New Five-Year Plans Promote Energy Industry Reform

By David Solomon, Josie Cai, and Owen Haacke

Facing ongoing pollution challenges and a push to diversify energy sources, China’s energy planners kicked off 2017 by announcing an array of 13th Five-Year Plans (13FYPs). Offering quantifiable short-term goals for limiting reliance on coal in favor of oil and gas, these plans collectively focus on emissions cuts, renewable energy development, and improved energy industry efficiency, while encouraging technology solutions such as data centers.

As China outlines its upcoming policy direction for traditional, renewable, and efficient energy, as well as pollution control, USCBC has highlighted key FYP themes and targets, which shed light on new energy sector trends that offer opportunities for member companies.

13th Five-Year Plan for Energy Development

In January, the National Development and Reform Commission (NDRC) and National Energy Administration (NEA) announced the 13th Five-Year Plan for Energy Development, a guideline for promoting an “energy revolution” in China. The plan highlights the following themes:

• Structural adjustments support oil, gas, renewable energy consumption   Total energy consumption by 2020 should be within 5 billion tons of coal equivalent. Growing by 2.5 percent annually, this 13FYP rate is 1.1 percent lower than that of the 12FYP period. Structural adjustments to the sector will include greater emphasis on oil and gas in place of coal, while renewable energy will begin to gradually replace fossil fuels. Companies in the oil and gas space should focus on this section of the plan.
• Development through innovation   Science and technology innovation will promote clean and intelligent energy, propelling new industries and business. Gradually shifting from traditional high energy-consuming industries to service industries and household consumption, energy consumption growth will focus on modern manufacturing, big data centers, and new energy, offering opportunities to companies with expertise in energy efficiency.
• Diversified energy sources   Major energy projects will include development and commercialization of smart grids, distributed energy resources, low-speed wind power, solar energy materials, and biomass and geothermal energy. China intends for these energy sources and systems to be a predominant fuel source for economic growth in towns and rural regions; however, success depends on implementation.
• Cooperation in other markets   China will increase cooperation with other countries on energy technology, equipment, engineering services, and capacity development by encouraging Chinese companies to participate in foreign electricity projects. China will also pursue investment, construction, and operation of overseas power grids and new energy projects. This could provide opportunities for US companies to partner with Chinese counterparts seeking to collaborate in markets beyond the United States and China.
• Fiscally supportive policies and projects   Chinese energy reform will rely on various other supportive policies that include energy resource pricing mechanisms, monetary and tax incentives, financing support, and methods for evaluation and supervision. The development of an energy market access negative list will encourage companies and other market players to invest in the Chinese energy sector. Pilot projects will include developing and drilling non-traditional oil and gas, deep-water oil and gas, and natural uranium resources.

Other industry-specific plans

In addition to the 13FYP for Energy Development—which serves as a broad industry blueprint and action plan—China announced a range of sub-industry FYPs that offer strategies to reduce carbon emissions. The following chart outlines 14 of these plans:

Changing landscape: member company opportunities

The themes and targets listed in China’s various energy industry 13FYPs reveal goals to improve nationwide sector efficiency, as well as newly-emerging commercial opportunities:

• Increased clean and low-carbon energy consumption; emphasis on natural gas   Adjustments to energy industry structures will enable China to develop clean and low-carbon energy. During the current five-year period, China will increase non-fossil fuel consumption to more than 15 percent, raise natural gas consumption to 10 percent, and reduce coal consumption to less than 58 percent. The 2016 China Natural Gas Development Report indicates that natural gas will be China’s primary future energy source. NDRC and NEA have released several policies during the past six months regarding pricing, control, and management of natural gas, establishing further legal basis for natural gas industry reform. Recent State Council measures also outline new opportunities for foreign companies to participate in natural gas drilling and exploration, although implementation timelines are conspicuously absent.

• Gradual transfer of wind and PV power to eastern and central China   Declining traditional energy consumption, coupled with persisting distribution limitations, are creating a regional supply and demand imbalance. China’s major wind and photovoltaic (PV) energy plants are predominantly in northern and western China, requiring long-distance power transmission that risks degradation en route to Eastern and Central China. Chinese energy planners are making structural adjustments to overcome these challenges, as new policies seek to meet traditional energy consumption demand with renewables. The government announced that 58 percent of new wind power installations and 56 percent of new PV power installations will be in Eastern and Central China, with PV development emphasizing the distributed system and local consumption.

• Reforms focused on electricity, oil and gas   Greater emphasis on renewables will also require China to carefully control coal sector development to avoid overcapacity. China’s petroleum development and natural gas development FYPs outline reforms to the system of oil and gas exploration and development, as well as the expansion of pilot projects. China will seek to open up downstream business opportunities for oil and gas exploration, development, imports, and exports, providing improved access to pipeline networks and other infrastructure development. These highlighted oil and gas industry reform plans will offer future investment opportunities.

• Internet Plus smart energy   China has also announced the planned development of an internet-based energy strategy. Outlining the Guidance on Promoting Internet Plus Smart Energy Development in 2016, NDRC will create smart energy infrastructure through development of a multi-energy micro-grid network and big data services. This Internet Plus Smart Energy plan will integrate cloud computing, big data, and the internet of things with energy production, transmission, storage, and consumption to create a more efficient system. The central government has announced various pilot projects for the next five years that develop these technologies. China has yet to announce detailed regulations on this plan, however, NEA’s Chief Economist, Li Ye, has predicted the creation of a large investment fund to finance development. The plan will offer new opportunities for distributed energy, micro-grids, energy storage, big data services, comprehensive service providers, and other related fields.

USCBC will continue tracking the evolving Chinese energy landscape to identify upcoming member company engagement opportunities in the sector.

About the Authors: The US-China Business Council (USCBC) is a private, nonpartisan, nonprofit organization of more than 200 American companies that do business with China. Founded in 1973, USCBC has provided unmatched information, advisory, advocacy, and program services to its membership for more than four decades. Through its offices in Washington, DC, Beijing, and Shanghai, USCBC is uniquely positioned to serve its members’ interests in the United States and China.