After EVs, China pushes electric future for inland shipping

[beijingwalker]

After EVs, China pushes electric future for inland shipping​

Nation to rely on strong battery supply chains and EV experience

China has the world's largest network of navigable inland waterways, measuring around 128,000 kilometers. (China Daily via Reuters) © Reuters
August 3, 2023 13:03 JST

Electric ships, boats and barges could be navigating much of China's vast network of inland waterways in the near future. With over 100,000 passenger and freight vessels operating within the country, some regions that straddle the country's major rivers and others along the coast are ramping up support for electric vessels in an effort to reduce emissions from inland water transport.

Provinces including Fujian and Hubei have announced cash incentives and subsidies to spur the development, manufacturing and use of electric vessels. Shanghai, meanwhile, has offered to subsidize the cost of battery and propulsion systems for electric vessels to lower the cost barrier for potential buyers.

The initiatives come as China is striving to build a reliable, green and intelligent transport system by 2035, according to its 14th Five-Year Plan for the transport sector released in 2021. Analysts believe the country could witness a period of rapid growth of battery-powered vessels on its rivers, canals and lakes.

The expected boom is due to draw strength from the country's strong battery supply chains and its experience of successfully putting electric vehicles on the road. However, the transition faces headwinds, including the significantly higher cost of electric ships compared to diesel-powered vessels.

A COSCO Shipping Holdings fully electric container ship, the N997, launches on July 26 from Yangzhou, Jiangsu province. (Photo courtesy of the company)

Decarbonizing inland shipping
According to the latest data released by the Ministry of Transport in June, there were about 121,900 passenger and freight ships in China last year, and 90% of them operated on inland waterways -- stretches of water open for navigation but not part of the sea.

China has the world's largest network of navigable inland waterways, measuring around 128,000 kilometers. It includes the third-longest river in the world, the 6,300-km Yangtze, and one of the world's oldest canals, the 1,794-km artificial Grand Canal connecting Beijing and Hangzhou.

Most vessels cruising these waterways still use diesel engines. To reduce pollution from inland shipping, China's central government initially hoped to popularize vessels fueled by liquefied natural gas (LNG), which produces fewer emissions compared to diesel.

But the plan, launched in 2009, has been held up in part by the slow progress of building a network of LNG filling stations mainly due to red tape and strict regulations to ensure safety, according to a report by the Transport Ministry in late 2016.

In 2018, the central government identified electric vessels as a solution to the environmental issues caused by shipping. After China announced its goal to reach carbon neutrality by 2060, steps to cut transport emissions were quickened. Last year, the Ministry of Industry and Information called on the nation to accelerate the development of battery-powered vessels.

Since then, various provincial governments have taken action to push development, production, sales and use of electric vessels.

Fujian, a coastal province in Southeast China, announced a series of subsidies in June, including a cash handout of up to three million yuan ($419,000) to attract top ship-design institutes to establish local subsidiaries. Battery companies in Fujian could receive a refund of 20% of their production costs, or up to two million yuan, for each electric propulsion system they make for ships.

Another pioneer is Hubei, a central province through which flows the Yangtze River and its branches. The local government said in March that it would support the development of a "green" and "intelligent" ship-making industry. One of its subsidies was a 5 million yuan one-off cash award to encourage the establishment of nation-leading ship-making industry parks that house a wide range of businesses, from battery plants to charging-pillar developers.

In a shipyard in Jiangsu province, construction of the first of two 120-meter-long electric vessels, billed by their owner as the "world's largest fully electric container ships," was completed and a trial was carried out on July 26. The eastern coastal province hopes to commercialize the use of electric container ships by 2025.

The two ships will operate along the Yangtze River once completed. Their owner, COSCO Shipping Development, told Caixin in February that each vessel could help reduce annual carbon emissions by around 2,300 tons of carbon. The company said it intended to expand its program to other parts of the Yangtze, as well as southern China's Pearl River, the Grand Canal and other major waterways if the two ships prove commercially successful.

Decarbonizing inland shipping is crucial to helping China achieve carbon neutrality in transport -- the third-largest source of emissions after power generation and industrial activities -- particularly because freight on the country's waterways is expected to grow significantly.

China's central government is trying to divert some bulky and long-distance freight transport from the road to water to cut transport emissions. In November 2021, it set a target of increasing the amount of cargo on waterways 2% every year by 2025.

Moreover, the 14th Five-Year Plan for water transport, an overarching document for inland shipping, stipulates that around 5,000 km of inland waterways should be added or upgraded between 2021 and 2025 and that the development of electric vessels should be "encouraged."

Peng Chuansheng, chief researcher at the China Waterborne Transport Research Institute of the Ministry of Transport, told Caixin previously that electrification is an "inevitable path" to cutting the emissions from inland shipping because it follows China's energy transition strategy.

New market for battery giants
China's strong lithium battery supply chains and its success in promoting EVs on land will provide a foundation for putting electric ships on rivers and canals, Luo Xiaofeng, a shipping expert, told Caixin.
Luo is a researcher at Wuhan Rules and Research Institute, a subsidiary of the China Classification Society, a specialized organization providing ship classification and survey services. He said there had been strong calls for ships on inland waterways to be powered by electricity, particularly lithium batteries.

Market leaders have caught wind of the change. Several of the nation's largest battery manufacturers, such as Contemporary Amperex Technology (CATL), BYD and EVE Energy, have already established their presence in the ship battery industry.

Fujian-based CATL, the world's largest EV battery maker, invested 100 million yuan in a new ship battery unit in late November. This came two months after inking a deal with the Fujian Provincial Department of Industry and Information Technology and Fuzhou-based Industrial Bank to help the province build a leading industry for electric vessels.

The company is also building a massive manufacturing base in Shandong province. It will include a 75-hectare, 3 billion yuan shipyard for "new energy ships," an umbrella term for ships that use non-fossil fuels, such as lithium batteries and hydrogen, Caixin learned from people familiar with the project.

Another contender is CALB Group, which secured contracts in 2022 to provide the batteries for COSCO Shipping's two giant electric container ships built in Jiangsu.

The budding ship battery sector also provides a new avenue for Chinese EV battery makers to employ their production capacity, which could soon far outstrip demand.

Zhu Huarong, chairman of Chongqing Changan Automobile, said at a recent industry forum that China's EV battery industry is facing "serious production overcapacity."

China's demand for EV batteries will be 1,000 to 1,200 gigawatt-hours by 2025, but production capacity will be 4,800 GWh, according to current plans, said Zhu.

The combined production capacity of nine major Chinese lithium battery manufacturers will add up to 3,175 GWh by 2025, nearly 13 times that of 2020, according to a report by Kaiyuan Securities last June.
China's rapidly growing renewable capacity could also benefit the growth of electric vessels because lithium batteries can be charged with clean energy, such as wind and solar power, further reducing emissions from inland shipping.

Globally, China is a leader in the use of renewable energy sources. Its cumulative installed capacity for wind and solar power accounted for more than a third of the global total in each of their respective sectors at the end of 2022, according to Caixin's calculations based on data from the National Energy Agency. The rapid development of both could drive the success of net-zero shipping in the country, industry insiders said.

Tackling high costs
The ratio of battery-powered vessels among all vessels on China's inland waterways is expected to grow around 10 times in the next few years, jumping from 0.3% in 2022 to 3.4% in 2025, according to a May report by Sealand Securities. The figure is forecast to reach 21.9% by 2030, the report shows.

The market size will balloon from 1.2 billion yuan in 2022 to 16 billion yuan and 37 billion yuan in 2025 and 2030, respectively, according to the report.

Wen Shuli, an assistant professor with the Department of Electrical Engineering at the School of Electronic, Information and Electrical Engineering at Shanghai Jiao Tong University, forecasts "explosive" growth for pure electric vessels. But he noted that they must first overcome several developmental bottlenecks before becoming mainstream on waterways.

The main challenge is the high cost of batteries.

Tian Ye, senior engineer at the No. 704 Research Institute of China State Shipbuilding, told Caixin that a high initial investment is the biggest obstacle to putting electric ships into commercial use. The battery would also need to be changed twice or three times over the ship's 30-year designed life span, which would increase the cost further, Tian said.

Government subsidies have been widely regarded as an effective way to help tackle the cost hurdle. However, only a handful of Chinese provinces and cities are providing financial support.

Fujian is forking over some of the heftiest support. For example, any projects "demonstrating" the use of electric vessels to the public can claim up to 60% of the cost of their batteries, or a maximum of 15 million yuan, from the provincial government.

Shanghai, Guangzhou and Shenzhen, as well as the provinces of Hubei and Hunan, have also announced financial incentives. A source close to the transport bureau of Jiangsu told Caixin in February that the province also was considering subsidizing electric vessels.

Observers and analysts hope that government subsidies will help spur the growth of electric vessels as they did for the EV industry in China. Financial support for manufacturers and users provided by various central government agencies played a critical role in driving up the popularity of electric cars over the past decade or so.

Sales of new energy vehicles -- which include EVs and plug-in hybrids -- in the country rocketed from just over 12,000 in 2012 to nearly 6.9 million in 2022. The expansion of the market quickly brought down the cost of EVs.

Another potential cost-cutting solution is renting batteries. A rental system using swappable, plug-in batteries could help reduce the initial cost of buying electric vessels, Luo of Wuhan Rules and Research Institute said.

But the budding industry faces several other bottlenecks beyond cost, such as limited traveling range on each charge and battery safety concerns. Before electric vessels can be used on a wide scale, every step of the industry chain needs to make improvements, said Wen of Shanghai Jiao Tong University.

China pushes electric future for inland shipping

Nation to rely on strong battery supply chains and EV experience

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