It was a call to arms – or at least the environmentally-friendly equivalent.
Last month, two titans of corporate America chose an opinion piece in The Washington Post to warn of China’s “breathtaking commitment” to winning the clean energy race.
The authors – John Doerr, a partner at venture capital firm Kleiner Perkins Caufield & Byers, and Jeff Immelt, CEO of General Electric – then reeled off a series of statistics in support of their case.
One of the strongest sound bites was that China is now investing 10 times as much as the US in clean power – when taken as a percentage of national GDP. But just in case we hadn’t grasped the point, they made it crystal clear: “China is moving full speed ahead, with or without us.”
But what does ‘full speed ahead’ actually mean? After all, we wrote last week about Beijing’s desire to slam on the brakes in some sectors, including some green energy ones. And how do claims of excellence fit with the daily stories of polluted air and contaminated water? Of course, China is now also the leading greenhouse gas polluter.
Where is progress most obvious?
Doerr and Immelt are talking mostly about commercial advances, as Chinese companies look to capture international market share in renewable energy technologies, like wind turbines and solar panels.
They have a valid point, as the sector in China has benefitted from a series of policy measures, most notably the requirement that power-providers switch 15% of generation to renewable sources by 2020. This then leads domestic firms to look at exports – and into overseas competition.
Wind power has been the most obvious beneficiary, with the country’s installed capacity doubling for the fourth year in a row last year. The Global Wind Energy Council says China is now the fourth largest wind market in the world, with a little over 12 gigawatts (GW) of capacity. Beijing plans to generate at least 100GW of wind power by 2020 – about five times the current US base – showing an ambition that has people praising its newly found green resolve.
Solar power installation has proceeded at a much slower pace and has a target of 10GW of installed capacity for 2020. But production of the equipment necessary to support solar power generation has raced ahead. Chinese firms export over 95% of their solar panel output.
This is encouraged by state-owned banks eager to lend money, and provincial bureaucrats keen to spend it in their own backyards. The State Council also sees opportunities to carve out a leadership role in the sector.
Foreign competitors complain about this implicit support – which includes cheap land, soft loans and R&D grants for commercial manufacturers. Other advantages are the traditional Chinese ones – engineers are paid only $7,000 a year, estimates the New York Times.
But is this a boom that could turn to bust?
That’s the main concern in a major feature in the Oriental Weekly, which takes a very different position to The Washington Post piece, in warning of a rapidly inflating bubble, especially in production of solar power equipment.
The problem is two-fold. Uptake of renewable energy internationally has been dependent on government incentives and will remain so until it can get closer to ‘grid parity’ pricing with coal-fired power.
But cash-strapped governments in Europe are now reining in on user subsidies, so demand for further capacity is being hit. Most analysts expect a reduction in solar panel sales of at least 20% this year.
At the same time China is ramping up supply, as local governments scramble to encourage investment in homegrown projects. At least 18 provinces now champion a “new energy” direction as a core element of their growth plans, says the Oriental Weekly.
Many of these manufacturing forecasts now seem hugely ambitious. Take Jiangsu province, which intends to boost photovoltaic panel and wind turbine sales by local firms from less than Rmb90 billion ($13.4 billion) this year to more than Rmb450 billion by the end of 2011.
Li Junfeng, the deputy director general for energy research at the National Development and Reform Commission (NDRC), warns that this is a gold rush in which few are going to strike it rich. Instead, the State Council is trying to curtail licences and block loans for new projects (see WiC29).
Still, experts think that China could already have 30 times the number of firms that it needs to meet sustainable demand. One outcome is that almost one in two solar panels produced this year will not be installed, but go straight into inventory, says Henning Wicht, an analyst at research firm iSuppli.
So what’s next for the sector?
Most agree that we are heading into huge oversupply, as well as industry consolidation. Some argue that this could be good thing in the longer term, if it leads to renewable power becoming a more cost effective proposition.
Not that the horde of struggling new entrants in China will agree.
Additionally, grid parity still looks a long way off in most markets and government subsidies will be crucial for the foreseeable future. This is at a time in which leading industry proponents – like the Spanish government – are having a serious policy rethink.
So back in China, more and more production capacity is chasing a shrinking market. Struggling firms will need credit to keep going through lean times, which will see larger state firms extend their stranglehold on the sector. The Oriental Weekly says that state-owned enterprises already control 90% of the domestic wind power market, for instance.
Another potential outcome is trade tension. Even the People’s Daily has picked up on bitterness among international manufacturers – who perceive unfair competition from the Chinese.
Shi Zhengrong, the chief executive of Suntech Power Holdings, was also involved in an unhelpful to-and-fro with the New York Times at the end of August, when he appeared to suggest that Suntech was selling below marginal cost in pursuit of US market share.
This immediately stirred accusations of dumping, which Shi was quick to refute. “I misunderstood your question,” he told the reporter, in a follow up interview.
Where does this leave China’s “leadership” position?
It draws attention to what Christina Larson, writing in Yale Environment 360, calls the great paradox of China’s green energy stance. On the one hand, when environmental plans coincide with economic growth goals Beijing will adopt aggressive policy positions. But on the other, when initiatives clash with growth objectives, green credentials are often the first thing to get dumped.
So any claim to genuine leadership in the green-tech sector can only be a nuanced one.
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