Globalization, Energy, and Economic Growth – A Brief Case Study on China

 By Massoud Amin

The 20th Century marked a period of technology triumphs. Electrification, telecommunications and the Internet, fast and efficient transportation, modern medicine, scientific agriculture, and other advances changed—and continue to change—the conditions of human life all around the globe. While the smart grid may not be as dramatic, it, in its own right, will be transformative, which is why China is heavily invested in the technology.

Recent policies in the U.S., China, India, the European Union, the U.K., India and other nations throughout the World, combined with potential for technological innovations and business opportunities, have attracted a high level of interest in smart grids. Particularly in the light of the more recent multi-national agreements on limiting GHG emissions in the making for several years.

Nations, regions and cities that best implement new strategies and infrastructure may reshuffle the world pecking order. Emerging markets could leapfrog other nations. For example, China has invested over $7 billion and will spend $96 billion in smart grid technology by 2020. Consider:

  • China’s energy needs to double by 2020
  • China's State Grid Corporation will invest $31 billion for smart grid development in Xinxiang province to allow interconnection with neighboring provinces
  • Many changes will happen in the homes themselves
  • China will account for nearly 20% of global smart grid appliances in the next 5 years.

As the largest T&D market in the world, China’s smart grid market has immense potential, due to its need to grow while reducing GHG emissions. It already has a high production/manufacturing capacity of wind and solar technologies. China’s increasing commitment to reduce pollution through its integration of greener and cleaner energy sources and policies supportive of smart grid solutions will enable this transformation.

Persisting environmental constraints and the cost of coping with them, much more than resource scarcity or technology limitations, will likely dominate society’s future energy options and choices. Over the next 25 years, substantial progress will almost certainly be achieved in improving our understanding of key environmental issues, and in using electricity innovations to resolve them.

The electric power industry has undergone a substantial degree of privatization in a number of countries over the past few years. Power generation growth is expected to be particularly strong in the rapidly growing economies of Asia, with China leading the way.

Drivers often result from local, regional or and national priorities; for example, the government of India aims at reducing the “Aggregate Technical and Commercial” (AT&C) losses for power distribution systems from 34% to15% with an annual target of 1% improvement (source: 'Technology: Enabling the Transformation of Power Distribution in India” in 2008). The report commissioned by the Ministry of Power, the Government of India, and prepared by the Centre for Study of Science, Technology and Policy (CSTEP) and Infosys. The report also puts forth the suggestion of a national institution to drive this.

Changes in technology and the resulting economics have disrupted the traditional value chain and stimulated the adoption of distributed energy resources (DER). These distributed resources can assume many forms, but some key examples are distributed generation and storage, and plug-in hybrid electric vehicles (PHEVs).

A class of service offerings with similar requirements include those related to customer billing, management of customer equipment, energy information, and a range of value-added services. The latter include on-line meter reading, bill management, energy audits, real-time pricing, and procurement. Many of these service offerings share similar requirements for integrating disparate systems, automating business processes, and enabling physical and financial transactions. Delivering these services will require a communications architecture that is open, highly scalable, and sufficiently flexible and adaptable to meet the changing business needs of suppliers and customers.

Standardization and Interoperability

Smart grids are "systems of systems." Solutions are, and will increasingly be, integrations of components, often from different sources. The components in question are not just physical products, but also communication protocols, information and data models, software implementations of algorithms, etc. It is thus important that components and subsystems from different suppliers can work together (interoperability), in as close to plug-and-play fashion as feasible and consistent with safety and reliability constraints; and that they are based on open, accessible interfaces and protocols (standardization). Interoperable standards are thus a driver for smart grid developments; without them, the effort and expense of product development and system integration is increased.

The importance of interoperable standards for smart grids is globally recognized and end-use sectors are a particular focus. In the U.S., a public-private partnership organization, the Smart Grid Interoperability Panel (SGIP), has been established by the National Institute of Standards and Technology "to support NIST in fulfilling its responsibility, under the Energy Independence and Security Act of 2007, to coordinate standards development for the Smart Grid" (NIST, 2011). Similar initiatives are under way in the EU (EC, 2011) and China (SGCC, 2010).

Looking Forward

From a personal view, since early childhood, I have been a student of Chinese culture and civilization, have regularly visited China, and served as Chairman of China Center at the University of Minnesota (the oldest China Center in the U.S.). As such I continue to study and present on China (and India) - on multiple occasions that increasing leverage their science, engineering, and leadership base to power economic growth ‐‐ have realized their aspirations toward societal progress with positive economic impact.

The formula for economic growth is well known, at least academically:

Y = f(R, K, H), where:
Y = GDP (Economic Growth)
R = R&D (Investments in judiciously selected areas of Research and development)
K = physical capital (having the infrastructure to do the job)
H = human capital (having the well-trained human capital to do the work)

In summary the determinants of success - GDP growth is dependent on:
a) Velocity and proportion of R, K, H, and ​
b) Available and affordable energy, and electricity as the most efficient carrier of energy

While seemingly a very simple formula for success, but in reality assessing options, building consensus, determining supportive policies, implementing, assessing/measuring success, powering societal growth and lifting a whole nation (or even a region), while performing course corrections become massive and often very “messy” undertakings.

During the last four decades, China has gone from a nearly Third World or developing communist economy to a dynamic growing competitive market. The country’s science and engineering vision and policy have driven a historically unprecedented economic growth.

Overall, the Chinese economy grew at nearly 10 percent per year in the last decade. It is clear that science and engineering and its effective management are a major driving force in shaping global society. Going forward, macro to micro considerations for any successful implementation in China, or elsewhere, with the goals noted in the equation above, several systemic factors need to be addressed:

  • Understanding emergent and accelerated global trends/shifts in power & energy, independent systems logistics and infrastructure development, human dimension & culture, education, population/workforce, laws including IP, Medical/Biotech, Information Technologies (IT), Defense, R&D centers and Innovation;
  • Assessing opportunities in the above technological/business sectors (combined with economic, policy and cultural interests/goals) and societal change;
  • Understanding the underpinning power, energy and water dynamics, risk-managed pathways and scenarios. Focus on selected technologies, including energy technology, expected to play pivotal roles in future industrial development and economic growth of China (end-to-end, fuel source, to end use), together with barriers and opportunities for growth and commercialization and forming global alliances.
  • Clarity on individual, organizational, local to State and regional (as Mayors and Governors in China have a high degree of power) to assess and implement short/mid-term as well as longer-term collaboration and innovation opportunities in the above areas, along with pros/cons, associated risks, cost/benefit, and strategic/tactical/urgent issues and to address them proactively if possible.

Although China’s investments in S&T development began long ago, China faces several fundamental challenges:

  • Can a booming economy that is networked globally and driven by engineering and technological revolution be sustained without intellectual property rights and free speech, particularly now with the Internet?
  • Assuming that in the next decade or later when China reaches toward its aspirations and achieves its economic goals, can its citizens drink the water and breathe the air?

Summary

“The empires of the future," said Winston Churchill, "are the empires of the mind". Echoing this in his 1981 book, Investing in People: The Economics of Population Quality, economist and Nobel Laureate, Theodore Schultz, argued that the wealth of nations is not limited by land or minerals, it comes predominantly from "the acquired abilities of people, their education, experience, skills and health."

Because the pace of global change is accelerating, the long-term strategic view of smart grid, the human condition, and all other sectors that critically depend on power, become a vital consideration.

As the world opens, the value of education continues to rise, and knowledge will play an even greater role in development of technological innovations and in the success of businesses, since understanding the changing environment demands a constant stream of information and a tolerance for ambiguity. In particular, smart grid technologies, deployments and services will emerge from collaborations among coalitions of companies, universities, national labs, and government agencies. This “open research model” allows all participants to leverage assets. If you are innovative, you will find new directions – and thus together finding sustainable solutions, risk-managed options and pathways forward for the seemingly simple GDP growth equation provided above.

For a downloadable copy of  August 2016 eNewsletter which includes this article, please visit the IEEE Smart Grid Resource Center.

Contributors 

 

massoud

Massoud Amin, a fellow of IEEE and ASME, chairman of the IEEE Smart Grid, an independent Director of the Board of Directors of the Texas RE and the MRO, holds the Honeywell/H.W. Sweatt Chair in Technological Leadership at the University of Minnesota. He directs the university’s Technological Leadership Institute (TLI), is a University Distinguished Teaching Professor and professor of electrical and computer engineering. He received a B.S. degree with honors and the M.S. degree in electrical and computer engineering from the University of Massachusetts-Amherst, and the M.S. degree and the D.Sc. degree in systems science and mathematics from Washington University in St. Louis, Missouri. Before joining the University of Minnesota in 2003, he held positions of increasing responsibility at the Electric Power Research Institute (EPRI) in Palo Alto. After 9/11, he directed EPRI's Infrastructure Security R&D and served as area manager for Infrastructure Security & Protection, Grid Operations/Planning, and Energy Markets. Prior to that, he served as manager of mathematics and information sciences, leading the development of more than 24 technologies that transferred to industry, and pioneered R&D in "self-healing" infrastructures and smart grids.


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