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ASEAN can replicate China's successful solar industry revolution

It requires careful national planning and listening to business

| China

China is leading the world in clean-energy production -- especially wind and solar. As of early 2019, China owned six of the world's 10 largest solar module manufacturing companies. In 2018, it installed half of all new global solar power capacity, according to the International Energy Agency.

And the year before, it was the first country to pass 100 gigawatts of installed solar power capacity, which is equivalent to the electricity produced from about 75 nuclear power plants.

The Chinese government has placed a priority on investing in solar energy because it enables the country to directly tackle the problems of air pollution, climate change and energy security, and the related benefits -- financial and environmental -- are clear. The nations of ASEAN should watch closely and learn.

In 2005, the National People's Congress, China's legislature, observed that fossil fuel energy production was the cause of 90% of the country's sulfur dioxide emissions.

According to the Chinese Ministry of Health, industrial sulfur pollution has made cancer China's leading cause of death. Every year, ambient air pollution alone killed hundreds of thousands of citizens.

Moreover, meeting its pledges in the Paris Agreement on climate change will require China to increase solar's share of the energy mix to 20% by 2030 from 3.2% in 2015. This would reduce the need for 20 new mid-sized coal-fired power plants.

China has achieved its success through rigorous and responsive nationwide plans.

The Brightness Program, launched in 1996, was its first national policy to bring electricity access to off-grid areas using solar and wind, but in the early 2000s China changed its focus to manufacturing for export, enticed in part by European subsidies for installing solar panels.

The government offered export credits, increased investment in research and development and established national key laboratories at several leading companies. Technology transfer occurred mainly through the purchase of manufacturing equipment from industrialized countries and the movement of entrepreneurs and skilled labor. Between 2000 and 2006, around 95% of solar photovoltaic modules made in China were exported.

After the global financial crisis, European subsidies fell back and so the Chinese government created a large domestic market for solar panels through its own subsidies.

The Golden Sun Demonstration Program, launched in 2009, paid developers a percentage of the money they invested in solar projects, regardless of the electricity their projects produced. The second solar deployment subsidy was launched in 2011, with the introduction of a feed-in tariff, which pays power producers. It was financed by a surcharge on electricity bills paid by consumers.

In addition to fostering growth, the government also promoted innovation. In 2015, the National Energy Administration launched its Front-runner initiative, which encouraged new solar facilities to use advanced products with higher solar cell efficiencies to demonstrate technological advances and promote cost reductions.

To do this, the agency tendered several large-scale, high-quality sites for solar power projects. Fierce competition brought the price down to as low as 0.45 yuan ($0.06) per kilowatt hour -- close to the benchmark tariff for energy from coal-fired power plants.

These plans were, if anything, too successful: the system could not accommodate all the power produced, leading to forced reductions in output. To avoid these inefficiencies, China introduced a smart subsides program in 2018, cutting feed-in tariffs by 20%.

China's success means that it is now viewed as an example to follow. Can other emerging economies of ASEAN do the same? The answer is dependent on whether they can deploy innovative policies as China did.

The following three pathways could help them. First, make measurable and binding targets. China made a commitment to produce 30% of its primary energy from non-fossil sources by 2030 as a pathway to reduce air pollution. It provided the key motivation for China's solar revolution and for setting various incentives.

For the emerging economies of ASEAN, this will require an in-depth dialogue involving the business community and governments to set targets and give legal force to those targets.

Second, an integrated industrial and energy policy is essential for the rapid growth of solar industries, which must fiercely compete in international markets. There were corporate collapses and policy redesigns as the solar industry in China took off.

Most of the ASEAN countries are still not fully opened to foreign investments in the energy sector and have high import tariffs for low-carbon technologies. Without overarching policy integration, the solar industry in these countries cannot get started.

Finally, they need an innovative profit model. Technological innovations show there are reliable ways for the solar industry to make profit. China is shifting subsidies from feed-in tariffs to auctions, after a period of market growth and stabilization.

ASEAN economies should carry out an in-depth assessment of their current policy approaches, and choose an approach that meet their climate change targets, market readiness for specific renewable energy technologies and design a system of complementary policies and subsidies that can generate multiple benefits.

In ASEAN, the subsidies for fossil fuels are substantial and the solar business development system is weak. Countries that complement technology investments with broader economic reforms and upgrading innovation skills will reap the solar dividends as China did.

Dr. Venkatachalam Anbumozhi is senior energy economist at the Economic Research Institute for ASEAN and East Asia.

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