CHINA'S Market
breaking out or breaking down
Research Opportunties
Despite the best intentions, renewable energy does not alway prove to be clean energy, and many challenges pave the road that precedes even the thought of creating an expansive, and actually environmentally sound, electric vehicle market in China. As accepted by many top leaders, China must develop innovative technological solutions in order to consolidate the needs of both the budding EV production industry, and the swelling renewable energy sector. Before charging stations emerge alongside petrol pumps, and before electric vehicles hit the streets in their hundreds of thousands, rapid and radical energy reform is needed.
Furthermore, the hasty development of China’s renewable energy sector in response to local and international pressure has led to the creation of a wholly inefficient and wasteful industry. Such challenges exemplify the need for localised, and focused, renewable energy approaches. Large-scale national projects contribute to China’s position as the world’s leading investor in renewable energy production, but contribute nothing towards China’s ever-increasing energy needs. If rural electrification projects persevere, alongside continued urbanisation, China’s energy needs will increase exponentially, with no available option for sustainable supply.
Similarly, electric vehicle energy solutions need to be localised, based on product innovation and relevant solutions. As opposed to plugging in and tuning out the guilt of a carbon-footprint, consumers need to be aware of the source of their electricity, and the positivity of its generation.
But within such challenges, opportunities arise for international engineers and domestic producers alike.
Note: The content of this article does not reflect the official opinion of any unit of the Chinese government. Responsibility for the views expressed in the article lies entirely with the author.
Image credit: electric-cars.net
Written by Abbey Heffer & Sigvald Harryson
The 2014 Boom: A History
Between 2012 and 2013, despite the government initiating a subsidisation plan across five major consumer regions in 2010, new sales of electric passenger vehicles saw 0% growth. Despite offering fiscal incentive policies accounting for 10-30% of a vehicle price, China’s market share for such vehicles barely reached the 0.05% mark in 2013. And then, suddenly, in 2014, the industry experienced massive growth rates. What happened, and what does this mean for the Chinese EV market?
The following post was presented at the Carnegie Mellon University Joint Institute of Engineering (CMU-SYSU JIE) at Guangzhou's Sun Yat-sen University, in attendence were representatives from Foshan City Government, MA and PhD students enrolled at the CMU-SYSU JIE. The lecture was the first part in a seminar series hosted by Dr. Orkun Karabasoglu, Professor of Intelligent Vehicles and Energy Systems at the Institute. It is an update on last year's Before Electric Vehicles, written in collaboration with Sigvald Harryson, Professor of Ecopreneurship at the Copenhagen Business School and CEO of Innoventum AB.
Update: Electric Vehicles in China
October 29, 2015
Incentives: Is it Enough?
In 2014, sales of pure electric EVs leapt a remarkable 210%, and plug-in hybrids a staggering 880% from the previous year. After having stagnated for years at a discouraging 0.01%, the plug-in EV market share reached 0.32% of China’s new car sales in 2014.
However, the trouble with creating more incentives packages, particularly of the financial variety, is that growth shown is not growth earned. As seen in the below table, purchase subsidies are an EV incentive greater implemented in the Chinese market, creating misleading growth figures, which do not represent genuine consumer spending, as would be seen under normal market circumstances.
The Central Government has artificially encouraged the creation of an entirely new automobile market in a nation which thirty years ago barely had a petroleum automobile market. They have done this by offering incentives policies that in some cases cover up to 30% of the vehicle’s total value - including the battery. After having stagnated for years at a discouraging 0.01%, the plug-in EV market share reached 0.32% of China’s new car sales in 2014.
Though 0.32% may not sound encouraging, but China sold nearly 24 million new cars in 2014. That 0.32% represents more than 750,000 new EVs sold in one country in one year.
According to researchers from the Copenhagen Business School and the Lund University in Sweden, sales of electric passenger cars in Norway were already 33 times higher than those in China in 2012 [despite Norway having a population of 5 million - less even than Foshan]. Between 2012-2013, sales of EVs in Norway almost doubled, while China’s stagnated. Some people would put this down to favourable government policies, marking the difference between success and failure.
It has been argued that China’s mature market will allow for a higher level of consumer acceptance of EVs, in comparison to more mature and established markets like the U.S. It is also assumed that the environmental crisis facing Chinese cities will lead to a green tech revolution, starting with EVs.
Despite these assumptions, Chinese EVs did not gain the foothold that theory suggested that they could. Environmental policy in China is prepared to facilitate vast subsidies to ease the financial pressure on consumers purchasing EV products, but is this enough?
However, the actual impact of incentives on China’s EV market size is relatively small if you compare the incentives offered by the two countries… with the level of industry growth or EV sales. Here, the circle on the left represents China, those on the right represent Norway in terms of sales from 2012-13.
The top implemented Chinese incentives are all high-level financial incentives for which domestically-produced EVs are eligible, again creating skewed figures. China’s EV troubles are not purely fiscal. Although an artificially low consumer price has clearly led to a dramatic increase in new EV sales, and although market leaders such as Tesla have invested heavily in infrastructural preparations in certain areas, many of the necessary changes have not yet been made.
China’s clean energy marketplace evolved from a scant $5 billion invested in 2005, to become the largest and most diverse in the world.
The Pew Charitable Trusts, Who’s Winning the Clean Energy Race? (2013)
However, converting to renewable energy sources is far more complex than a process of investment. Nuclear crises, such as the 2011 Fukushima Daiichi disaster, have challenged the popularity of nuclear power across the world. Major renewable world players, such as Germany, have all but abandoned nuclear power and observe with discomfort the building of nuclear plants in neighbouring states close to German national borders.
The nuclear disaster in Fukushima which followed in the wake of the 3/11 Tohoku earthquake and tsunami has given rise to one of the most significant public health crises in modern world history, with profound implications for how nuclear energy is perceived.
Kyle Cleveland, The Asia-Pacific Journal (February, 2014)
Similarly, in the Chinese case, boundary disputes have arisen over the country’s planning of large-scale hydropower plants in Yunnan Province. Home to the world’s largest hydropower station, the Three Gorges Dam, China’s hydroelectricity sector plays a major role in the nation’s renewable energy plans. However, continued discomfort over trans-boundary rivers, ecological concerns and overall environmental detriment have stunted much of the sector's development in one of China's wettest provinces, with good reason.
Other renewable energy sources, such as solar and wind power, have seen a leap in popularity.
By the end of 2015, China aims to more than triple its solar installation capacity compared with the 2012 installation figures, from 6.5 GW to 21 GW. By 2020, it aims to more than double this figure once more, to 50 GW. Similarly, in the wind energy sector, China aims to increase installation by nearly 25% by 2015, from 74 GW to 100 GW. Again, this is predicted to double between 2015 and 2020. In 2013, China increased solar deployment to an astonishing 12.1 GW and its wind power installation increased by more than 10 GW, despite an overall decline in clean energy investment during the year.
Despite the apparent positivity of wind and solar development, even such clean renewable energy faces considerable challenges in the Chinese case.
A prime example is the rapid expansion of Chinese wind power system, which provides enough wasted energy annually to account for half of Germany’s entire wind power production. Despite extensive government tariff incentives, wind power projects across China face a far more basic problem than a lack of funding.
China’s wind farms face a lack of market. Located many miles from the energy-hungry urban centres, China’s rural wind farms lack the necessary infrastructure to transfer generated energy to the cities. In a country that developed an entire electricity and energy infrastructure according to the needs of coal power, renewable energy sources continue to suffer in the absence of a reform policy that extends beyond simple investment.
China’s is perhaps the largest yet most inefficient wind power system in the world.
Michael Davidson, East Winds (August, 2013)
The market will only develop with the development of recharge stations, increased battery life and a rethink of the business model that is independent of government subsidies.
An Jin, Chairman JAC Motors
The 2015 Wake-Up
So the incentives policies failed to significantly increase the market share of passenger EVs, and succeeded only in creating an artificially inflated EV market. It is 2015, what has been achieved? How has the infrastructure behind EVs developed? The auto-industry itself is more than just cars and parts, behind each great auto-manufacturing name is an entire army of suppliers, producers and innovators. It will come as no surprise to most that, in order to create a vehicle, first a vast inter-industry (and often international) supply chain needs to be established. For an electric vehicle producer, however, it is not enough to simply create a supply chain. Electric vehicle manufacturers rely on the creation of an entire supporting infrastructure in order to sell.
Last month, China announced new plans to build a nationwide charging-station network to fulfil the power demands of increasing numbers of electric vehicles. Alongside financial incentives, the central government is now telling local governments to invest in an EV infrastructure by setting strict quotas, for example: it has been decided that 10% of all parking lots should provide charging.
Guidelines issued by the State Council aim to fulfil the power demands of 5 million electric vehicles by 2020 in a wide-ranging network covering residential areas, business districts, public spaces and inter-city highways. For multinational charging station innovators like the Swiss company ABB, this represents an incredible market opportunity. For SMEs and small tech developers, it represents an opportunity to innovate, and create convenient, location-specific solutions for local governments across China. Local governments like Foshan, in Guangdong Province.
Already big cities like Beijing, Shanghai and Shenzhen are imposing license-plate restrictions, limiting the number of new vehicles taking to the streets each year to reduce traffic emissions for urban residents. Such measures will encourage drivers to go EV when purchasing a new car, as they are exempt from such restrictions. Localised pollution will decrease, residents health will improve exponentially, and the EV will save China.
But there’s one problem with this theory. Where is the electricity coming from?
Another aspect of the EV Revolution that stands to benefit ecopreneurs and innovative product developers in China, is the country’s shift to renewable energy.
Renewable Solutions
According to BP, nearly 90% of China’s energy is derived from non-renewable sources, with 66% represented by coal consumption alone in 2014, a fact which nearly negates any positive localised impact of converting from petroleum to electric powered cars. [That’s without taking into account that half of China’s coal is used in industry, not just in the energy sector.] To fully facilitate the environmental benefits of electric vehicle conversion, local and national governments need to implement a serious set of reforms in regards to clean energy usage.
In short, it is still not enough to simply provide a place to plug in.
Government Grants & Subsidies
Hundreds of thousands of government sponsored pilot-schemes take place across the country every year, allowing inventors and creators to test their products in the world’s most valuable new energy market. Not only are such project eligible for funding, rent subsidies and grants, they are actively encouraged by local governments.
Foshan is a second-tier city in Guangdong Province. With a population of near-mega-city proportions, it is home to both China's weathiest district and it's wealthiest township. In light of its economic success, Foshan is now looking to develop its environmental technology and new energy sectors.
Foshan offers a variety of incentives targeting research and development projects. Similarly, district and development zone governments offer a series of grants and subsidies to encourage international talent and technology exchange. The R&D Zone of the Foshan New City urban development project also offers incentives and grants for researchers.
Shunde District: Grant & Eligibility
For a research team to be eligible for these types of R&D grants, they will need to register a company in the Shunde Southern Wisdom Valley Technology Park. There are varying levels of qualification, the values listed above are the highest (world-class innovation startup), the lowest is defined as an “excellent innovation startup) and can expect a maximum supporting fund of 4.2 million RMB. All policies are subject to case-by-case variation and depend upon the quality of the project in question.
Project should fall into the category of key developing industries such as: High-end electronic information industry, Intelligent Manufacturing, New Energy, New Material, Biomedical, Environmental Equipment, Modern Services and Modern Agriculture.
The project must have a stable foundation and the team must prove the viability of putting the project to market; or, the project has already been tested in pilot-plant or prototype manufacturing scale, having stable experimental data and pilot product.
Project has clear business model and feasible business plan. Project should have big market potential, presenting strong market competitiveness.
The innovation team must have a minimum registered capital of no less than 500,000 RMB. The project can only be applied industrialised and produced in Shunde. Innovation team consists of one leader and no less than four core members, who work in Shunde at least 6 months of the year for up to five years.