Beijing’s record-breaking air pollution is making global headlines, and the hazardous air quality is “putting a lot of pressure on the government to protect the environment.” China already invests more in renewable energy – wind, solar, and hydro power – than any other state, and part of Beijing’s plan to cut national carbon dioxide emissions by 45 percent before 2020 relies on wind energy. But how did the local wind power industry develop and what are the future constraints? On January 16 I attended Georgetown University’s book launch for Dr. Joanna Lewis’ work Green Innovation in China: China’s Wind Power Industry and the Global Transition to a Low Carbon Economy. Lewis presented her empirical study of the growth of the wind energy industry in China by focusing on methods of international technology transfer, international cooperation and domestic government policies.
Lewis examined China as a way of understanding the global wind energy industry and the political economy of the clean energy sector. China is the largest emitter of CO2, with more than a quarter of global emissions due in part to the country’s heavy reliance on coal, and will continue to produce a greater share of global CO2 emissions despite its large scale forays into the clean energy sector. Along with new hydropower plants and wind farms, China continues to build coal plants; two-thirds of China’s current energy consumption utilizes coal. Wind is only 2% of energy generated in China but still ranked third among sources.
The wind power industry in China transformed over the past ten years in line with China’s development as foreign firms saw an opportunity for a new market. Lewis looked back to 1993, when there were few foreign firms and even fewer Chinese firms with domestic market share. Foreign firms such as Vestas and Nordex imported their European-produced wind turbines into China. Over time, foreign firms and domestic policy had a marked effect on the ability of Chinese firms to gain domestic market share. In 2003 Vestas merged with NEG Micon to become the largest wind manufacturer in the world; however many of the workers laid off due to the merger were hired by Chinese manufacturers, helping them to gain skilled workers formerly trained in the best factories in Europe.
Additionally, Chinese government policies and laws such as the Power Concession Program (2003), Requirements of Local Content (2005) and Renewable Energy Law (2005) enabled local factories and encouraged the development of new wind farms. In 2005, the government mandated that 70 percent of turbine parts (for eligibility in the wind concession program) be locally sourced. With much pressure from the US, in 2009 China dropped its heavy local sourcing requirements for the wind energy sector, but the law had already served its purpose – it had a significantly positive impact on three domestic producers in particular, who are now among the world’s top 10 wind turbine producers.
While top wind energy industry producers have since built factories in China for the Chinese market, not all have transferred technology to share innovation. From the start, American giant General Electric utilized its large Chinese manufacturing supply chain rather than importing wind turbines from the US. There are now more than 80 Chinese firms in the wind energy sector focused on local consumption. They benefit from licensing agreements, mergers and acquisitions and joint development as means of technology transfer. Chinese firm Goldwind is an example of a local star in the Chinese market that follows what Lewis saw as a pattern of developing country firms: begin with licensing agreements, then move on to joint development; and to gain maximum market share, act with mergers and acquisitions. In 2010 Goldwind maintained 90% of domestic market share.
China was the largest investor in clean energy in 2010 and 2012, with wind industry investments outranking others. Wind energy is no longer on the fringe of research and development funding in the renewable energy sector and China has embraced the technology as a way to curb emissions, drive innovation and contribute to its economy. China is far ahead in deploying wind capacity; there are now many active firms in the Chinese market, and China is within the top 5 countries securing patents for clean energy. Whereas solar power manufacturing is targeted for export, the wind power industry is intended for domestic consumption because the Chinese market is so large that there is sufficient demand.
As countries develop, advancement in the clean energy industry is possible in a relatively short amount of time (India and Korea provide additional examples as demonstrated by Lewis). Technology transfer is a positive way to spur innovation and bridge knowledge gaps. Licensing can be inexpensive, but the structure and information is limited with market restrictions. There is still an important role for government to encourage technology transfer, particularly where there have been problems with operations and maintenance of wind turbines in China. After all, the story of the wind energy industry still goes on after the equipment is built; machines need to be used and maintained effectively to enable power production with lower carbon emissions. Northern China and specifically Inner Mongolia has been the primary area of success for wind farm activity and growth; however, connectivity and curtailment issues remain.
The US and China should try to balance policies that foster innovation while enabling sharing of technology that is critical for reducing carbon emissions, protecting the environment and improving livelihoods. China began as a ‘late’ producer in the wind energy industry but through government policies, strong domestic demand and international collaboration has secured many achievements. However coal still dominates the energy sector in China and there is still much room for international collaboration. There are many US-China bilateral operations, with the US-China Clean Energy Resource Center (founded in 2009) providing a path for genuine technology collaboration. Some policies conflict with international trade law (see Canada, as an example for local content) affecting bilateral cooperation. This problem could, according to Lewis, “blow up if not addressed by governments”. Much larger barriers exist for next generation disruptive technologies such as carbon capture and potential solutions such as carbon trading. One hopes that we will not have to wait for the fabled emergence of ‘clean coal’ technology for governments to have policies that adequately balance innovation and cooperation to share in the benefits of clean, renewable energy.