China, and Overdone Green Energy Hysteria
Of all the verses in the "China-is-Awesome" hallelujah chorus, none is chanted louder than the fact that China is leaving everyone in the dust in "green" energy, especially wind and solar power. The latest Clean Energy Report from the Pew Charitable Trust gushes, "Private investment in China's clean energy sector increased by 39 percent in 2010 to a world record $54.4 billion. China also is the world's leading producer of wind turbines and solar modules. In 2009, it surpassed the United States as the country with the most installed clean energy capacity."
On the surface the numbers sound very impressive: "With a staggering $45 billion invested in wind, China was able to drive installation of 17 GW of additional wind energy generating capacity. Another $4.7 billion was invested in the solar sector, as China begins reaching for its new goal of 20 GW of installed solar energy by 2020. It also has a target of installing 150 GW of wind power by 2020." And if you look at the numbers compiled in BP's recently released Statistical Review of World Energy, it sounds even more eye-popping.
China's wind, solar, and biofuel energy output increased 1,545 percent between 200 and 2010, while their coal-fired energy output only grew by 132 percent. Green energy is obviously rocking the Middle Kingdom. (Never mind that there are reports that many of China's new windmills aren't even connected up to their electricity grid; like their ghost cities with empty high rises, office buildings and malls, China apparently is putting up windmills just for practice.)
Anyone with a single wit of statistical sense will smell the obvious rat in these numbers, as they are the simple tricks of radically different baselines. If someone with ten units of something increases to 11 units, they've had a 10 percent increase, while someone with 100 units of something who goes to 102 units only has a 2 percent increase. But who has the larger real increase in output? The person who went from 100 to 102.
In the case of China, the real action is revealed when the absolute numbers are posted up. Buried in the data tables of BP's energy report is the staggering fact that new energy supply from coal alone was 85 times larger than new energy from wind, solar, and biofuel. Add China's growth in oil consumption, and old-fashioned energy accounted for more than 100 times as much new energy as the "green" sources.
Here are the actual numbers, as measured in the common unit of Million Tons of Oil Equivalent (MTOE) in BP's report: Between 2000 and 2010, China's total non-hydro-renewable energy increased 11.4 MTOE, while their coal energy output increased 976.4 MTOE, and oil increased by 204 MTOE.
Figures for how much China spent for new coal and oil energy are hard to come by, but one suspects that $45 billion spent for wind power looks like a poor return on the investment compared to coal. Pew and other China cheerleaders trumpet the fact that China added about 50 terawatts of new renewable electricity production over the last decade, but they leave out that China's new coal-fired electricity built over the last decade amounted to 4,200 terawatts - 84 times as much as renewable electricity. China now accounts for 48 percent of the world's total coal consumption. Does this sound like an authentic "green" energy juggernaut?
The right term to apply to the whole green energy scene, whether in China or in the U.S., is ironically the favorite green term of art: unsustainable. Right now the green energy cheerleaders trumpet falling costs for renewable energy, wind power especially, with figures showing that some onshore wind power is almost competitive with coal and natural gas electricity the basis of what the trade calls "levelized cost," that is, the total lifecycle capital cost of equipment and fuel cost over a 20-year time horizon. Wind (and solar) power is more expensive to build than coal or natural gas, but has no fuel cost once built, which would seem to be in its favor.
However, this assumes a chalkboard world of uniform electricity demand and pricing, like the market for gasoline or diesel fuel, which varies little from producer to producer or time of day. While wind power might compete with coal and gas at the average price of electricity, the actual market price for electricity varies widely by time of year and time of day, with huge spikes in demand occurring in circumstances like last week's heat wave. At such times of peak demand, spot electricity prices are often ten to fifteen times the average price. This is why "peaker" gas power plants can be profitable even if they only operate a few days per year.
And it is exactly under these circumstances where intermittent wind and solar cannot compete with coal or gas, because they are not reliable sources of dispatchable, peak-demand power, and never will be unless someone invents a magic battery. For investors, this is why a gas power plant promises higher returns than a wind or solar facility, even allowing for the subsidies wind and solar power enjoy. And this is why China is going to continue to build fossil fuel energy over renewable energy at a ratio of better than 50 to one for the foreseeable future, even as they create a new export industry to sell wind turbines and solar panels to politically driven markets like ours.
This crucial distinction between average and peak period prices and the need for dispatchable baseload power is lost on most of the public, let alone politicians who want to meddle endlessly to "level" the playing field between renewables and fossil fuel energy with subsidies and mandates. But investors and analysts who want to understand where the real energy action is in China should look at where they're really getting their new energy supply from, rather than getting excited about the hype about "green" energy.