rethink sustainability
China adopts electrification initiatives on path to net zero
In 2020, China pledged that it would reach peak CO2 emissions by 2030, and achieve net zero by 2060. A key part of that goal includes shifting energy consumption patterns, and transitioning end-user demand from fossil fuels to renewably-produced electricity.1 This is no mean feat.
By 2025, Asia will be using half the world's electricity, according to the International Energy Agency. This is a dramatic rise, considering that it accounted for just a quarter of consumption in 2000.2 China is accountable for the bulk of this growth.3 In 2000, the country used just 10% of the world's energy. That share is expected to rise to 33% percent by 2025.
For China, the future is not just about energy reduction, but also about smarter energy usage and decarbonisation of energy sources. Electrification will play a key role, according to industry experts. Whether in the industrial, transportation, or building sectors, electrification – coupled with the rapid decarbonisation of supply – is an essential pillar in achieving carbon neutrality for the country.4 In fact, electrification, combined with power decarbonisation, could contribute 61% of the carbon reduction needed.5
Read more about Asia's energy storage race
Achieving Carbon Neutrality
According to the International Renewable Energy Agency (IRENA), China will have to focus on increasing renewables-based power generation if it wants to achieve its goals. This will need to be combined with direct and indirect electrification of end-use sectors, and further supplemented with sustainable bioenergy, hydrogen and synthetic fuels.6
IRENA is working with the State Grid Corporation of China to assess the potential of electrification with renewables, suggesting that electrification will have an increasingly important role, as key technologies continue their rapid development and costs continue to fall. Both supply- and demand-side technologies – such as electromobility, electric heating, hydrogen via electrolysis, and the production of synthetic fuels – are all progressing fast.7
IRENA argues that the combination of electrification and renewables is already starting to transform sectors such as light-duty road transport and buildings operations in the country. And, while Norway currently leads the world in electric vehicle (EV) market growth, China is also growing rapidly, accounting for half of global passenger electric car sales and nearly 100% of global electric bus sales.8
Find out about electrification at the heart of a new industrial revolution
Breaking its own record
The Chinese economy is electrifying at speed. According to Global Energy Monitor, China is on track to almost double its wind and solar capacity by 2025 and surpass its own clean power target five years early.9 Current announcements imply a pipeline of 1,371 gigawatts by 2025, vastly outstripping President Xi Jinping's goal in late 2020 of having 1,200 gigawatts of panels and turbines by 2030. The comparison to the rest of the world is staggering too. In the first quarter of 2023, China's utility-scale solar capacity reached 228GW, more than the rest of the world combined.10
There are still challenges ahead, however. China's electricity grid is still very reliant on coal, and urgently requires advancements in energy storage as record heatwaves and drought increasingly impact hydropower stations. Moreover, while China has been pursuing its electrification strategy in end-use sectors for some years, electrification rates in the residential and commercial buildings sectors are still below the average of the Organisation for Economic Co-operation and Development (OECD) and the US. And despite leading the world in the electrification of road transport, only 4% of all transport is electrified in the country.11 For that reason, China extended its EV tax break through to 2027.12
Read more about building the economy of tomorrow with green energy
Looking to the Future
At Lombard Odier, we believe that future electrification offers one of the greatest investment opportunities in the history of capitalism. Free-falling costs, massive efficiency gains and widespread applications will drive shifts in profit pools across sectors focussed on energy demand, supply, and enabling solutions.
In May, we launched our future electrification strategy, which aims to capture opportunities associated with new and shifting electrification revenue pools. The strategy seeks to harness the momentum behind widespread efforts to achieve economy-wide electrification. It focusses on three key themes: 1) demand, including both the increased efficiency and clean electrification of buildings operations, transport and industry, and production processes, alongside changing consumption patterns; 2) supply, recognising that global energy supply needs to be completely decarbonised by switching to renewable sources; and 3) enablers, including hardware, software, and the raw materials needed to accelerate the pace of the transition.
Find out about our unexpected profit pools as our economy transitions to electric
We believe that electrification will support a more sustainable future and underpin the transition to an economy that works in harmony with nature, and we look forward to new innovations and evolutions in this vital space.
1 https://www.eiu.com/n/china-road-to-net-zero-reshape-the-country-and-the-world/
2 https://www.weforum.org/agenda/2023/02/electricity-demand-asia-energy
3 https://www.weforum.org/agenda/2023/02/electricity-demand-asia-energy
4 https://www.efchina.org/Attachments/Report/report-lceg-20221104/Synthesis-Report-2022-Electrification-in-Chinas-Carbon-Neutrality-Pathway.pdf
5 https://www.efchina.org/Attachments/Report/report-lceg-20221104/Synthesis-Report-2022-Electrification-in-Chinas-Carbon-Neutrality-Pathway.pdf
6 https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jul/IRENA_China_Carbon_Neutral_2022.pdf
7 https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jul/IRENA_China_Carbon_Neutral_2022.pdf
8 https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2022/Jul/IRENA_China_Carbon_Neutral_2022.pdf
9 https://www.bloomberg.com/news/articles/2023-06-28/china-s-solar-wind-build-to-crush-target-global-energy-monitor
10 https://globalenergymonitor.org/press-release/china-poised-to-double-wind-and-solar-capacity-five-years-ahead-of-2030-target/
11 https://www.efchina.org/Attachments/Report/report-lceg-20221104/Synthesis-Report-2022-Electrification-in-Chinas-Carbon-Neutrality-Pathway.pdf
12 https://electrek.co/2023/06/21/china-extends-ev-tax-exemption-through-2027-largest-tax-break/#:~:text=China%20extends%20EV%20tax%20exemptions,largest%20tax
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