Global Green Energy Transition: China To Ramp Up Local Demand & Supply Of Renewables, Says Credit Suisse

Recently published analysis by financial services provider Credit Suisse shows that China will have several opportunities that will help the country accelerate its local demand and supply of renewable energy sources in order to eventually achieving its net-zero carbon emissions goal by 2060 and end dependency on foreign manufacturing.

During the 24th Credit Suisse Asian Investment Conference, a leadership meeting for the Asia-Pacific region, analysts at the bank said that thanks to a range of opportunities, China will establish itself as a global leader in the green energy space.

The year’s conference theme, ‘Disruption accelerated’, highlighted the various disruptive forces that are changing individual lives and the world as we know it.

Though China is still a heavy user of foreign fossil fuels- the country imports 74% of its crude oil and 43% of its natural gas needsrenewable energy sources like solar and wind energy are starting to gain a huge market share in the country, thanks to the drop in pricing for these sources.

A recent report showed what between 2009 and 2019 alone, solar energy costs dropped massively, from US$359 per megawatt-hour to a mere US$40, making it the cheapest clean energy source to date.

In order to reduce its carbon emissions and to fulfill its circular energy model commitments, China will need to lean in further into greener sources.

Once solar subsides are lifted in the country, Credit Suisse predicts that China’s annual solar installation will nearly triple from an average of 42 gigawatts (GW) per year in the 2016-2020 period to 103 GW per year in the 2021-2025 period.

Globally, the demand for solar power is surging due to attractive cost reductions. The wide-scale application of this energy source is a boon for Chinese companies, who are supplying most of the global solar demand as the rest of the world works to keep their carbon emissions under control.

Building solar panels is an extremely cheap investment, for instance, electricity generated from these panels will on average cost 177% less than the same electricity produced by a new coal facility. In China, over 300 major cities have solar power that is cheaper than electricity supplied by the national grid.

In a press release seen by Green Queen, Head of ESG Equity Research Asia Pacific at Credit Suisse, Phineas Glover, said: “With the COVID-19 period seemingly acting to accelerate policy-maker support for tackling climate change, markets have started to take their cues from this bold leadership. This has shown clearly that capital markets stand ready to finance the energy transition where there is policy certainty. But there is still a long way to go, and investors in the region will be looking for credible pathways to Net-Zero. We have already revised upwards our estimates of global public stimulus devoted to green end-markets from US$1.71 trillion last year to US$1.85 trillion, and we expect that to increase from here, acting to accelerate existing trends within the energy transition, sustainable transport, energy efficiency, and the circular economy.”

We have already revised upwards our estimates of global public stimulus devoted to green end-markets from US$1.71 trillion last year to US$1.85 trillion, and we expect that to increase from here, acting to accelerate existing trends within the energy transition, sustainable transport, energy efficiency, and the circular economy

Phineas Glover, Head of ESG Equity Research, Asia Pacific at Credit Suisse

On the other hand, the demand for wind energy is expected to start picking up from 31 GW annually since 2016, to 43 GW per year in the next five years with major support from state-owned developers, as well as the evidence that Chinese wind turbine makers maintain control over the domestic market, while international power installations are already lagging behind in terms of growth.

Utilities and Solar Sector Securities Research Analyst at Credit Suisse, Gary Zhou, said that the company believes that the clean energy transition will accelerate in the coming five years. “This will take place alongside the establishment of major policies and development directions for the utilities and renewables sector as part of China’s 14th five-year plan for 2021 to 2025. Energy mix improvement would be the key driver behind all demand-supply changes, with renewable energy set to be the key winner. Based on our projections, China is set to overachieve its non-fossil fuel energy mix target by 2030, hitting three percentage points above its official target of 25%.” 

Hydrogen is another energy source that was discussed during the conference and one that will not only help China reach its target of net-zero carbon emissions target, but will also ensure its top position in the low-carbon energy space as it is already the world’s largest hydrogen producer with about one-third of the world’s hydrogen production taking place in the country.

While hydrogen production paths at present are dominated by fossil fuels like grey hydrogen, green hydrogen has the capability to achieve parity with grey hydrogen in the long run, due to an increased carbon price, advancement of electrolysis and reasonable renewable generation.

Head of APAC Energy Securities Research at Credit Suisse, Horace Tse, said that the declining cost of renewable power generation will help the green hydrogen market in China. “Apart from this, more sophisticated policy planning for hydrogen will crystallize the popularity of green hydrogen across a wider range of end-use applications, which include transportation, power, and basic material production. On the supply side, we expect China to drive a more sophisticated advancement of the entire hydrogen value chain, pushing provincial governments to acquire core technologies rather than purely incentivizing car manufacturers to sell more fuel cell vehicles, which require hydrogen.”

Energy mix improvement would be the key driver behind all demand-supply changes, with renewable energy set to be the key winner. Based on our projections, China is set to overachieve its non-fossil fuel energy mix target by 2030, hitting three percentage points above its official target of 25%

Gary Zhou, Utilities and Solar Sector Securities Research Analyst at Credit Suisse

Credit Suisse analysts also discussed the IGBT (insulated gate bipolar transistor) sector in China that is an electronic switch that regulates the frequency of electric currents and is used in automotive, railway, smart grid, and home appliances. The company said that this sector will play an important role in the country’s energy-mix shift towards renewable energy and import substitution due to its high-energy and wide-spread use.

Credit Suisse has predicted that the total IGBT market will expand at a compound annual growth rate (CAGR) of 17% from US$2.7 billion in 2020 to US$5.9 billion in 2025.

In its most recent five-year plan, China, the largest producer of NEVs (new energy vehicles) announced that electric, plug-in hybrid, and hydrogen-powered vehicle sales should rise to 20% of overall new car sales by 2025 from the existing 5%.

Recently, a 2019 report highlighted that if only a 10% to 30% of the annual fossil fuel susbisdes were diveretd towards clean energy, it would be sufficent to pay for a global transition to a carbon-neutral energy system.

Apart from fossil fuels causing 87% of the world’s carbon emissions, there are several other reasons why they are a no-go, notable due to the air pollution they cause that is responsible for 4.5 million deaths each year. Over the past year, the pandemic has shown that renewables are the wisest way forward.

Elsewhere, U.S. President Joe Biden has pledged to invest in green projects.

Lead image courtesy of Credit Suisse.