Ride the innovation wagon to a green future

Preferential subsidies, technological innovations and making the use of fossil fuel more costly can play a key role in developing the clean energy industry. And although financial support could help reduce the cost of clean energy in China, such support varies according to local governments' financial conditions, which tend to be healthy in normal circumstances but become vulnerable during economic downturn.

Likewise, raising the prices of fossil fuels is not the solution to the problem, because it is unlikely to quantify the environmental costs. Hence, what the government can do is to resort to institutional reform and price marketization in order to cut the subsidies for fossil fuels and make emission reduction financially binding on enterprises and individuals.

Reliable and permanent innovations, therefore, should make the exploitation of clean energy sources efficient and cost-effective. For example, the increasingly mature use of solar power has reduced the cost of photovoltaic power generation in China by nearly 80 percent in the past decade, from about 5 yuan ($0.78) to 0.9 yuan per kilowatt-hour.

Another problem is the significant curtailment rate of wind and solar installations－the former could reach 20 percent, even 40 to 60 percent in some places, this year while the latter was about 10 percent in the first three quarters of this year. The curtailment of solar power plant installations was especially noticeable in Northwest China's Gansu province (28 percent) and the Xinjiang Uygur autonomous region (20 percent), where the actual market demand for electricity remains unpromising.

Nevertheless, governments at all levels are supposed to help local enterprises generate clean energy and export their products, and strike a balance between the generation of clean energy and the building of electricity grids. They should also work out long-term plans and policies that take possible economic fluctuations into consideration, so as to encourage technological innovation and reduce costs. Sufficient financial aid is also crucial in the early stages of developing new energy technologies.

These are important factors that China, as the world's largest energy consumer and producer, has to consider if it wants the ongoing energy reform to succeed.

The author is director of the China Center for Energy Economics Research at Xiamen University in Fujian province.