China’s power-equipment industry is at a crossroads, with Natixis, a French investment bank, urging a strategic pivot. The call to action is clear: shift investment focus from renewable generation to storage and distribution infrastructure. This isn’t just about staying afloat amidst excess capacity; it’s about navigating the choppy waters of rising protectionism overseas. Alicia Garcia Herrero, Natixis’ chief economist for the Asia-Pacific region, underscores China’s formidable position in green energy technology. She asserts, “China’s investment in green energy technology is so massive that even in the worst scenario of energy transition, it will be enough to meet its own needs and maintain its [dominant] share in the global renewable equipment market for a long time.” Yet, the industry must diversify its investments within the green space to avoid overcapacity risks. This is not a call for retrenchment, but a strategic realignment.
Last year, China’s solar-panel output outstripped global demand, leading to an inventory glut in the European Union, its biggest market. Mu Haoxin, a Natixis economist, highlights the urgency of addressing power-grid bottlenecks. These bottlenecks have led to a drop in utilisation of China’s wind and solar farms, with a significant amount of generated energy going unused. To tackle this, Beijing needs to double the grid infrastructure’s contribution to national fixed-asset investment, Mu estimates. This is not a small ask, but a necessary one.
The numbers are stark. Investment in power generation doubled to 1.2 trillion yuan (US$165 billion) last year from 2021, dwarfing the amount of money that went into the power grid over the same period. This discrepancy highlights a large gap that needs to be filled to ease grid bottlenecks. According to China’s National Energy Administration (NEA), as installations of solar farms surged 27.8 per cent last year, the amount of generated but unused solar energy due to grid bottlenecks rose to 3.2 per cent from 2 per cent. For wind power, it rose to 4.1 per cent from 2.7 per cent. These figures underscore the urgency of the situation.
The implications for the sector are profound. This shift could reshape the global renewable energy landscape. China’s pivot towards storage and distribution infrastructure could spur innovation and investment in these areas, driving down costs and improving efficiency. It could also catalyse similar shifts in other countries, accelerating the global energy transition. Moreover, by addressing grid bottlenecks, China could unlock the full potential of its renewable energy investments, enhancing energy security and reducing reliance on fossil fuels. However, this transition is not without its challenges. It will require significant investment, coordination, and political will. But if China can successfully navigate this shift, it could cement its position as a global leader in renewable energy, shaping the sector for decades to come.
