SHANGHAI PROMOTING ENERGY EFFICIENCY AND RENEWABLE ENERGY

UNCLAS SECTION 01 OF 03 SHANGHAI 000169

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EPA FOR INTERNATIONAL - KASMAN/GIANNINI-SPOHN
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STATE FOR S/SECC-STERN/PERSHING
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E.O. 12958: N/A
TAGS: ENRG ECON TRGY SENV EFIN CH
SUBJECT: SHANGHAI PROMOTING ENERGY EFFICIENCY AND RENEWABLE ENERGY
RESOURCES

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1. (SBU) SUMMARY: To meet Shanghai's energy demands and
ambitious Central Government-mandated energy consumption
reduction targets, Shanghai officials are working hard to adjust
the city's energy mix by reducing its reliance on coal through
the use of environmentally-friendly resources and improving
energy conservation and efficiency, especially in the industrial
sector. Shanghai is hoping to change the mindset of its
citizens to be more energy conscious and is developing several
renewable energy resources, including wind, solar, and biomass.
The current economic downturn has had little impact on the
city's long-term plans for renewable energy, and Shanghai hopes
to spur economic growth through "green recovery" -- new energy
and environmental-related projects, including alternative energy
vehicles. Officials cited the high cost of technology as a
barrier to promoting renewable energy use and encouraged more
Sino-U.S. cooperation in that regard. END SUMMARY.


2. (SBU) During a visit to Shanghai in early April, Embassy
Minister-Counselor for Economic Affairs Luke accompanied by
Congenoffs met with GAO Yun, Deputy Director of the Shanghai
Economic and Information Technology Commission, to discuss
Shanghai's plans for renewable energy development, energy
conservation, and the impact of the global economic downturn on
these plans. Congenoffs also met previously with ZHOU Ya, Chief
Economist, Shanghai Development and Reform Commission (SDRC) and
GAN Zhongze, Chairman, Urban Planning and Environmental
Protection Committee, Shanghai Municipal Peoples Congress (SMPC)
to discuss Shanghai's energy strategies.

Decreasing Coal Dependency - Conservation and Efficiency Are Key
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3. (SBU) Shanghai officials noted that the city is working hard
to adjust the city's energy mix by reducing its reliance on
coal, which accounts for over 50 percent of the city's energy
sources. SDRC's Zhou Ya said that Shanghai's total energy
consumption in 2008 was 97 million tons of coal equivalent (TCE)
with per capita consumption equaling 5.3 TCE, more than twice
the national average. All of our interlocutors emphasized that
Shanghai has to be creative in developing
environmentally-friendly resources, while improving energy
conservation and energy efficiency to meet not only the
ambitious energy consumption reduction targets mandated by the
Central Government, but also the city's ever increasing energy
needs. The Economic Commission's Gao Yun said that Shanghai has
thus far achieved its goal announced in 2005 of reducing its
energy intensity (energy consumption per 10,000 RMB of GDP) by
four percent every year for a targeted total of 20 percent by

2010.


4. (SBU) Gao said that Shanghai's energy consumption breaks
down as follows: 10 percent personal consumption, 30 percent
service sector, and 60 percent industrial sector. As industrial
consumption accounts for the majority of Shanghai's total energy
usage, Gao stressed that more attention is being placed on
energy conservation and efficiency in that area. Industry
players are required to assess their energy efficiency using
benchmarks established by industry leaders, and companies may be
forced to move out of Shanghai if they fail to meet the
benchmark requirements. More broadly, Shanghai is also
accelerating the process of energy conservation through the
promotion of new conservation technologies. Gao said Shanghai
aims to slow the energy consumption growth rate from the 7-8
percent annual growth of recent years.


5. (SBU) While technology innovations and stronger conservation
measures for the industrial sector are key requirements, SMPC's
Gan believed that changing the mindset of Shanghai's citizens
would be the paramount task. He said that Shanghai residents
must increase their "social responsibility" by buying smaller
cars, using more public transportation, and otherwise reducing
personal energy consumption. Shanghai's hosting of the 2010
World Expo, with a green theme of "Better City, Better Life"
will be a prime opportunity to raise public awareness of energy
conservation and environmental protection, said Gan.

Shanghai to Pursue Multiple Renewable Sources
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6. (SBU) According to Gao, there is no "best fit" for the
city's development of renewable resources. Shanghai has to
develop multiple resources to meet future energy needs,
including wind, solar and biomass. Gao explained that although
Shanghai can often meet its wind power generation goal in the
winter, its wind power is generally inadequate in the summer
except when a typhoon draws near. Shanghai is trying to take
advantage of offshore wind by constructing China's first
offshore wind farm along the 22-kilometer Dong Hai Bridge that
links Shanghai's Pudong District with Shanghai's offshore
Yangshan Deepwater Port. This offshore wind farm has a planned
capacity of 100,000 kilowatts with the capacity of each
stand-alone windmill reaching three megawatts. Construction has
already begun, and the project is expected to be completed in

2012. Compared to traditional onshore wind farms, offshore
farms require greater investment and more advanced technology.
However, they do not take up land and can provide more abundant
wind power. Gao also mentioned city plans for wind farms on
Chong Ming Island and Chang Xing Island in the mouth of the
Yangtze River.


7. (SBU) Regarding solar power, Gao explained the different
usage of solar thermal energy (STE) and photovoltaics (PV). STE
converts solar energy into heat, and is mostly used in
buildings. According to Gao, STE traditionally is better suited
for low buildings. Now with the advent of more advanced
technology, balcony rails may be designed to absorb solar energy
and convert it into heat. This could have a significant impact
if widely adopted, said Gao. Photovoltaics, unlike STE, convert
solar energy directly into electricity. Given Shanghai's high
number of cloudy and rainy days, the cost of producing
electricity directly from solar energy is still very high. This
technology is still in its testing phase and requires government
support, said Gao.


8. (SBU) Shanghai is also looking at biomass as a potential
source of renewable energy. Shanghai currently generates 6,000
tons of garbage daily, so the potential is quite large.
According to Gao, Shanghai has already set up some small-scale
biomass power generation facilities, but large-scale ones are
still under design.

Financial Crisis Will Not Impact Long-term Energy Plan
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9. (SBU) Even though Shanghai's economy has been impacted by
the global economic downturn, the city will continue developing
renewable energy, improving energy efficiency, and encouraging
energy conservation, asserted Gao. Shanghai will invest more in
solar and wind power, as well as further develop and deploy
alternative energy vehicles. He touted Shanghai GM (a
joint-venture between Shanghai Automotive Industry Corporation
(SAIC) and General Motors) that has developed such vehicles.
This, together with other new energy and environmental-related
projects, will spur Shanghai's future economic growth, a "green
recovery," said Gao.

Preferential Tax Policy for Hybrids
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10. (SBU) According to Gao, the Shanghai Municipal Government
will soon release a new preferential tax policy for hybrid car
purchases. Any hybrid car with a gasoline savings rate over 15
percent will qualify. In China, currently, only Changchun
Toyota (a joint-venture between China's First Automotive Works
in Jilin and Toyota) and Shanghai GM produce cars that meet the
15 percent gasoline savings threshold. By 2012, new energy
vehicles are expected to account for 5 percent of the total
number of vehicles in China, said Gao.

High Cost Still an Obstacle to New Technologies
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11. (SBU) Gao believes that cost is still the main obstacle in
promoting renewable energy. Shanghai is interested in new
innovations such as General Electric's clean coal technology,
but the cost is too high. Similarly, Applied Materials supplies

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equipment to manufacture thin-film PV batteries. Even though
the cost to make a PV battery is only half the cost of making a
traditional silicon crystal PV battery, the manufacturing
equipment made by Applied Materials is still very expensive,
costing USD 85 million each, according to Gao. Gao encouraged
more Sino-U.S. cooperation in developing renewable energy and
energy efficiency technology in order to lower the cost of such
equipment.


12. (U) Embassy EconMinCouns cleared a draft of this report.
CAMP