Note: This transcript is auto generated and lightly edited.
MONICA DE BOLLE: China’s population faces enormous pressure to provide enough electricity for industry, transportation, and households. To cope with this demand, China has expanded its electrical grid by investing in hydropower, nuclear energy, wind, solar energy, and–one day–something called green hydrogen.
For now, China is looking to substitute coal with renewable energy sources. With less dependence on coal, China would still be able to deliver and transmit nearly two times the electricity as the United States’ grid, vaulting it ahead of its economic rivals. Could the global community learn from China’s investments to strengthen their own countries’ grids?
You’re listening to an episode of Policy for the Planet, a podcast exploring the global response to the climate crisis. I’m your host Monica de Bolle, a senior fellow at the Peterson Institute for International Economics.
To help us dive in deeper into China’s electrical grid, I’m joined by:
David Fishman: David Fishman. I am a principal at the Lantau Group. That's a Singapore headquartered, APAC focused energy, electricity, oil and gas consultant.
MONICA DE BOLLE: An expert in China’s electricity, David explains to us how China put energy top-of-mind as its population grew, and how the country developed its electrical grid while relying less on fossil fuels.
Hello, David. Thank you for coming on Policy for the Planet. It's a pleasure to have you on the show, including because this topic is of great interest. I think to everyone, it's certainly of great interest to me. So I'd like to ask you to kind of start off by giving us a brief overview of China's electricity investment in the context of its industrial policy.
David Fishman: Yeah, sure. So China has already the largest electricity sector in the world. And at this point, it's frequently thought of as an extremely robust and just kind of all encompassing one. But just as recently as maybe 20 or 30 years ago, the Chinese power sector was actually really straining and struggling to meet the needs of the Chinese economy.
So if you go back to the 90s or the 2000s, when industrial production was really starting to ramp up, it was actually quite a burden at that time to be able to meet all the needs for industrial production with sufficient electricity. Now those days are still in the past. These days we maybe have a little bit of a luxury to start worrying about, can we meet industrial power consumption growth with cleaner energy sources or something like that. But for a long time, the mode of thinking was just, can we build enough to meet the needs of the industrial sector at all?
MONICA DE BOLLE: And how have things evolved? So at what point are we when we look at the scale of Chinese investments? Because we know that China has been investing very heavily in renewables and renewable energy. So if we have an overall picture of the state of affairs in China's electrical supply today, what do we see? And what do we see in terms of how this issue is moving along as we go forward? In other words, how much investment are they making and what's the capacity that they actually have on the ground?
David Fishman: Yeah, sure. Starting around 2010 or so is when you would have started to see the capacity mix shift away from what was super dominant coal, right? Extremely dependent on coal. Coal fired power was most of the capacity and therefore most of the generation, of course. And the only other low carbon sources you would see in there is hydropower.
there's not much gas in China and they don't really use it for gas to power. At the time, it was still pretty early for renewables and nuclear was also pretty, pretty small around 2010. But from 2010 is when you start to see a really aggressive expansion into other forms of capacity as well, of course, more hydropower, of course, more nuclear, but then, you know, the headline story is tons and tons of wind and solar and over 15 years, we've added I think, you know, by 20, 25 or something at like 1600 gigawatts of wind and solar across the country.
Now that doesn't perform at the capacity factors of something like a coal or a nuclear plant. So all that capacity doesn't necessarily turn into that much generation. But still you can see the role of coal in the generation mix is also rapidly declining as other types of generation, other types of power are filling up the generation mix instead. So at this point now we're down to, I think it's around 58 % coal fired power in the generation mix and falling still year on year. Even as the total amount of coal fired power keeps inching upward and kind of struggles to find a plateau, maybe we got to a plateau in the last 12 months or so, its overall role in the mix keeps shrinking as other sources grow more rapidly than coal has been.
MONICA DE BOLLE: Can you give us a sense of how much they invest yearly in their electrical capacity, in their electrical grid?
David Fishman: When you say the grid, you mean the grid infrastructure or the power generation?
MONICA DE BOLLE: Both.
David Fishman: Okay, well, in terms of the grid infrastructure, it can be a little tricky to put numbers on it. There's two great big grid companies, right? You've got State Grid, which operates about 85%, 83% of the grid infrastructure in the country, and then Southern Grid, which is around 17%.
But to give you an idea of budgets, I believe it was announced last year, or at the beginning of this year, that State Grid had a budget for grid investments and grid infrastructure upgrades in one year that was around 80 billion USD. That was their targeted number for transmission, distribution, substations, everything that goes into making the infrastructure, the hard infrastructure of the grid work. And so, you know, maybe maybe a fifth of that or so you could say might be Southern grids budget. So we're talking about at least, you know, $100 billion towards hard grid infrastructure upgrades per year.
Or at least in the last year those budgets have been rising over time now when it comes over to the Generation we're talking about building power plants. I don't have the number off the top of my head, but we're talking about multiples of that for sure.
Because we're talking, you know a three hundred and what sixty gigawatts of wind and solar last year, we're talking about dozens of gigawatts of new coal plants, we're talking about massive hydropower projects, so we're talking about multiples of what I just cited for that grid infrastructure. I wish I had the number for you, I'm sorry I don't.
MONICA DE BOLLE: No, that's fine because what I want to get, what I want to understand from you is if we were to compare, you know, China's investment in grid capacity as well as power generation, what would we be able to say? How does China stand out vis-a-vis other countries in what it's doing?
David Fishman: Well, what it's doing is and to try to put some scale or some context to it, right? It is the largest grid in the world. But you know, it's maybe maybe about 2x the size, the annual generation of the United States, a little bit more than 2x. But also the Chinese population is much more than 2x the United States. So on a per capita basis, China is not even generating that much electricity yet.
When we say it rises at a rapid rate, it grows by about 5 or 6% year on year. It's generally pretty well correlated with GDP growth. Power consumption growth expands at a similar rate to GDP growth. So what's 5 % or 6 % of the largest power grid in the world? Well, it turns out to be about a Germany or maybe most of a Japan. So that's how much they're growing every year. They tack on another large industrialized country to their already very large power growth. So that's the kind of scale we're looking at. And that's the kind of scale that you have to add an entire country's worth of power generation just to meet demand growth.
MONICA DE BOLLE: So in the broader context, mean, when we think about what's happening in the AI landscape and the tech landscape, you made a very good point, which is, yes, they're generating all of this capacity. It's as if they're incorporating an industrialized nation every year in terms of the kinds of investments and the scale of investments that they're doing.
But on a per capita basis, given China's extremely large population, it doesn't, it's not that much when you do this relative comparison in terms of the amount of it per capita. But even with that, what would you say in terms of China's ability to have a, again, capacity to feed the ambitions on AI data centers, the requirements for that?
the tech industry, where are they on that?
David Fishman: Yeah, so if you're trying to just solve the first step of the problem is do we have enough power to meet the growing needs? the answer is unambiguously yes. Of course, they've got enough. You hope they don't use the surplus that they have right
now because the surplus that's not being tapped right now is mostly coal fired power. You know, everything else dispatches first and it has high capacity factors and it's the coal fired fleet right now, which you could argue in China is quite overbuilt and there's a lot of idle in the coal fired fleet.
So just because I can ramp up and I could tap those unused assets doesn't mean I should. don't want to use more coal fired power. I'd love to be able to meet my needs for my new data centers with with low carbon power instead. I tried calculating roughly once, you know, with a with a 48 something like that 48% capacity factor for China's coal fleet and the scale of the Chinese coal fleet, know, 1300 1400 gigawatts, something like that. I tried to calculate how much untapped generation actually is hanging out there if we if it was needed. And I came up with a number that was something like 4500 terawatt hours, which is more than the entire annual consumption of the US.
So they have an entire extra United States kind of hiding untapped in the existing coal fleet. So not a problem to meet the rising rising needs from from data centers, compute industrial needs of any kind. The problem is how to make sure it's clean.
MONICA DE BOLLE: Which is huge.
David Fishman: And so when we say we need to 500 terawatt hours per year of low carbon generation to meet our needs in a way that, you know, allows us to continue pursuing energy abundance without compromising on climate, then you get some real headaches. And that's where they are right now. Just barely, barely at the point where they can just barely match one year of annual consumption growth with low energy sources, with incremental low carbon sources.
MONICA DE BOLLE: And is that their plan? Is it their plan to continue to move in this direction in the cleanest way possible? In other words, are they really actively, it sounds like it, but just to get the bottom line, are they trying to refrain from using this massive coal capacity that they have in order to build a sort of sustainable and green grid that generates the amount of power that they need for all of these things, including you know, the manufacturing and the industry, all of that, but on top of that, you know, AI and tech needs.
David Fishman: Yeah, well, mean, you've got certain very well publicized, well-known high level objectives. We must cap coal consumption by this year. It's actually publicized 2025 coal consumption peak. We must peak emissions 2030. That's the coal emissions, the carbon emissions peak.
So if you want to have your cake and eat it too, if you want to hit your targets on emissions and hit your targets on industrial performance, GDP growth, then you have to, that's actually your only solution, right? That's your only way to keep adding sources of energy into your system without drawing any more from what is already basically a tapped out carbon budget.
MONICA DE BOLLE: Moving on from this bigger topic into more specific issues, what can you tell us about the challenges that China is facing with respect to investments in things like green ammonia for fertilizers and also green methanol for fuel? What's happening there?
David Fishman: Yeah, so these, I mean, these industrial feedstocks, methanol, ammonia, they are produced already. China's already the largest producer in the world of both of these things through traditional methods, which are fossil fuels reliant, and generally pretty, pretty, pretty dirty, pretty polluting processes. So if you want to be able to produce them through an alternate pathway. this case, both of those, methanol and ammonia, both have hydrogen in them. One of them needs a nitrogen, one of them needs a carbon, but they both feature hydrogen. And so you need to find a source of hydrogen that isn't produced via coal gasification or steam methane reforming or some other process that relies on fossil fuels.
And so the...approach that seems to show the most promise is hydrogen electrolysis through use of electricity. And if you use electricity from low carbon sources, then you get to call it green hydrogen. And when you put green hydrogen as a feedstock, you get to call it green ammonia, or green methanol. It's real expensive compared to the traditional way of doing it. And so that's going to be your big barrier, right? If you want it to get cheaper, you have to start doing it.
You have to start doing it at scale. You have to discover where the efficiencies are, where the savings can be realized by doing it more. You have to create customers for it so you have a chance to actually scale it up. And that's where everybody encounters problems. Even China is going to encounter problems in that area. And so to overcome them, they'll have robust state backing.
They'll be named maybe a key national low carbon demonstration project, which basically means the state throws a lot of money and resources at you to make sure that your project is as de-risked as possible. If you want to be a pioneer and try to start the first green methanol facility, we'll make it as less as less audacious as a venture as it can be.
And so you can feel rewarded for pursuing something risky and difficult instead of punished. And then if we can set up customers for you, can we help find vessels that want to burn green methanol? Can we get the the state agro you know, fertilizer producer to buy your green methanol so they can buy your green ammonia so they can create green fertilizers, things like that? How can we de risk this as well?
It's a challenge for sure. And they're approaching it with the same way that they've approached other technical challenges, is we assume if we do it a lot and we do it at scale, it will probably get cheaper. So let's like, how do we, how do we start doing it a lot in that scale?
MONICA DE BOLLE: Mm-hmm. Yeah, and China is already the world's largest producer of electrolyzers. So the things that you need to do this sort of cleaner, well, electrolyzers can be done in several ways, but to do the sort of clean separation of a water molecule into hydrogen and oxygen and thus get the green hydrogen if that electrolyzer is functioning with clean energy sources or renewable energy sources.
This is how you do it, but they are the largest producer of electrolyzers. Is there here an intent to sort of dominate this market, not only for domestic purposes, but also for the purposes of being a provider of electrolyzers if green hydrogen does get off the ground? Is there a sort of strategic view in that regard, or is it more domestically oriented?
David Fishman: Right now, see, I never dare to speak to what is the intention, because unless I've seen like a strategy plan that says five-year plan, dominate, then, you know, I don't want to speak to intentions, but clearly the capacity to dominate is there.
And if not at a state level, certainly at an individual producer level, you want to do a lot of business, right? You produce electrolyzers, you hope to sell a lot of electrolyzers, you hope to dominate your competitors, you hope to dominate the market and do well. So even if you don't have the state intending to dominate, certainly low cost, highly competitive, electrolyzer producers intend to dominate and they intend to do their best to dominate. Typically, they start at home.
I think that's been true for for your battery producers and your solar panels and your EVs and everyone. The Chinese domestic market is absolutely massive. When they go abroad, normally it's because well, maybe they found good opportunities abroad. Maybe they're they're sick of the really stiff competition domestically and they think there might be green pastures elsewhere.
Or maybe they're already getting the demand that they're not going out to find the customers, but the customers are coming to them. I don't know specifically the dynamics of the electrolyzer market, but if it's similar to EVs or batteries or solar panels, then that would be a similar kind of.
MONICA DE BOLLE: So let me switch gears again and ask you something about the sorts of partnerships that China has with the private sector. So partnerships between the private sector and the government on these various initiatives. What are they doing that's different from what other places are doing?
David Fishman: Well, I think when it comes to equipment manufacturing, quite interestingly in clean tech space, pretty much all the major equipment manufacturers for solar panels, wind turbines, batteries are all private sector. There are very few state backed players in OEM segments for clean energy.
And then when you swing over to the deployment, you know, building wind farms and solar farms and battery facilities. It's not it's not exclusively but it is dominated by SOEs, which does seem to be like an interesting partnership arrangement there, where you say, you know, we want to try to extract maybe some of the nimbleness and the innovation and the and the ability to iterate rapidly and prototype and put out new products, that kind of nimbleness maybe is best handled from the private sector. And then when it comes to capital intensive, big construction projects that need access to government support and land and affordable capital, well now that makes sense to maybe have the state sector pursue that one.
So that's one example for a more like partnership type approach. You know, we were talking, I mentioned those those key national projects, a low carbon national demonstration project, that could be anyone that could be a state company backed company that wins, you state support, that could be a private company that wins state support could be a university that wins state support to pursue whatever demonstration project that is the the state sector, when it comes to those types of programs is totally happy to throw money at both and state-backed players to try to pursue that.
I think overall you'll find that the state players have an easier time with financing compared to private sector. That private sector might be driven to commercial banks, whereas the state sector has really ready access to state banks and policy banks.
MONICA DE BOLLE: Mm-hmm. What about potential barriers to foreign investors? mean, how difficult is it for foreign investors to enter these various markets when it comes to electricity and energy in China?
David Fishman: Well, on the equipment manufacturing side, it's open. I just don't know if any foreign companies would be interested in competing in that kind of space.
Margins are very low. It's very competitive. It's quite capital intensive to get started. And some of your competitors might be staying in the game, but through virtue of local government support, tax breaks, things like that. That's not really necessarily a market you want to compete in. When it comes to building an operating energy infrastructure, that's also quite open.
You could come in as a foreign company, operate a solar farm, wind farm, even a coal plant, I think, although I don't know why you'd want to in 2025. I think maybe the only sector that's explicitly, I think hydropower and nuclear, and there are some minority ownership stakes of foreign players in the Chinese nuclear sector. So it really might be just hydropower is blocked entirely from foreign ownership. But again, I...
I don't know how much interest there is in that. When it comes to generating electricity, you're kind of at the whims of a policy slash market driven regime that is not prioritizing project owner returns right now. so international capital foreign investors, while they're welcome to invest probably wouldn't find it that attractive. I think a lot of project returns are too low to be interesting to them.
MONICA DE BOLLE: And can you say something sort of as a final note of sorts about where China stands vis-a-vis the US in terms of momentum, in terms of investment momentum and capacity building momentum, what they are doing compared to what the United States is doing?
David Fishman: Yeah, I do want to make sure I'm well aware that there's been like a moment in the last few weeks or months or whatever that that it's you know, wow, there's this feeling of inevitability or unstoppable ability out of China. I'm well aware of this, this impression that people have and also the little bit of the backlash that has emerged against it as well as saying yes, China is making a lot of progress.
But let's keep it in context ABC. Let's be aware. It also has these great challenges I say this because I want to make sure that you and all the listeners know I'm aware I'm aware there's a debate here But from where I see it, mean, yeah, I really do see a lot of momentum on China's side when it comes to the ability to to to build The things that are needed to keep the industrial economy moving when it comes to the ability to control the inputs, the cost of the inputs, the availability, the competitiveness of the inputs, both physical and kind of financial capital inputs, land inputs, everything seems like it's humming really well and it's working together really well.
And it also, happens at a time where, you know, external...Trade is a little shaky right now. We don't know what's going on with with tariffs and things like that. And it's been the playbook for years and years to invest in manufacturing and infrastructure. When when other things are uncertain, you can always spend money on investment on manufacturing and infrastructure. And, and it's it's it's a good time to have built up a wealth of expertise in manufacturing and infrastructure because all of a sudden everybody really cares about these things. So yeah, it's hard to argue even in the context of yes, caveats, ABC, whatever, that there's a lot of momentum on China's side.
MONICA DE BOLLE: Well, thank you, David, so much for coming on the show and sharing your expertise with us. It was great having this conversation with you. And we'll probably come back to you in the future with more questions, if that's OK.
David Fishman: That'd be great. Thanks Monica.
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