries will have to increase their dependency on China at a time when the global geopolitical situation is tense and evolving rapidly.

Chinese experts at a recent event called for market participants to be aware of these changes in global geopolitics and strive for lower costs to stay competitive.

"Triggered by the Russia-Ukraine conflict, energy security has become the top consideration of every country. Many countries now think solar PV production as one of their lifelines, and do not want to give it to the foreign suppliers," Liu Yiyang, spokesman and deputy secretary general of China Photovoltaic Industry Association, said at an industrial forum hosted by China Renewable Energy Engineering Institute.

"The US, Europe, India, Indonesia ... more and more countries have announced plans to build up their domestic production capacities for solar PV. They all know carbon peaking and net-zero will be the trend, and solar PV is a key component in the decarbonization arsenal," Liu added.

A US ban on products made in China's Xinjiang region recently took effect, including exports of polysilicon from the region, a key ingredient in most solar panels.

"In the future, there may be more and more trade frictions in the solar PV industry," Liu said.

Rising costs

In 2021, China exported 98.5 GW of solar photovoltaic modules and 3.3 GW of wind turbines, according to data from the Ministry of Industry and Information Technology. In the same year, the world added 257 GW of renewables capacity, out of which solar power additions were a record 133 GW, followed by 93 GW of wind, according to the International Renewable Energy Agency.

China has also supported large-scale wind power projects worldwide, such as an 800-MW project in Ukraine, a 400-MW project in Argentina, as well as projects in Vietnam, Kazakhstan, and Croatia, Yi Yuechun, vice president of CREEI, said at the same event.

He said it is important for China to continue cutting costs for wind turbines, deepen climate-related collaborations, and facilitate stable growth of the global energy market. A key concern has been the rising input costs of raw materials for Chinese manufacturers.

Yi said due to recent supply chain disruptions, China's production cost for each kilowatt of distributed solar PV capacity addition has risen by 10.6% year on year to Yuan 3,740 (about $560).

"We cannot sit back and relax. Continually lowering our costs is very important for the long term. After all, the 'price–performance ratio' is what makes us stand out in the global competition," Liu from CPIA said, adding that polysilicon and solar PV modules have both seen sharp price increments recently.

The suppliers also face domestic headwinds. In 2021, China announced plans to phase out subsidies for solar and wind projects, which means production costs need to be lowered further to maintain profitability.

Yi said, in 2021, some wind project developers rushed to complete their projects before subsidies are phased out, leading to a shortage of devices and manpower, and even higher production costs.

In 2022, China will add around 850,000 mt of polysilicon production capacity, which can meet the need for 30 GW of solar PV production, Liu disclosed. China has another 3 million mt/year of polysilicon production under development, which can support around 106 GW of solar PV capacity, or around 80% of global solar additions in 2021, based on IRENA's data.

"Many people want a quick win. All types of capitals are flowing into the market. This has become the root cause of the oversupply and has brought about even more uncertainties to this ever-changing environment," Liu said.

Strong output growth

Meanwhile, China's domestic renewables output growth remains high.

China's annual renewable electricity output reached 2.4864 trillion kWh in 2021, up 12.1% year on year and accounting for 29.7% of annual electricity production, state-backed research institute CREEI said in its 2021 Renewable Energy Development Report released June 24.

It said China's renewables-based power generation capacity reached 1,063.94 GW in 2021, accounting for 44.8% of total installed power generation, out of which 354.53 GW was conventional hydropower, 328.48 GW wind, 306.56 GW solar, 37.98 GW biomass, and 36.39 GW from pumped-storage hydropower.

Annual renewable energy consumption reached 750 million mt of standard coal equivalents, accounting for 14.2% of the primary energy consumption mix. The report said to absorb more renewables into the power grid, China needs to address the intermittency issue and accelerate storage capacity build-out.

Peng Cheng, Director of CREEI's Expert Committee, said achieving carbon neutrality and stable energy supply simultaneously is "a very strenuous task," especially for eastern and central provinces with high energy demand, and it was too early to talk about phasing down coal-fired generation.

TABLE: China's Renewable Energy Statistics 2021

Source: China Renewable Energy Engineering Institute