Part 3d - US vs. China - Lowering Barriers to the Renewable Energy Transition

Developing a Nation’s Lower Barriers to Renewable Energy Transition

While the switch to renewable energy sources may be advantageous to any country that adopts it, these technologies may be more easily implemented in “rural off-grid” areas or in developing nations.[i]

One of the main reasons for this is that developing nations do not need to invest in R&D in technology development, as they can adapt existing technologies that have already been tried and tested in developed nations. This reduces the implementation timeline and the costs. In developed countries, it is costly to switch over the already existing coal or fossil fuel infrastructure, whereas in developing countries, since there is little infrastructure in place, the transition is less costly and difficult. Countries can also avoid the creation of extensive power grids, “as energy production can be developed closer to centers of demand.”[ii]

Additionally, many developing countries in Asia or Africa for example, are situated in areas with high renewable energy resources, specifically wind and solar radiation.[iii] Looking at solar energy alone, the regions with the highest photovoltaic power potential are located in Africa, Australia, Western U.S., Russia, and parts of Asia.[iv] According to a report by the World Bank, this potential in most countries “dwarfs current electricity demand” as “20% of the global population lives in 70 countries boasting excellent conditions for solar PV” (Figure 22).

Renewable resources are also more equally distributed than oil, coal, gas or uranium, which makes these developing nations “less exposed to imported energy costs.”[v] Access to these resources also “reduce the pressure on fossil fuels and [countries] are therefore less exposed to armed conflicts over scarce resources.[vi]

As mentioned in Figure 23 that highlights the renewable energy capacity by region, developing countries have shown the highest relative change in renewable energy capacity between 2000 and 2016, as they are investing more and more into harnessing their renewable energy resources.

As evidenced in Figure 2, in terms of costs, switching to renewable energy is becoming more and more cost-competitive and strategic. Investing in renewable energy now “requires far less investment into [a country’s] power sector than if you were to build new coal or nuclear power plants.”[vii] This has a positive effect on the economy overall by lowering the cost of production, increasing profit, and increasing employment opportunities. South Africa, for example, is looking at adding more than a million additional jobs by 2050 by moving to renewable energy.[viii]

Thus, if developing countries take advantage of these positive effects when making the switch to renewable energy, it can propel them into economic prosperity and independence. Using China as an example, the country “is increasingly looking toward securing its future energy needs with sustainable alternatives,” which will make the country “the largest market in the world for renewable energy.”[ix] They have invested $125 billion in renewables in 2018, which represented 23% of global renewable energy investment.[x] Diversifying their energy supply will not only lead to clean air but is also a precursor to economic growth. Additionally, China was the world’s largest oil importer in 2014,[xi] and one of the largest energy consumers in the world. China’s economic growth is closely linked to its energy consumption, which means that making these changes and focusing on energy efficiency and diversity can mean huge cost savings and independence for the country. China has become a leader in installed wind and solar capacity.[xii] If it continues on this trend, it can provide “62% of its electricity from non-fossil fuel sources by the end of the decade.”[xiii] This would mean a decrease of power costs by 11%, a significant amount for Chinese citizens.

The United States has also made significant investments in renewable energy over the last decade, although to a lesser degree than China (Figure 24). The United States is still one of the world leaders in renewable technologies, however, the policy changes enacted by its most recent administration are straying the country away from the focus on making this switch by loosening greenhouse gas emission standards, auto pollution rules in their goal of supporting the fossil fuel economy. In order to hit the targets set out by global climate change scientists, “annual investment must significantly scale up” to an average of $87.5 billion a year.[xiv]

For the United States, switching to 100% renewable energy would mean a cost of $4.5 trillion and would require the addition of 900 gigawatts of battery storage,[xv] which is not attainable in the near future and would require significant infrastructure investment and policy changes.

In Part 3e, we explore the importance of how energy availability and economic growth are inextricably linked. We also compare the evidence of how having secure and stable energy is critical to economic prosperity and global influence as evidenced by China's growth vs. that of India where energy security and consumption far lacks that of China (you can find the comparison chart in Part 3a).

As China rapidly continues and leads its transition to renewables whether it's due its circumstances or otherwise, there doesn't seem to be any downsides to the strategy. The switch to renewables will also drive economic growth, create new jobs (and a newly skilled workforce), and ultimately have a net positive effect on a nation's welfare.

For international managers, we think having this big picture context is important, as decisions today will have impacts decades down the road.

Stanford is a technology entrepreneur and an amateur futurist very much interested in how technology can be used to better humanity. Continuous learning has always been a life long passion. Besides keeping a close pulse on the phenomenon of digital transformation and innovation happening all around us, he's often found thinking about what's coming around the next corner in the technology innovation landscape.

References:

[i] Westenenk, N. (2012, December 27). Harvard - Science in the News. Retrieved from sitn.hms.harvard.edu: https://sitn.hms.harvard.edu/flash/2012/developing_world/

[ii] Holmes, B. (2020, January 14). Why green energy finally makes economic sense. Retrieved from Knowable Magazine: https://knowablemagazine.org/article/sustainability/2020/cost-of-renewable-energy

[iii] Holm, D. (2005). Renewable Energy Future for the Developing World. Retrieved from www.whitepaper.ises.org: https://www.ises.org/sites/default/files/WP_2006.pdf

[iv] Global Solar Atlas. (n.d.). Global Photovoltaic Power Potential by Country. Retrieved from www.globalsolaratlas.info: https://globalsolaratlas.info/global-pv-potential-study

[v] Holm, D. (2005). Renewable Energy Future for the Developing World. Retrieved from www.whitepaper.ises.org: https://www.ises.org/sites/default/files/WP_2006.pdf

[vi] Holm, D. (2005). Renewable Energy Future for the Developing World. Retrieved from www.whitepaper.ises.org: https://www.ises.org/sites/default/files/WP_2006.pdf

[vii] Holmes, B. (2020, January 14). Why green energy finally makes economic sense. Retrieved from Knowable Magazine: https://knowablemagazine.org/article/sustainability/2020/cost-of-renewable-energy

[viii] Holmes, B. (2020, January 14). Why green energy finally makes economic sense. Retrieved from Knowable Magazine: https://knowablemagazine.org/article/sustainability/2020/cost-of-renewable-energy

[ix] China Power Team. "How Is China’s Energy Footprint Changing?" China Power. February 15, 2016. Updated August 26, 2020. Accessed October 17, 2020. https://chinapower.csis.org/energy-footprint/

[x] China Power Team. "How Is China’s Energy Footprint Changing?" China Power. February 15, 2016. Updated August 26, 2020. Accessed October 17, 2020. https://chinapower.csis.org/energy-footprint/

[xi] China Power Team. "How Is China’s Energy Footprint Changing?" China Power. February 15, 2016. Updated August 26, 2020. Accessed October 17, 2020. https://chinapower.csis.org/energy-footprint/

[xii] Marcacci, S. (2020, August 10). Plummeting Renewable Energy, Battery Prices Mean China Could Hit 62% Clean Power And Cut Costs 11% By 2030. Retrieved from Forbes: https://www.forbes.com/sites/energyinnovation/2020/08/10/plummeting-renewable-energy-battery-prices-mean-china-could-hit-62-clean-power-and-cut-costs-11-by-2030/#54f0452f1519

[xiii] Marcacci, S. (2020, August 10). Plummeting Renewable Energy, Battery Prices Mean China Could Hit 62% Clean Power And Cut Costs 11% By 2030. Retrieved from Forbes: https://www.forbes.com/sites/energyinnovation/2020/08/10/plummeting-renewable-energy-battery-prices-mean-china-could-hit-62-clean-power-and-cut-costs-11-by-2030/#54f0452f1519

[xiv] Wetstone, G. (2020, August 24). Renewable Energy Remains One of America’s Most Attractive Investment Options. Retrieved from www.greentechmedia.com: https://www.greentechmedia.com/articles/read/renewable-energy-remains-one-of-americas-most-attractive-investment-options

[xv] Yale School of the Environment. (2019, June 28). Shifting U.S. to 100 Percent Renewables Would Cost $4.5 Trillion, Analysis Finds. Retrieved from Yale Environment 360: https://e360.yale.edu/digest/shifting-u-s-to-100-percent-renewables-would-cost-4-5-trillion-analysis-finds#:~:text=Converting%20the%20entire%20U.S.%20power,energy%20research%20firm%20Wood%20Mackenzie