China Daily
Non-fossil energy sources, including wind, solar power and thermal power, will make up a bigger share of China’s energy resources under a new bill passed yesterday encouraging use of renewable energy.

Yep, while Europe is quietly turning into a wind superpower (small pdf), and while the US says that the American Way of Life is "non-negotiable", dithers about supporting renewable energy (see below) and dreams about the Alaskan (smallish) hydrocarbon reserves, China is facing its very real energy problems in a more sensible way.

Would you have believed it, 5 years ago, that China could have more sensible policies than the US on such important matters?

Members of the Standing Committee of the National People’s Congress (NPC) approved the Law on Renewable Sources, which upholds renewable energy as a priority in China’s energy strategy.

"The development and use of renewable energy has special importance because China is a developing country with severe energy shortages," Standing Committee member Li Congjun said at a discussion on Saturday.

The new law, effective next year, provides a host of practices to ensure that renewable energy can be produced, marketed and used.

It orders power grid operators to purchase "in full amounts" resources from registered renewable energy producers within their domains. It also encourages oil distribution companies to sell biological liquid fuel on the sidelines.

According to the law, power grid operators should buy renewable-source-generated power at directed prices calculated by the government. The extra costs incurred by this will be shared throughout the overall power network.

The law also offers financial incentives, such as a national fund to foster renewable energy development, and discounted lending and tax preferences for renewable energy projects.

Take my word for it, or do your own research, but they are doing all the right things to get renewable energy going:

• guaranteed access to the grid (very important for intermittent producers like solar and wind)

• specific prices for each energy source. Most renewable energy sources are currently not directly competitive at today’s energy prices, which do not reflect the externalities (pollution, military costs, depletion, global warming) of the current energy sources, and need to be helped. This is fair as it also reflects the lack of externalities of these energy sources. Wind is already almost competitive without help and will be very competitive when the alternatives are correctly priced to reflect their real cost on society; solar is still a lot more expensive but prices are coming down as economies of scale kick in and research advances.

• long term framework. Renewable energy projects need 10-15 years to make sense economically, so the fact that you have a clear national strategy in that respect, and the corresponding political backing for it, is very important for investors as they know that the new regulatory framework will not disappear half way through.

Now consider how the US is supporting renewable energies. The main tool is the PTC (production tax credit), a tax refund that you receive for 10 years for each kWh of renewable energy you produce. The problems with that:

• the fact that it’s a tax refund means that you need an investor who has a big enough tax bill to benefit from it. That means that small developers need to find financial investors to join them, and build complicated corporate structures;

• there is no guarantee in the law that your power will be bought at all times, which, as I wrote above, is a big issue for intermittent power. So you need to find a buyer (usually, a local utility) that will accept to buy your electricity at all times through a bilateral contract. Again, more complexity, and the difficulty for small developers to be taken seriously by the big utilities they will depend upon. Som states have a more favorable framework that encourages their utilities to support renewable projects, but it’s on a case by case basis;

• as the "Leave No Lobbyist Behind" Energy bill has shown, all other energy producers in the US get loads of tax breaks, advantages, subsidies that reduce renewable energy’s relative competitivity and show most of all that there is no coherent energy policy in that country;

• worst of all, the PTC mechanism has been limping on in the past few years. It expired in 2001, was renewed in late 2000 for 2 years only, and was caught in 2003 in the horrible debate on the energy bill – so was renewed only in late 2004 until the end of 2005. (Project will get the 10-year PTC if the project gets into operation at a time when the PTC rule is in place). As wind projects take about a year to develop (at least) and another year to build, this law has become essentially meaningless. Many projects have been on hold throughout 2004, waiting for the PTC to be reinstated; now they are all rushing to be built before the end of 2005, creating major strains for turbine manufacturers (which heavy industry can cope with demand jumping by 100% one year, dropping to almost zero the next year, and then jumping up again to new record level the next, and with high risk that demand will fall again after that??).

With erratic, inconsistent support and no long term framework, it’s a miracle that the US is still the third largest wind producer in the world (after Germany and Spain). But if Chinese plans go in accordance with all declarations (and everything points the same way over there) the US will soon be overtaken and China will have taken yet another advantage in the energy race between the two countries.

from the same article

It usually takes three reviews before an act goes to a vote. But this one was passed after the second round, with senior legislators acknowledging the vital need to get the nation on a sustainable energy fast track amid worries about the country’s worsening pollution problems, chronic energy shortages and increasing reliance on imported energy sources.

China is getting serious about energy. When will the US do the same?