The US is forecast to become energy independent by 2030 thanks to its rapid development of shale gas extraction, while the majority of global energy demand is shifting to Asia. China is currently the main driver of increasing energy demand in the region but by 2020, India is expected to overtake it as the world's largest energy consumer. These changes in energy supply and demand will have a profound impact on global economic development and geopolitical ties. It is against this backdrop that after more than three decades of rapid growth, China's energy sector is facing the dual challenges of environmental degradation and resource limitations. China must step up its efforts in three areas: institutional reforms, market operations, and business models, while learning from the successful energy reforms undertaken by other developed countries in order to be more competitive in the global energy arena.

What is the best way forward for China's sustainable energy development? Government policy-makers, global industry leaders and renowned academics had a lively discussion today on potential solutions at the CEIBS First China Future Energy Forum 2013. Organized by CEIBS and Economy & Nation Weekly along with supporting organizer World Business Council for Sustainable Development (WBCSD) the forum was entitled “Value Creation in the Energy Industry.”

The event got underway with welcome addresses by CEIBS Vice President, Co-Dean and Professor of Strategy Zhang Weijiong and Mr. Xia Lin, Deputy Editor-in-Chief, Reference News Editorial Director and Director of World Affairs Research Center, Xinhua News Agency.

Prof Zhang began by thanking the event organizing partners and sponsors who worked with CEIBS to help make the event a success. He then set the stage for the day by giving the audience a brief overview of the challenges facing China’s energy industry, and he explained that in order to enable the speakers and panellists to engage in more meaningful discussions about the issues the forum would use the unique case study format common to business schools.

“Energy is a basic element to facilitate human progress,” said Mr. Xia in his address. He said he believes that innovation will be the key to solving one of the biggest challenges facing China, which is how to balance economic development with environmental protection.

The forum's opening session, “Deepening Institutional Reforms in the Energy Sector: Regulations and the Market” explored the progress and prospects of China's institutional reforms in the energy sector. Speakers also shared some successful experiences from developed countries. Moderated by Mrs. Annette Nijs, Executive Director Global Initiative, CEIBS and Former Cabinet Minister for Education, Culture and Science, The Netherlands, it featured the following keynote speakers:
- Mr. Nobuo Tanaka, Global Associate for Energy Security and Sustainability, Institute of Energy Economics, Japan and former Executive Director, International Energy Agency (IEA),
- Mr. Li Yizhong, Member of the Standing Committee & Vice Chair of the Committee for Economic Affairs, National Committee of the CPPCC; former Minister, Ministry of Industry and Information Technology; President, China Federation of Industrial Economics,
- Mr. Peter Bakker, President, World Business Council for Sustainable Development (WBCSD).

Mr. Tanaka spoke about “Energy Security for the 21st Century: Messages of the World Energy Outlooks”. He explained in detail how patterns of global energy production and demand are rapidly shifting. By 2035 North America will be energy independent, while almost 90% of Middle Eastern oil exports will go to Asia. He said China must be prepared that this may have some impact on US foreign policy in the Middle East. He said it will also become increasingly important for China, Japan and other Asian countries to work together to establish a new formula for protecting their access to energy sources and develop a new formula for setting prices for the energy resources they import. In particular he said that China and Japan must set aside their differences to work together to find a peaceful solution to ensure mutual energy security.

Mr. Li spoke about “Adapt to Change, Improve Structure for Green, Low-carbon & Sustainable Energy Growth”. He emphasized that China must think carefully about how to achieve sustainable clean energy solutions.

“How Business can Take the Lead and Drive Action Through the Energy Value Chain” was the topic of Mr. Bakker’s address. He explained some of the global initiatives that the WBCSD has undertaken to improve sustainable energy consumption. He said there are many businesses that can provide solutions to environmental and energy sustainability issues, however scaling up their implementation is a big challenge. He said that China can be the most important piece to the puzzle because it has the strongest link between policy and business, and a strong culture for entrepreneurship. He encouraged China's policy makers to be bold in their efforts to develop large scale solutions to energy issues.

The day's first session, “Shale Gas: A New Revolution in the Energy Sector”, opened with a case study presentation by Mr. Chen Liming, President, BP China on the topics:
- International experience and business model in shale gas development,
- The possibilities and conditions for bringing in foreign capital to exploit shale gas in China.

This was followed by a lively panel discussion on the business potential for China’s shale gas development. Moderated by Prof Lin Boqiang, Associate Dean of NBS and Dean of XMU China Institute for Energy Economics Research, panellists were:
- Mr. Nobuo Tanaka, Global Associate for Energy Security and Sustainability, Institute of Energy Economics, Japan and former Executive Director, International Energy Agency (IEPA),
- Mr. Tu Jianjun, China Program Manager, International Energy Agency,
- Mr. Chen Weidong, Chief Energy Researcher, CNOOC Institute of Energy Economics Research,
- Mr. Qian Xiang, Vice President, Baker Hughes; Managing Director, BHI North Asia,
- Kirk Williams, Partner, PricewaterhouseCoopers Management Consulting (Shanghai).

In his opening remarks, Prof Lin Boqiang spoke about the relationship between GDP and energy, and the importance of developing clean sources of energy. He also explained why shale gas is an important solution for energy scarcity.

“The shale gas revolution in the US has caused a ‘butterfly effect’ in the world,” said Mr. Chen Liming in his presentation. In 2000, when the US first began serious efforts at shale gas extraction, it represented 1.7% of natural gas production in the US. By 2012, shale gas made up 37% of US natural gas production, and the same year the US imported only 17% of its total energy. By 2050, shale gas is expected to make up 50% of US natural gas production.

He said the success of shale gas extraction in the US was due to the following factors:
- Technological innovation;
- Market competition and market openness – many countries have shale gas but the revolution in its extraction has so far only happened in the US. This is because market conditions there encouraged competition and innovation, which helped to reduce production costs;
- Well developed pipelines;
- Very clear mining rights, which motivate resource owners to sell their access rights.

China also has abundant shale gas reserves, however it faces challenges both above and below the ground, as its geological and market conditions are very different. He said the mining industry in China is an analogous situation. China has thousands of small mines, but found it needed to consolidate them in order to improve safety and efficiency. He said China must take this lesson into account with its shale gas reserves. Infrastructure in China is also underdeveloped – both roads and pipelines need to be constructed. He suggested China should establish regulatory policies, adopt competition mechanisms, and build up an eco-system to promote development of shale gas extraction.

During the panel discussion that followed, Mr. Tu Jianjun said he believes the regulatory side is the bottleneck holding back shale gas development in China. He also said there are seismic issues in Sichuan Province – how can it be proved that there is no causal relationship between shale gas extraction and earthquakes. Mr. Chen Weidong spoke from an SOE’s perspective. He said there were three steps to shale gas development in the US: Reduce costs, Scale up, and Sustainability. He said China's shale gas efforts are now only at the first stage, and one of its biggest issues is how to replicate its technologies.

Mr. Qian Xiang shared more detail about the process for shale gas extraction and expressed his confidence that China will be able to develop a viable shale gas supply. However he pointed out that because shale gas extraction is currently done through a process called hydro-fracking. Until technology improves to make it less reliant on water, it may put a burden on China's already limited water resources, until technology improves and reduces the reliance on water in the process. Mr. Williams said that once China scales up its clean energy production and reduces its dependence on coal, he foresees a second global ‘butterfly effect’.

The Second Session covered “The Battle over New Energy Vehicle Development.” It began with senior executives from two leading international automakers sharing case studies that explained the business rationale behind their companies' new energy vehicle strategies. This was followed by a panel discussion about which business models for new energy vehicles are best suited to China's national conditions and market rules。

Mr. Masami Misaki, Vice President, Nissan (China) Investment Co shared the cases:

- The commercial considerations behind the choice of fully electric/hybrid cars,

- Future development directions and suggestions for China.

Mr. Sven Patuschka, Executive Vice President, Volkswagen (China) Investment Co then shared two cases:

- VW experience on new energy vehicle from a global perspective,

The case discussion that followed was moderated by Prof Ouyang Minggao, Director of the State Key Laboratory of Automotive Safety and Energy, Tsinghua University. Panellists were:

- Dr. Xu Daquan, Executive Vice President, Bosch (China) Investment,

- Mr. Chen Ping, Chief Engineer and Deputy General Manager, Chang’an New Energy Automobile Co,

- Mr. Ivan Hodac, Former Secretary General, European Automobile Manufacturers Association (ACEA),

- Dr. Zeng Yuqun, President and CEO, Amperex Technology.

 

The automakers in the session raised similar challenges to building consumer demand for electric vehicles. These include battery capacity limitations and pricing, and lack of charging station infrastructure.

 

During the discussion, Mr. Ivan Hodac said figures on electric vehicle sales in Europe would “bring the audience down to earth”. He said in 2012 there were only 26,000 electric vehicles sold in Europe, representing only 0.2% of total market share. By 2020, electric vehicle sales are expected to make up only between 2 to 5% of market share. He also challenged panellists on why there is not more development of diesel automobiles for the China market, as it is 25% more fuel efficient than gasoline.

 

Dr. Zeng Yuqun, whose company, Amperex Technology, is involved in battery manufacturing, said that high costs are still a bottleneck for battery development. He said he believes automakers would prefer to develop hybrid vehicles rather than all-electric vehicles. He also suggested that the government could do more to accelerate adoption of new energy vehicles.

The day's final session, “The Leap in New Energy Development vs. the Grid Bottleneck” explored technical and commercial means of increasing the value of the energy industry in the current energy environment, with the aim of efficient energy utilization.

 

Mr. Deng Jianling, Deputy General Manager, China Huadian Corporation, shared the cases:

- Analysis of development of China’s smart grid and the striking problems,

- Feasibility of and conditions for international cooperation for smart grid in China.

Mr. Zhang Yunzhou, Dean, State Grid Energy Research Institute of China, shared the case:

- Current states of development of distributed power and it's problems.

Mr. Zhang Chao, Deputy Editor-in-Chief, Economy & Nation Weekly, moderated the discussion that followed. Panellists were:

- Mr. Zhao Bingsheng, General Manager, Huachuang Wind Energy Co

- Mr. Liu Hang, Senior Vice President, Hanergy Holding Group

 

In his presentation Mr. Deng Jianling said that energy efficiency is the central issue facing China today. He recommends that China take a systematic approach to developing a more efficient and sustainable energy supply by looking at the value chain as a whole, rather than taking a silo view. He also suggestion China re-examine its current investment model, and switch from end state control – where projects are approved regardless of their environmental consequences. He said new projects should be properly accessed before being allowed to proceed.

Improving the profitability of Distributed Generation (DG) of energy was a focus of Mr. Zhang Yunzhou's presentation. He said that in order to improve the coordination between the grid and smaller power generators and users, there must be better policy support to encourage more orderly development and attract investment. Safety and reliability also need to be improved.

 

During the panel discussion, Mr. Zhang Tingke made the point that the future of clean energy development, be it hydro, solar or wind power, will be in the Western regions of China, due to natural conditions there. Meanwhile China's greatest energy consumption comes from the cities in the East, so there needs to be a focus on developing high efficiency energy transmission from the West to the East, and there needs to be synergy between clean energy and traditional energy sources.

 

Mr. Gao Jifan questioned why China's power grid development seems to lag behind that of other countries and regions, particularly in its capacity for taking in power generated by solar and wind power producers.

 

The moderator then asked panellists if they thought China's new energy development was in need of taking a great leap forward. The consensus among panellists was that rather than a great leap what was needed was more measured development. Mr. Zhao Bingshen and Mr. Liu Hang both felt there should be more emphasis and investment on research and development. Mr. Liu said he would particularly like to see more study on the micro grid. The event concluded with a lively Q&A session between the audience and the panellists.