Energy industry adjustment will focus on three directions

An interview with the Minister of Industry at the State Council Development Research Center provided insight into the future trajectory of China's energy sector. As a series of policies are being rolled out, what trends might emerge in the coming years? What shifts could we expect in the energy landscape? The reporter spoke with Feng Fei to explore these questions. Feng Fei highlighted that the energy industry is undergoing three critical transformations: structural adjustment, technological advancement, and systemic reform. Reporter: With the introduction of multiple policies recently, what messages do these documents convey? Feng Fei: China's energy industry is navigating adjustments in three areas: the structure of energy, technological innovation, and the reform of mechanisms and systems. During the Eleventh Five-Year Plan period, energy policies centered on improving efficiency and reducing energy intensity. However, progress in adjusting the energy mix has been slow. In the Twelfth Five-Year Plan, while efficiency improvements remain a priority, there's now a stronger emphasis on optimizing the supply structure and resource utilization. The global energy landscape is evolving rapidly. The U.S. shale gas revolution underscores the transformative potential of technology. The term 'revolution' in energy, as opposed to 'change,' suggests that future developments will be groundbreaking and driven by technological innovation. Systemic issues in the energy sector—such as insufficient marketization and lack of competition—are becoming increasingly apparent. The government is addressing these challenges, particularly focusing on reforms in energy pricing and competition during the Twelfth Five-Year Plan period. Reporter: How is the energy structure being adjusted? Feng Fei: The Twelfth Five-Year Plan aims to accelerate the development of non-fossil fuels and natural gas. Following the Fukushima incident, China's nuclear energy development must balance safety with growth. Achieving non-fossil energy targets, especially after the slowdown in nuclear expansion, presents a challenge. By 2020, non-fossil energy is expected to account for about 15% of primary energy consumption. This requires rapid growth in renewable energy sectors like wind and solar, along with steady hydropower development. Wind energy has grown quickly, but the solar industry still faces overcapacity issues globally, with China producing 80% of the world's capacity. Developing domestic solar markets is crucial. Solar energy installations are far behind the planned 21 million kilowatts by 2015. Significant progress remains to be made. Natural gas, another key area, makes up a small portion of China's energy mix. Shale gas holds promise, given China's vast unconventional reserves. Public tenders for shale gas rights could attract both established firms and new entrants, boosting the sector. Reporter: What role does energy technology play in China's future? Feng Fei: The global energy sector is experiencing rapid technological innovation. Energy tech could lead the next wave of industrial revolutions. China is positioning itself to capitalize on these advancements. Technological progress has accelerated, reshaping global energy dynamics. Consumption is shifting toward Asia, while production focuses on North America due to shale gas innovations. China's reliance on foreign oil has risen to 57%, prompting faster tech adoption. Investments in renewable energy, smart grids, microgrids, electric vehicles, and strategic industries are underway. Despite increased R&D spending, large-scale outputs are still years away. Major projects like smart grid development are ongoing, but long-term research is needed. Reporter: What breakthroughs have occurred in China's energy system reforms? Feng Fei: Similar to broader economic reforms, energy sector changes aim to shift development paradigms. Price reform and market competition are key priorities. Current price conflicts persist despite minor improvements in coal pricing and rigid oil price mechanisms. Government-controlled natural gas prices are rising, limiting companies' ability to absorb costs. Reforming the price formation mechanism and balancing energy price relationships are urgent tasks. Low energy prices amid weak global demand provide an opportune moment for reform. Accelerating price adjustments and fostering competition are essential. Power sector reforms, for instance, are advancing slowly. Direct user-to-generator agreements and multi-buyer/multi-seller models are being piloted. Pricing over-grid fees remains a sticking point. Clear cost transparency is needed to regulate monopolies effectively. China Economic Times: Globally, renewable energy is driving structural changes. How can China foster its new energy industries? Feng Fei: Distributed energy offers a solution to new energy challenges. It improves efficiency, reduces waste, and brings energy closer to consumers. Integration with natural gas and coal could expand its scope. Unlike centralized generation, distributed energy aligns better with market demands. Top-down plans are impractical; bottom-up enterprise initiatives guided by pricing incentives are preferable. System reforms, like resolving interconnection issues, are vital. Regulation must keep pace with distributed energy growth. Monopolistic entities must support innovation and fulfill their social responsibilities. Coordinated energy utilization and multiple-source integration could drive China's energy future.