Asia’s Accelerating Energy Revolution
In late 2012, RMI’s cofounder, chairman, and chief scientist Amory Lovins spent seven weeks in Japan, China, India, Indonesia, and Singapore observing Asia’s emerging green energy revolution. In February 2013, he returned to Japan and China. Japan, China, and India—all vulnerable to climate change—turned out to be in different stages of a “shared and massive shift” to a green energy future, one with remarkable similarities to RMI’s Reinventing Fire vision for the United States.
Largely unnoticed in the West, Asia’s energy revolution is gathering speed. It’s driven by the same economic and strategic logic that Reinventing Fire showed could profitably shift the United States from fossil-fuel-based and nuclear energy to three-times-more-efficient use and three-fourths renewables by 2050.
Renewable energy now provides one-fifth of the world’s electricity and has added about half of the world’s new generating capacity each year since 2008. Excluding big hydro dams, renewables got $250 billion in private investment in 2011 alone, adding 84 GW, according to Bloomberg New Energy Finance and ren21.net. The results were similar in 2012.
While RMI explores how key partners could apply our U.S. synthesis to other countries, including China, revolutionary shifts—strikingly parallel to our approach—are already emerging in the three biggest Asian economies: Japan, China, and India. They add strong reasons to expect the already-underway renewable revolution to scale even further and faster.
After world-leading energy efficiency gains in the 1970s, Japan’s energy kaizen stagnated. Japanese industry remains among the most efficient of 11 major industrial nations, but Japan now ranks tenth among them in industrial cogeneration and commercial building efficiency, eighth in truck efficiency, and ties with the U.S. for next-to-last in car efficiency. With such low efficiencies and very high energy prices—far higher for electricity than in a more competitive market structure, while gas prices are historically linked to oil prices—fixing these inefficiencies can be stunningly profitable. For example, retrofitting semiconductor company Rohm’s Japan head office in front of the Kyoto railway station—even without using superwindows as RMI did in the Empire State Building retrofit—saved even more energy (44 percent) with a faster payback (two years).
As the debate triggered by the Fukushima disaster opens up a profound public energy conversation, Japan is starting to see those tremendous buildings efficiency opportunities—and to realize that it is the richest in renewable energy (wind, solar, and marine in particular) of any major industrial country. Japan has twice the per-hectare high-quality renewable potential of North America, three times that of Europe, and nine times that of Germany. Yet Japan’s renewable share of electricity generation is one-ninth that of Germany—so its renewable power exploitation is exactly the opposite of its relative endowment!
Why such poor renewable generation and modest ambition despite such rich local resources? Answer: because Japan is in a race with Chile to be the last OECD country to establish an independent grid operator bringing supply competition and transparent pricing to the old geographic utility monopolies.
But that is changing; Japan’s once-monolithic business support for utility monopolies-cum-monopsonies (one seller, one buyer) is eroding. Important impetus came in July 2012 from a bold initiative—feed-in tariffs that promote greater renewables integration into the grid—championed by Softbank founder and now solar entrepreneur Masayoshi Son. The tariffs were set at three to four times original European levels, because the government, apparently based on 2005 foreign prices, unaccountably believed renewables cost that much in Japan, where even commodities like PV racks, cables, and junction boxes sell for about twice the world price. Some 5.2 GW of feed-in-tariff applications were approved in 2012, including 3.9 GW of non-residential solar. As prices fall, the Industry Minister is expected to start phasing down the solar feed-in tariff with a 10 percent cut this spring.
Meanwhile, though, the government changed to one more aligned with incumbent monopolists, delaying reforms. And some utilities have been exploiting a loophole that lets them unilaterally reject renewable offerings, without explanation or appeal, as risky to grid stability—so the developer gets no payment and doesn’t build.
As these internal divisions play out, the Land of the Rising Sun is getting eclipsed—making early progress despite persistent obstacles, but falling far short of its potential and others’ progress. Japan added nearly 3 GW of photovoltaics in 2012—but even less-organized Italy installed 7 GW in 2011. Similarly, Japan’s windpower association projects the same market share in 2050 that Spain achieved back in 2010.
But there are hopeful signs too. Son-san’s initiative was supported by at least 34 provincial governors. Hiroshi Mikitani, billionaire founder of the e-commerce giant Rakuten, just left the powerful traditional business forum Keidanren to form a reformist rival group. Slowly, in the subtle and complex Japanese way, business leaders’ center of gravity is shifting toward better buys and more entrepreneurial models. Real projects demonstrating renewables’ competitive advantage will speed that shift.
And if it does take hold, the world has long learned that nothing is as fast as Japanese industry taking over a sector. Nothing, that is, except its Chinese counterpart.
China is the world’s #1 energy user and carbon emitter, accounting for 55 percent of world energy-consumption growth during 2000–2011. Yet China now also leads the world in five renewable technologies (wind, photovoltaics, small hydro, solar water heaters, and biogas) and aims to lead in all. Its solar and wind power industries have grown explosively: windpower doubled in each of five successive years. In 2012, China installed more than a third of the world’s new wind capacity and should beat 2015’s official 100 GW windpower target by more than a year.
China owns most of the world’s photovoltaic manufacturing capacity, which can produce over twice what the world installed in 2012, so the government has boosted its 2020 PV target to 50 GW to soak up the surplus in a few years. Meanwhile, overcapacity drove consolidation, with over 100 makers exiting the world market in 2012. But plunging prices plus Western innovation have made wind and solar into likely power-marketplace winners—even with incentives shrinking to zero.
As non-hydro renewables head for about 11 percent of China’s 2020 electricity generation, vigorous industrial and appliance efficiency efforts are trimming demand growth. To be sure, coal still supplies two-thirds of China’s energy and nearly four-fifths of its electricity, but its star is dimming. Two-thirds of the coal-fired power plants added in 2003–06 were apparently unauthorized by Beijing, but in 2006–10, net additions of coal-fired capacity fell by half, then kept shrinking. In 2011, investment in new coal plants fell by one-fourth to less than half its 2005 level, and China’s top five power companies—squeezed between rising coal prices and government-frozen electricity prices—lost $2.4 billion on coal-fired generation. Coal’s hidden costs, including rail bottlenecks, are becoming manifest; public opposition is rising. And now further speeding the shift from coal to efficiency and renewables is dangerously polluted air (especially in Beijing) as coal-burning mixes with the exhausts of abundant but polluting new cars. (Shanghai’s Singapore-like auction now prices a new-car license plate above a small car to put it on.) Bad air has suddenly created a powerful grassroots environmental movement.
In November 2012, the 18th Party Congress for the first time headlined a “revolution in energy production and use”—strong language from an organization founded in revolution. The incoming leaders had already earmarked major funding to explore how to accelerate China’s transition beyond coal. They clearly intend to fix what President Hu called an “unbalanced, uncoordinated, and unsustainable” development pattern and to get off coal faster. An unprecedented 2012 dip in coal-fired generation, even as the economy grew, was caused largely by a slowdown in manufacturing and strong hydro runoff, but renewables and efficiency too are starting to displace coal. China is making a real bid to be the new Germany, leading not only in making but also in applying its abundant renewable assets.
India Starts Tipping
So what about the country that—together with China—is responsible for 76 percent of the world’s planned 1.4 trillion watts of coal-fired power plants and 90 percent of the projected growth in global coal demand to 2016; that plans (implausibly) to build a coal-fired plant fleet twice as big as America’s; and that will ultimately surpass China in population, though one-fourth of its people still lack electricity?
India’s power generation is still mainly coal-fired, but India’s coal is only abundant, not cheap. Chronic coal-sector and logistics challenges have created growing import dependence (as in China, which became a net importer in 2009). That helped the six countries that control four-fifths of global coal exports to gain the market power to boost prices, so they did. Rising coal imports and a weakening currency gave India a macroeconomic headache and power producers a financial migraine.
Coal prices 2–3 times assumptions imposed a grave price/cost squeeze on two of the world’s biggest coal plants—4-GW projects owned by the largest generating firm (Tata Power, part of Tata Group that’s nearly 5 percent of India’s GDP) and by Reliance. Many plants can’t even get enough coal, exacerbating electricity shortages, but the government doesn’t want to raise electricity prices, so the dominoes are falling. In December 2011, Infrastructure Development Finance Company stopped financing new coal plants. In February 2012, the Reserve Bank of India said it wouldn’t help banks that got in trouble on new coal-plant loans. Financing dried up. Three weeks later, Tata announced its investment emphasis had shifted from coal projects to wind and solar. Led by four of India’s richest families, India shelved plans for 42 GW of coal plants in the last three quarters of 2012. That’s nearly a fourth of existing total capacity, or 68 percent of the government’s short-term target—only 32 percent of which Coal India says it can fuel. With power-hampered growth threatened by even scarcer or costlier power, some of India’s electricity leaders are seeing their way forward in superefficiency, distributed renewables, and microgrids—and not only in rural areas.
As in China, vibrant private-sector entrepreneurship in renewables should be capable of far outpacing the state-owned industries that dominate coal and nuclear power. India, the world’s #3 windpower market, has already installed nearly four times more wind than nuclear capacity. Solar power too added 1 GW in 2012 and is taking off briskly. And of course India has huge efficiency opportunities because most of its ultimate infrastructure isn’t yet built. Projects like Infosys’s 70-percent-less-energy-using new offices in Bangalore—helped by ASHRAE Fellow and RMI Senior Fellow Peter Rumsey—are gaining wide attention. A constellation of impressive new nongovernmental efforts with businesses and governmental allies is starting to focus India’s energy policy reforms and business mobilizations.
In all, India seems to be at an energy tipping point. It is starting to comprehend its massive efficiency and renewable potential, and enjoys growing private-sector skills to capture that potential, especially if regulatory barriers can be removed. All of this as the power sector—chastened by the world-record summer 2012 blackout of 600 million people—starts to face the need for serious reforms. The main missing elements, as in China and Japan, include rewarding utilities for cutting your bill (instead of selling you more energy), and allowing demand-side resources to compete in supply-side bidding.
Of course, there are major challenges in modernizing a sprawling, disjointed sector with irregular management quality and transparency. But with so many brilliant entrepreneurs and engineers, important advances are already emerging from the bottom up at the firm, municipal, and state levels, whether led or followed by national policy. And as we’ll see in the second part of this blog, all three of Asia’s economic giants will be increasingly informed and perhaps inspired by the example of their European counterpart and prime competitor, Germany, which is now switching to a green electricity system faster than anyone thought possible.