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Over the months ahead, I’ll be posting to the U.S.-China Clean Energy blog more reporting on U.S. cleantech firms that secured deals during the Hu Jintao State Visit (January 18-21):
This series will include coverage of:
- the Wanxiang-Ener1 deal to supply high-quality U.S. batteries to electric buses in China
- Goldwind USA’s planned expansion of U.S. production and employment
- a deal siting a PV manufacturing plant near a U.S. Energy Innovation Cluster (EIC) and U.S.-China Clean Energy Research Center (CERC)
- the clean energy aspect of huge new deals by GE and Boeing.
Please check back for these. In the meanwhile, here’s my personal view of the Arrival Ceremony for Hu Jintao:
John Smith (Chairman of Global Philadelphia Association) and I had the honor to be asked by Mayor Nutter to attend this ceremony.
Courtesy of my iPhone, here is a mix of the music, video, and stills from that ceremony arranged in the sequence that they occurred. Two things to watch for:
- Just after Hu and Obama are first seen on the podium, look for the clouds of gunpowder near the foot of the Washington Monument during the 21 gun salute and
- In the next shots, look to the right at the base of the podium and you can glimpse Secretary Gates and Admiral Mullin in the area where the rest of the Cabinet was stationed out of my camera view.
We’re pleased to share here an invited submission by James Wheatcroft, picking up and advancing the conversation from the previous post about rising levels of Chinese clean energy investment in various regions of the U.S. (as well as from the Jan 3rd BusinessWeek article cited in that post). Here’s the expert sounding which James takes on the rising level of Chinese investment. My conclusion? We’re in the trough of a wave.
China’s Suntech in Arizona — Reflections on Real-world Globalization by James Wheatcroft
“The move by Suntech to invest in a US manufacturing facility is positive news for Phoenix and a triumph for Barry Broome, CEO of the Greater Phoenix Economic Council. Barry like thousands of regional business development organisations in the West are trying to figure out how to attract Chinese money into their area, and are prepared to offer grants and incentives to do so.
So: why have the Chinese done this?
Cynics would say that this is a move by the Chinese to circumvent US “Buy American” trade clauses. They would also say that this facility is tiny compared to the vast plants that Suntech and other Chinese PV manufacturers have in China. I say this is an emerging trend that will continue; in fact I know of another very large Chinese State Owned energy company that is seriously considering a European plant.
To me this is more about nationalism, carbon footprint and true globalisation.
Nationalism
There is a real national fervour in China these days. People and businesses are more confident and look to demonstrate this confidence abroad. China has long had a “go abroad” policy in many industries, and this reflects the fact that many State Owned Enterprises are awash with capital and are seeking to balance their portfolio of investments- by investing outside China.
The logic is very obvious. If “Buy American” becomes a serious purchasing standard, the bar is raised in terms of price, allowing US wage levels to be built into the cost base. Therefore a small facility in the US becomes well worth the risk for Suntech.
Carbon Footprint
There is much talk in Europe about a possible tariff system based on carbon footprint. Certainly in the UK market, where I operate, regional councils and housing associations (who are all looking at installing panels), are beginning to include carbon footprint as a purchasing criterion. It is not a legal requirement but it is increasingly being seen as a form of ‘best practice.’ In the long term, carbon footprint taxes on a Pan-European basis are possible. From a Chinese perspective therefore there is now a good argument that if you wish to win public sector business in the EU, you need to have a base in the EU..
Globalisation
Globalisation is no longer, as we saw in the late 20th – early 21st centuries, only about US and European companies either tapping global markets or sourcing from them. Chinese and Indian companies are already leading this investment trend. US PV makers that are feeling the pinch from Asia are building PV plants in China. This turnaround – where Chinese companies are feeling the pinch from ‘Buy American’ clauses and building plant in the US,- is merely the next step in true globalisation, and if you ask Barry Broome or the 75 people working at Suntech Phoenix- they would tell you that they’re pretty happy about it.
James Maclean Wheatcroft, based in the UK is a consultant in the Chinese green energy, media and communications markets. His team of consultants on the ground in China has delivered more than $80 million per year in energy joint ventures. James is currently working with both Chinese and European companies and governments to benefit from the current boom in Chinese energy
The headline to watch during China President Hu Jintao’s State Visit to the US later this month? His itinerary. Rather than the standard shuffle between DC and NYC, this itinerary includes a stop in the ‘real America’ outside of the ‘bubbles’ of Washington DC and New York City. For the purposes of this trip, ‘real America’ is Chicago.
This represents, of course, a polite and deft gesture of respect to the hometown of Hu’s host at the State Dinner in Washington. But the itinerary signifies far more: a shift in China’s outward focus from Wall Street to Main Street.
In the post-GFC landscape, this is a tectonic tremor worth heeding. Expect a visit to a Main Street company with Chinese ownership and lots of U.S. employees in an embattled industry sector. Expect the U.S.-China storyline in 2011 to shift in degree from currency rates and the U.S. bond market toward rates of Chinese foreign direct investment (FDI) and in-bound support of the U.S. job market.
For USA regions angling for Chinese FDI to support their local jobs & their regional economic development, the key to success will be aligning regional assets with US-China national level priorities — whether in clean energy or in other strategic sectors. Several key vectors of national/regional alignment were created this fall when the U.S. Department of Energy and other Federal agencies awarded:
- Detroit and the University of Michigan with a U.S.-China Clean Energy Research Center (CERC) for Clean Energy Vehicles;
- The University of West Virginia lead role in a consortium for a U.S.-China CERC for Clean Coal;
- The Lawrence Berkeley Lab with a U.S.-China CERC for Building Efficiency;
- Greater Philadelphia and Penn State University with a national Energy Innovation Hub for Building Efficiency — the Greater Philadelphia Innovation Cluster (GPIC) — at the Navy Yard.
The first half of the Obama Administration’s engagement with China to tackle the challenge of 21st energy took place in Washington and New York. The next chapter will take place in Detroit, the Bay Area, Philadelphia and other regional markets around the country. As China reinvents itself, it will partner with regions that step forward to reintroduce themselves on the global dance-floor.
It will be an awkward dance at times. But not a dance that will pay to sit out. The dance ticket is to tomorrow’s world.
BusinessWeek took an excellent snapshot of this moment’s step in the global pas-de-deux with its January 3, 2011 piece on “Chinese Plants Grow on U.S. Turf.”
Today’s industry press on the renewable energy industry in China carries an instructive piece of analysis on dynamics in the photovoltaic solar market — i.e., the ‘chips’ on solar panels that do the photovoltaic conversion from sunlight to transmission-ready electricity.
Currently, this is a boom industry in China. One city in Shandong province, Dezhou, is alone home to more than 100 PV manufacturers. When the critical supply input for this industry — polysilicon — tightened in global markets, the full statecraft apparatus of the PRC central government got into gear to assure supply for this sector, a story well described by Jason Dean, Andrew Brown and Shai Oster in a frontpage Wall Street Journal article on November 16, 2010. Since supply is being ramped up by these ‘investor euphoria’ factors and because demand is constrained by State Grid’s ability to integrate new PV-generated power into the national grid, prices are dropping. As reported by RenewableEnergyWorld.com in September 2010, “the late-August round of bids for utility-scale solar power projects in China yielded a new milestone in the economics of solar power in China: a sub-Yuan/kWh price for solar power. To achieve this impressive number, the Chinese government has used the state-owned sector (and particularly enterprises under the direct control of the central government) to help subsidize the price of solar power, to the point where the economics appear to be unsustainable.”
So, if the factors above give the background to the current moment, the analysis below shows where this situation is likely to lead in 2011 in the Chinese domestic market.
One final observation — since the Chinese PV solar panel is strongly export-oriented, the oversupply situation in China will lead to falling prices in international markets. Falling prices of imported Chinese panels will undercut the ability of U.S.-manufacturers to compete at cost and this will in turn add to the pressures on the bilateral U..S.-China bilateral relationship. The U.S. Steelworkers presented an omnibus complaint against Chinese unfair trade practices in renewable energy in September but USTR and the Obama administration chose in December to take up officially only the wind power component of that complaint.
The pressures building up in the global market for PV solar mean that the Obama administration may be under pressure in 2011 to broaden their trade action in renewables to include PV solar products.
ANALYSIS – BOOM IN CHINA’S PV INDUSTRY HARD TO CONTINUE IN 2011 – Asia Pulse (December 30, 2010)
China’s domestic photovoltaics firms have achieved remarkable performances in 2010 boosted by surging demand in domestic and overseas markets. But the boom is hard to continue in 2011 upon oversupply in domestic market and no further growth in international demand. According to statistics from Wind Info, 58 solar companies listed on China’s A-share market achieved combined net profits of 12.1 billion yuan (US$1.82 billion) in the first three quarters of 2010, up 46 per cent year on year from 8.29 billion yuan. However, high expectations on the outlook for the PV industry have attracted a good number of companies to take up the production of PV products, which is very likely to result in oversupply in 2011. Besides, international PV demand is unlikely to see further growth in 2011, therefore the boom in China’s PV industry in 2010 is unlikely to carry on into 2011.
Surging demand boosts performance of PV firms in 2010.
Since the beginning of 2010, international demand for PV products has continued to surge, growing threefold in Germany. Emerging PV markets such as Italy, the Czech Republic, and the US also stepped up construction of PV power plants. This has directly driven the demand for PV products, and led to a relatively long duration of short supply of PV products, including silicon wafers and solar cell modules, which greatly benefit domestic PV giants. Leading PV producers like Suntech, LDK Solar, and Yingli Green Energy all registered better-than-expected performances in the first three quarters of 2010. Among the 58 domestically-listed PV companies, 20 reported their net profits doubled in the first three quarters, and their sales margins increased by 5 percentage points year on year. Besides this, 23 companies have forecast increasing net profits for the whole year of 2010, and 16 of them expected over 50 per cent growth in net profits. Not only have PV producers turned in sound performances, but also have domestic PV equipment manufacturers benefited from the surging demand. Zhejiang Jinggong Science and Technology (002006.SZ), a manufacturer of polycrystalline silicon ingot production furnaces, expect net profits of 60 to 65 million yuan for 2010, up 150 to 180 per cent year on year.
Oversupply of PV products expected in 2011
China is very likely to face overcapacity and oversupply of PV products on diminishing international demand and continuous enthusiasm of domestic PV producers for capacity expansion. Zhou Yanwu, chief analyst with Research In China, said that more than 90 per cent of China’s domestic PV companies are heavily reliant on exports, and the export destinations are mainly concentrated in Europe. However, European countries, the world’s largest PV solar market, recently announced they are to cut back subsidies to PV projects. Germany has trimmed total subsidies to PV projects by 3 per cent since October. Spain is planning to cut the on-grid price of solar power-generated electricity generated by 45 per cent. The Czech Republic is also mulling over reducing its investment in a 700MW solar power plant. Solarbuzz, the PV market research specialist, believes that the policy changes will reduce demand for China’s domestic PV products, and this will take effect from the beginning of 2011. There is a consensus that China’s PV industry is not likely to maintain its fast growth in 2011. An insider with Suntech predicted that in certain periods of 2011 international PV demand may be lower than in 2010. However, despite of unfavorable changes in the solar power policies of European countries, China’s domestic PV companies are actively expanding their production capacity.
— Risen Energy (300118.SZ) on Wednesday announced that it plans to invest 800 million yuan to build a 300MW crystalline silicon production line, which will double its current production capacity.
— Shanghai Aerospace Automobile Electromechanical (SSE:600151) and Hengdian Group DMEGE Magnetics (SSZ:002056) recently announced they are to jointly invest more than 1 billion yuan to expand solar-cell production capacity.
— Leading PV producers like Suntech, Yingli, JA Solar, and LDK in China have already released their expansion plans for 2011, which all involve a 10-odd per cent increase in production capacity.
According to China’s development plan for the PV industry, China is aiming to increase PV installed capacity to 20GW by 2020. But judging by the current rate of expansion, it is likely to top 50GW by then. Meanwhile, the entire PV industry, including PV cells and PV modules, may face periodical oversupply in 2011 due to concentrated operation of newly added production capacity. According to statistics, there will be 11 solar cell producers with production capacities exceeding 1GW in 2011. A PV producer noted that China’s solar cell production capacity is expected to reach 35GW in 2011, while total international demand would not surpass 20GW. If all domestic production capacity is fully operated, there will be 50 per cent oversupply of solar cell products in 2011. In the face of a gloomy outlook for international PV demand, domestic PV companies may encounter challenges in getting a return on investment in the short term. Oversupply will force the prices of PV products to drop further in 2011.
I include some excerpts here from an interview which Energy Secretary Steven Chu just gave with Platts Energy Week television (http://www.plattsenergyweektv.com/) an independent all-energy news and talk show with ownership links to McGraw Hill.
The U.S. engine for clean energy innovation and economic growth is a four-cylinder engine but only three cylinders are firing now. Technology innovation, investment and state-level policy are all producing horsepower but federal level policy to create a long-term framework in support of technology innovation, long-term investment, and state support is seized up.
These extracts from Sec. Chu represent to my mind the best way forward and perhaps, in a time of polarized partisanship, the only way forward:
The White House, its Democratic allies and Republicans need to “look for the things that the vast majority of Americans will say, ‘This is good for me, this is good for America, this is good for my state,’ and move forward on those issues,” Chu told program host Bill Loveless. The interview, available at this link, airs in Houston tonight and was aired Sunday in Washington, D.C.
The House passed a comprehensive energy and climate-change bill last year that would have put a price on carbon emissions, but the measure died in the Senate. Nevertheless, Chu said there were other options for moving the U.S. towards a clean-energy future.
“Absent a price on carbon, what are the things you can do? Well, you can create a demand for this thing, whether it be wind or solar or any form of renewable energy [and] say, ‘This is where we are heading,'” Chu said. “These are many of the things that we as a country should wrestle with and think about.”
In the interview with Platts, Chu struck a conciliatory note, saying it wasn’t up to him to pick the policy — such as a price on carbon or low-carbon energy-use mandates — that would support renewable energy “or clean energy” projects.
“This is a discussion that has to be held with Congress, with the American people,” Chu said. “What the country really wants, and what business really wants, are those long-term signals to say, ‘This is where the country is heading.’ “
He also said there would be other opportunities for common ground with Republicans in Congress, such as retrofitting buildings and homes to cut down on energy bills.
“We are working on ways to do this so it doesn’t require massive public-sector investment, but it is private-sector investment because it is going to be saving money,” Chu said. “I think that is a common ground.”
The full article on this interview is available at http://bit.ly/eVBdWp
I wrote around to some contacts yesterday including a link to this article by Thomas M. Hout and Pankaj Ghemawat in the current issue of Harvard Business Review.
China vs the World: Whose Technology Is It? – Harvard Business Review 
Emon Wang, a partner at Spirea Capital, wrote back with some insight of his own:
“Interesting and impressive… maybe the best English article on this topic I read this year.
However, as a native Chinese who works in cross-border deals in cleantech from Europe I`d like to add some words:
– The relationship between Beijing and local governments are very complicated and subtle. For foreign players, knowing how to play with both side is critical. Tip for beginners: it`s practical to make friend first with local governments.
– Instead of complaining, in order to maintain competitive power, foreigners might spend more time and money on R&D at home, to ensure a leading position and be one step head of China and other emerging powers. Without continuous innovation, being caught up on is only a matter of time. VW shared its technology with China for so many years and is still the No.1 seller in the country, a hell of money they have made and I don`t think they lose any of their core technology strength. IMHO, if your stuff can be easily copied, then it makes theoretically no sense to over-protect it and increase the cost of simple technology artificially.
– What China lacks is exactly the ground of technology innovation and R&D competence. Not the available technology itself. Consider the growing number of high-educated Chinese both domestically and oversea, the next generation needs the infrastructure. The government is now building this up.
– Technology in exchange for market is a fair trade. No one is forced to share his technology (take Google for example, you can quit if you want). On the micro level it`s about greed. On the political level it`s about p/l and jobs at these multinational corporations. And it`s about negotiation. If you did your homework badly and made too many enemies, you can`t expect a good deal.
– All in all, if you really understand the Chinese history, you will understand why own technology competence is so important in the culture. It`s not about taking profit from the foreign corporation or about a technology war whatsoever.”
Tim Giesecke, author of the forthcoming EcoCommerce 101, made the following comment and asked for some clarification from me on Emon’s last paragraph.
Tim’s comment: “Perhaps the timeline is the most telling – China becomes the #1 economy in 500 AD – looses the title in 1850AD – poised to regain it soon. We Americans will need to recognize asap that we can sit and be entertained, but not all the time.”
Tim’s question: “If you can help me tie the ends of the last paragraph – technology competence is so important in the culture…is it to prevent themselves of becoming vulnerable to market forces, negoiations?”
My attempt at clarification: “There’s a tactical level that has to do with negotiations (Sun Tzu’s Art of War and all that) but it is mostly a culturally-patterned value deeply embedded in Chinese (read ’embedded in the Han majority’ comprising 95% of the Chinese population) as a result of centuries of real and perceived humiliation on the global stage after centuries of preeminence. They don’t want to ever go back to that historical place of weakness and technology is their ladder out.”
______Assessing China / The TEA Collaborative______ 