China’s commitment to R&D key to its success in new energy transition

Why is China so successful in achieving its new energy transition? Warwick Powell, an Australian expert on green energy, believes China’s commitment to research and development is the key. 

Powell also suggested that China and Australia should enhance collaboration in new energy as the strengths of both countries are highly complementary. 

Guest: 
Warwick Powell

Chairman, Smart Trade Networks
Adjunct Professor, Queensland University of Technology

Transcript

Tom: 

Hello and welcome to this episode of China Trends. I'm your host, Tom Pauken II. in Beijing.

A global energy fork in the road has arrived. We have long grown accustomed to using fossil fuels to meet our energy consumption needs. But the rise of greener new energy is kicking into high gear, nevertheless, making the clean energy transition won't come easy.

The public and societal costs could run very high. And is it really worth the investment? Can renewable become a more reliable energy source? And how can both China and Australia collaborate on that energy transition?

Well, I'm pleased to be joined here at the studio with Warwick Powell, chairman of Smart Trade Networks. He's an expert on today's global new energy transition, who currently resides in Australia. And he will share with us his insights on this matter.

Tom: Warwich, thank you very much for joining us today. 

Warwick: It's an absolute pleasure, Tom. 

Tom: Great. And please let our viewers know more about the new energy transition. 

Warwick: The new energy transition is really about taking advantage of developments in renewable energy technologies that have really matured over the last ten years. You know, 30 years ago, I started my working life in the energy world, when we were reviewing and transforming the energy supply industry in my state of Queensland in Australia. And back then, the focus was 100% on coal and gas. 

In fact, in all the reports that were produced at the time, renewable energies didn't even feature once. And yet 30 years later, renewable energy, whether it's solar or wind and in fact even hydro-systems are now starting to take the world by storm, led in large part by technology advances here in China. 

Tom: What do you believe caused this transformation from the old style energy to this new energy transition? What do you believe was that pivotal moment? 

Warwick: I think a couple of things really brought it together. The big challenge in the past was all around. Firstly, the efficiency of capturing the energy from nature, whether it was from the sun or ultimately having the tools to capture wind energy. But the big issue was always, how do we make that available 24 hours 7 days a week? 

So energy storage was really the threshold question. And over the last ten years or so, technologies in battery storage have advanced in leaps and bounds. 30 years ago, as I mentioned, when we first started in this energy space, we worked on what we called remote area power supply schemes, which was all about providing energy in environments that didn't have access to the electricity grid. 

Now, there were some solar panels, diesel generators as backup, and of course, double garage full of old car batteries, because that was just where battery technology was. Now, batteries are at a point where they are being used industrially and also at the household level.

Tom: Speaking of batteries, China has made a lot of advances in this type of storage and batteries. Can you tell us a little bit more about this, these advances from the Chinese side? 

Warwick: Look, a lot of the technology research has been driven by, I think, China's recognition that a move to renewable energies would hit a few nails on the head in one goal. One was to achieve an improvement in the air quality of the cities here as part of this urbanization process. Another big driver has been the global agreement around the Paris Climate Accord, which was aimed at a program to de-carbonize or to reduce carbon impacts of economic activities. And so a big commitment was made in battery technologies to achieve exactly this. 

Tom: What are the real benefits of the new energy transition? And how do we address all of these concerns that many people have about the higher costs involved? 

Warwick: Well, the costs have dropped a lot. And this is the interesting thing. Ten years ago, the question of the comparative costs, both from a CAPEX point of view, the upfront investment in the capital infrastructure between traditional energy systems versus renewable systems was quite large, which meant that those renewable systems had to be seriously subsidized. And those capital costs have come down. 

But importantly, it's the marginal cost of energy production that has transformed the economics of renewable energy. By marginal cost, what I mean is, what is the cost per each additional unit of energy that's created once the infrastructure's in place? And the differential is huge, so much so, that the International Energy Agency recently released a report that estimates that within five years, by and large, across the globe, the renewable energy system costs will actually be lower than the traditional systems.  

Tom: Okay. And how does China's new quality productive forces impact the new energy transition? 

Warwick: Well, new productive forces is all about efficiency, using new technologies, not only in terms of the production of energy. So efficiencies in capturing and harnessing solar energy, for example, and not only in terms of the efficiency and cost of energy storage, but importantly bringing the ability to use data to improve the management of energy, to allocate energy at the most optimal pricing levels to the different users. 

Now, that transforms industries. Because once your costs, particularly your unit costs drop, the industrial opportunities that come from that for energy intensive applications such as automation and robotics transforms. Without low cost energy, you don't get automation. 

Tom: But what about the issue of, say, reliability? There's always the concerns. I'm from Texas, so we're an oil and gas state, as you know. And often the argument is that, at least fossil fuels are reliable, whereas the new energy is not so reliable. How would you like to address that? 

Warwick：The issue with renewable energy has actually been it's been described as an intermittent kind of energy supply, because the source of that energy nature is only available under certain conditions, when the sun is shining or when there's plenty of wind or whatever. Which is why battery storage has been the key. Batteries is what makes this energy available 24/7.  

So the question has been, can we get battery costs low enough to make renewable energy-based systems cost competitive? And that threshold has been reached. 

Tom: Wow. That's an interesting point. And how has China achieved success with its new energy transition outside batteries? 

Warwick: It achieved success largely because there's been a commitment to research and development. That's the first thing. You've got to invest in the people to develop the knowledge and then commercialize that knowledge by really fine tuning how new breakthroughs in science, new material sciences, new chemistry can deliver at scale. The systems that can harness what is theoretically understood and put into practical use. So investment in people has been number one.  

Then China, of course, also invests with a view to scale. One of the remarkable things about China is that it is a country that understands scale. It has 1.4 billion people. It has a large land mass. So intuitively, it's always thinking about how do you develop systems that can deliver to a large population base? And because of that, it's thinking about efficient production systems, efficient distribution systems. So that in the end, you can get these tools into the hands of households and industries at the least cost possibly. 

Tom: Okay. And what are the scientific and high tech innovations that China has achieved in respect to its new energy transition? 

Warwick: Batteries again, it's all about batteries. Look, China also has achieved significant advances in the efficiency of solar capture, for example, and also in terms of the scale, meaning the size of the wind turbine infrastructure. One of the interesting things that's happening too is China is very focused on bringing wind power generation capacity to the maritime environment.  

Now, a lot of people will also say that while China is doing a lot on renewable energy, it continues to build a lot of coal fired power stations. That's true. But here's an interesting fact that we often overlook. Whilst China is building a lot of coal fired power stations, the amount (rate) of coal that China burns for energy today is actually less than it was five years ago. So what's going on? Coal is being used less and the coal fired power stations are now being developed as backup infrastructure. So in a sense, we've seen a complete turn of how the system used to be designed. When in my younger days, the system was designed with coal fired power as the baseload and then other systems coming in to plug gaps. Now, in China, the coal fired infrastructure is fulfilling the gap-plugging role. 

Tom: Recently, the United States has increased tariffs on some Chinese imports, such as electric vehicles, lithium batteries, photovoltaic cells. What do you think about this? 

Warwick: Well, the electric vehicles tariffs is an interesting one to start off with. It's almost like it's a tariff on nothing, because Chinese manufactured EVs occupy no more than about 1% of the American EV market. So in many regards, it's a politically symbolic move in an election cycle. So I think that there's some domestic political noise in all of this. At the same time, the tariffs ultimately is an add on cost. The tariffs aren't actually paid by the exporters. Tariffs are paid by the buyers of things. And so this will ultimately impact the buyers of technologies. There's been a couple of research papers released reviewing the effect of the tariffs to date, let alone the anticipated effects of this new round of tariffs. And the research shows quite clearly that the tariffs have had negligible economic impact in terms of the objectives set out for them, which was to bring back the jobs to the mainstream or mainstream America.  

Tom: When you're traveling around, because I know you're a global traveler, when you're talking to Europeans, Americans and of course, your fellow Australians, are they supportive of these tariffs right now simply because of the anti-China sentiments, or are they do they have some concerns about the business costs? 

Warwick: I think it does leave people scratching their heads, because whilst the concerns are understandable, it's fair enough, you know, to be concerned about your local industries and jobs for local people. That's what governments should be concerned about. But whether this is the right policy is the question. Is this approach the best way to enable America to make the best use of its resources, to help America, in a sense, reactivate its industrial heritage and bring it into the 21st century? 

Many people, I think, are empathetic to the objectives and the concerns, but they do scratch their heads as to whether this is the best way to do it. 

Tom: That is true. And what other challenges should we anticipate when pushing ahead on the new energy transition?

Warwick: Well, challenges in part will be geopolitical at the moment. And also, I think for a lot of people still in particularly parts of the world that have experienced the benefits of traditional energy sources, there is still doubt about the reliability and the cost effectiveness. Again, I get that. We've gone through this ourselves in Australia, where there have been extensive debates about whether or not renewable energies can actually be as cost effective and as reliable as alternatives. 

But I think we'll reach a point where as people get to observe the application of renewable systems around the world, that they will become more comfortable with it. So a couple of issues, one is geopolitical and the other one is still, you know, the leftover or the legacy doubts that people have that the sun and the wind and and the waves can be harnessed in a reliable way. 

Tom: What are Australia's strengths in this field? 

Warwick: Australia has got a lot of sunshine, a lot of coastlines. And parts of Australia have incredible amount of wind as well. So in terms of what nature delivers to be harnessed, it's significant. Australia's also got a tremendous research and development base in this area actually. Because Australia does have these natural attributes. There has always been a strong commitment to exploring ways of harnessing it. 

Now historically, Australia also has tremendous wealth in high-value, high-productive coal fields with its calorific values incredibly high. So that's been the traditional sources. But again, R&D, a commitment to science, a commitment to the material sciences, the chemical sciences and the engineering, to take advantage of what nature has bequeathed us. 

Tom: That's great. And how can China and Australia work together on the new energy transition? 

Warwick: It really is a glove-fit, in truth. There's a shared thoughts or a shared commitment now to making the most of these resources of nature. There is actually a complementarity in terms of research and development competency. And Australia is also rich in a range of the natural minerals that are necessary in the manufacture of batteries and those sorts of things. 

So lithium is a raw material that Australia has in abundance. So Australia can play an incredibly important role in global supply chains for renewable energy systems. 

Tom: Thank you Warwick for your amazing insights today. We had a great discussion talking about the new energy transition, something that concerns many people is whether or not new energy is really reliable. But what I found fascinating from Warwick today was his discussion about battery advances and how storage is making the new energy transition much more reliable.  

Also, thank you everyone for staying with us on this edition of China Trends. I'm your host, Tom Pauken II. and I will see you next time.