China's massive investment in alternative energy and its electric grid may drive global demand for copper. China is investing hundreds of billions of dollars to increase the percentage of energy it consume from renewable sources to 15 per cent of all energy consumed by 2020, and modernise its electric grid and transmission network to handle the increased power demand, with significant implications for copper.

China's energy use grew 8.4 per cent in 2007 versus 2.4 per cent for overall world demand growth. To keep up with growing domestic power demand, the IEA estimates China needs to invest about $2.7 trillion in its electricity infrastructure between 2006 and 2030. Presently, coal accounts for 76 per cent of China's primary energy production, oil 13 per cent and renewable energy eight per cent, according to Knowledge Wharton.

China's aggressive pursuit of alternative renewable energy sources is to not only to reduce carbon emissions, but also to simply meet its growing energy needs.

Yang Fuquiang of the Energy Foundation recently commented that if China pursues only traditional energy sources, "it simply will not have enough energy capacity for its population."

China has said it plans to invest 2 trillion yuan ($293 billion) in alternative energy between 2006 and 2020. Others have estimated over $300 billion. By 2010, China could surpass Europe, Japan and the U.S. to become the largest consumer of renewable energy, as low-polluting power sources reach 10 per cent of total energy use, according to the World Watch Institute.

To achieve its renewable energy targets, China is focusing on three areas: hydro, solar and wind. Hydro currently represents 23 per cent of the nation's electricity consumption and is second only to coal, with 13 new major hydro plants planned by 2020. Solar capacity in China is presently about 2 million kilowatts (KW), and could grow 40 per cent annually to 10 million KW by 2020, propelled in part by the world's most generous solar subsidy of 20 yuan ($2.93) per watt for solar projects over 50KW. Wind power has doubled in each of the last three years in China, reaching 10.6 GW in 2008, and could total 100GW by 2020.

China is investing $132 billion to add 16,000 miles of grid transmission lines to integrate and transport intermittent solar and wind power, and incremental base load electricity from new hydro power plants. In 2008, for the first time ever, investment in China's transmission and distribution network was higher than investment in generation. Investment in China's power sector totalled 576.3 billion renminbi last year, with 288.5 billion renminbi allocated to transmission and distribution, a 17.7 per cent increase over 2007. 

Significant capital investment is needed to increase capacity and reliability following long underinvestment in China's antiquated grid. For instance, wind turbines currently often have to sit idle for four months, on average, before being connected, and many of the regional electricity networks simply do not have the capacity to transport all of the electricity being produced. Turbines frequently have to be shut down during peak production times to avoid overloading the grid.

Copper is a key material used in electric grids, because it is more efficient than any other electricial conductor. Indeed, up to 80 per cent of China's grid investment is spent on copper, according to Yuan Genfa, secretary general of the Shanghai Electric Wire & Cable Industry Association. China already uses double the copper of the U.S. as a percent of global copper demand (22 per cent vs. 11 per cent) with more than half of China's copper consumption related to electrical use.

As a result, China's copper consumption has accelerated as the government has increased its investment in electricity grids. During Q109, China imported a record 937,034 tonnes of copper, up 32.9 per cent from a year earlier. In April, China's copper imports totalled 400,000 tonnes, triple levels from a year earlier. For the full year, China's refined copper imports are expected to rise 34 per cent to 1.95 million metric tonnes, according to Ma Xiaoxin, deputy manager of the copper department at China Minmetals Nonferrous Metals Co. By 2015, refined copper usage in China is expected to rise 74 per cent, according to a study commissioned by the International Copper Study Group.

Copper is a key component of transformers used to help move electricity from power stations to end-users. Transformers are produced with high conductivity copper and magnetic steels that are used to make the coils and core within the transformer and increase and decrease power network voltages. The purity level of copper determines the efficiency of a transformer, which is designed with large short circuit tolerances. In contrast, aluminium is not as strong as copper and its conductivity is only about 62 per cent that of copper when measured on a volume basis.

Copper's high connectivity and durability ensures useful lives of 40 to 50 years for transformers. Unless connections remain tight and corrosion free, a transformer will be damaged. Typically, six per cent to 10 per cent of the total cost of a large transformer unit is the winding material and conductors, equating to a relatively small price difference between using copper and aluminium, but a significant performance impact. Some utilities insist on 100 per cent copper be used in substation transformers.

China's use of copper in its electrical and transportation infrastructure is only likely to accelerate in the years ahead. Motor vehicles, which each can contain 50 to 60 pounds of copper, are moving from luxury items to standard consumer products, and annual unit sales are expected to top 10 million this year or next - surpassing the current run-rate in the US. The rollout of plug-on electric hybrids means an increasing percentage of transportation-related energy will be provided by the electric grid.

Similarly, a McKinsey & Co. study recently estimated that over 350 million people – more than the US population - will migrate from rural areas into China's cities by 2025, adding five million buildings, including 50,000 skyscrapers, or equivalent to 10 New York cities - all to be filled with electricity consuming appliances.

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