Understanding the Energy Transition in China
DNB AM participated on a visit to Beijing this past June to meet with Chinese investors, companies, expert organisations. Opportunities, challenges and impacts of the Chinese energy transition were at the forefront of our discussions.
Alongside representatives from leading international asset managers and owners, DNB AM met with Chinese companies, investors, enterprise organisations and regulatory agencies. In partnership with expert organisations, Rainforest Foundation Norway and Asia Research & Engagement (ARE), the trip to Beijing was both educational and mutually beneficial in communicating expectation towards Chinese companies.
The main lesson from DNB AM’s visit is that China is the land of complimentary contradictions. China is the world’s largest emitter of GHG, and a leader in renewable energy. It is a valuable trade partner for other emerging economies, but also a challenge to the sustainable use of natural resources in countries globally. It is independent in its production, but deeply reliant on European and other international markets. The separation between domestic and foreign interest are intertwined in the country as China itself is deeply interlinked with every aspect of the 21st century global economy.
Learning from and experiencing this market is therefore of paramount importance to our work as a globally invested asset manager with several emerging market strategies. Improving our insight on the market for sustainable transition in China is one of the several ways DNB AM seeks to generate improved returns for our clients.
Stubborn transition
China is the world’s biggest emitter of GHG, in large part due to the grid mix being dominated by thermal coal power. Constituting near 70 per cent of the country’s electricity production, the persistent dominance of thermal coal is due to both economic and political factors. China does not have a centralised national grid, but rather connected inter-provincial grid with asymmetrical energy production. Supply heavy areas in the west, where both gas and renewables are abundant are not sufficiently linked to the demand heavy areas in the east, where the majority of the production is based.
With increasing grid demand, the reliability of the legacy coal assets is seen as a guarantor of continued production stability for the global manufacturing giants of coastal China. New thermal power plants are also being constructed to serve both peaking and demand needs in several provinces.
