Beijing is famous for its landmarks—the Forbidden City, Tiananmen Square, the Great Hall of the People—and notorious for its air quality. On Jan. 26, the U.S. Embassy in the Chinese capital reported the average daily air quality index was in the red zone. That’s face-mask conditions for the average motorist and bicyclist. The sad truth is that Beijing is in the red zone far too often.
The city’s pollution problem is largely self-inflicted, a result of China’s reliance on coal to power the country’s booming economy. About 70 percent of China’s power—85 quadrillion BTUs a year—comes from coal. By 2035, the country’s consumption of coal is expected to rise in absolute terms to about 112 quadrillion BTUs. The consolation for Beijing’s residents is that China is starting to invest in cleaner, more efficient coal-fired plants.
The emissions from coal are nasty and include nitrogen dioxide, sulfur dioxide and carbon dioxide. SO2 and CO2 are greenhouse gases. Since 2008, China has held the unenviable distinction of being the world’s top CO2-emitting nation, according to the Paris-based International Energy Agency. At 6.5 billion metric tons of CO2 a year, China’s output beats that of the former leader, the United States, by about 1 billion metric tons and amounts to about 22 percent of the world’s total annual CO2 emissions. (The U.S. still holds the top rank when it comes to CO2 per capita.)
China is well aware of its ranking and its predicament. With GDP growth of 8 to 10 percent a year expected for the foreseeable future, it’s doubtful that China’s 1.3 billion people can hope to enjoy their newfound wealth in relative environmental comfort unless the country starts cleaning up its act. Thanks in part to its one-party system, it is doing just that.
Clean energy powerhouse
There’s a consensus among analysts that China is on its way to becoming a dominant player in the global clean energy business. In the past few years, the country has outspent other nations on renewable energy technology and infrastructure, including wind, solar, electric vehicles and the batteries that power them. Hydroelectric and nuclear power also figure prominently in the country’s energy plans.
Based on government and industry publications and actions—including China’s 12th Five Year Plan, which sets the national governmental agenda for 2011-2015—the country’s renewable energy sector is poised for strong growth, both domestically and overseas, over the next few years.
Ernst & Young calls China the “clear leader” in the renewable space, ranking the country first in its latest “Renewable Energy Country Attractiveness Index” report, published in November. The previous leader, holding the title for three and a half years, was the United States; it now is five points behind China.
Similarly, a recent Pew Charitable Trusts report calls China the “world’s clean energy powerhouse.” The country spent $34.6 billion in the renewable energy sector in 2009, according to Pew; that’s nearly twice the U.S. figure of $18.6 billion. Granted, the United States was in the midst of the Great Recession that year. But even as its economy recovers, many pundits say, it’s unlikely the country will regain the lead, given the rhetoric coming out of Washington following the midterm elections.
Built-asset consultancy EC Harris (London) estimates that China invested $120 billion to $160 billion in renewable energy between 2007 and 2010. The consultancy ranks China’s clean energy investment climate fourth, behind Germany, France and the United States. The investment factors considered include energy policy, incentives, subsidies, purchasing quotas and tax breaks.
“The Chinese government has set an ambitious target of becoming the world leader in terms of design, development and production of renewable energy technologies, and has invested huge sums of money into developing this sector,” said Mark Stewart, an EC Harris partner. “The aim is to diversify away from producing cheap goods and into developing and producing high-tech, high-value, homegrown technologies, starting with those in the renewable energy sector.”
Today, China generates less than 8 percent of its total energy from wind, solar, nuclear and hydroelectric power, but the nation’s goal is to double nonfossil-fuel-based energy production to 15 percent by 2020, according to the U.S. Energy Information Administration. Coal’s share of the pie is expected to decline to 62 percent by 2035.
Hydroelectric power generation in China will increase significantly as the Three Gorges Dam comes online. When completed this year, the dam will be the largest hydroelectric power plant in the world, with capacity of 22.5 GW. Dams, of course, have their own environmental implications, and the Three Gorges project has stirred controversy at home and abroad. But renewable energy sources, notably wind and solar, are also expected to see dramatic growth in China over the next 10 years.
China is serious about wind power. At the end of 2010, its installed wind capacity was estimated at 40 GW, making it the largest wind market in the world; by 2020, its total wind capacity is expected to reach 300 GW. The country is home to approximately 80 tier-one wind-turbogenerator manufacturers, which collectively provide 70 percent of the domestic market’s needs, according to China Outlook Consulting. Three of those companies—Xinjiang Goldwind Science & Technology Co., Dongfang Electric Corp. and Sinovel Wind Group Co.—are ranked among the world’s top 10 wind turbine makers.
Sinovel chairman and president Han Junliang has said the company’s objective in the next five years is to “become the largest wind turbine manufacturer in the world.” Like many Chinese companies, Beijing-based Sinovel relies on international partnerships to gain technological expertise. American Superconductor Corp. (AMSC; Devens, Mass.)., for example, has been providing Sinovel with components, engineering support services and power electronics for its 1.5-, 3- and 5- MW wind turbines since 2005.
Last month, Sinovel and AMSC announced a joint development agreement for a range of wind turbines up to 6 MW that Sinovel plans to market and sell worldwide. The Chinese company expects to begin volume production by the end of 2012 and as part of the agreement will purchase core electrical components from AMSC.
AMSC has development and licensing agreements with five other Chinese wind turbine companies in addition to Sinovel, including Dongfang Electric and XJ Group. “China is central to our global strategy,” said an AMSC spokesman.
Looking ahead, AMSC’s next generation of technology for the wind power market incorporates a high-temperature superconductor wire, called Amperium, as a copper wire replacement in turbine generators. The new material will let manufacturers reduce the size and weight of their turbines, according to the company. Dubbed SeaTitan, AMSC’s new turbine design will increase power capacity to 10 MW, up from 6 MW. As the new design’s name implies, AMSC is targeting offshore installations, where the size and weight of the turbine are critical factors in the cost.
China’s first offshore wind farm installation, the Donghai Bridge Wind Farm, is located about six miles off the coast of Shanghai in the East China Sea and has 34 3-MW turbines, for a combined capacity of 102 MW. Built by Sinovel and co-developed with AMSC, the wind farm has been operational for a year and supplies Shanghai with about 1 percent of its energy needs.
Sinovel offshore wind farm (Source: Sinovel Wind Group Co.)
It has been reported that China plans to install up to 30 GW of offshore wind power by 2020. AMSC is exploring development contracts for SeaTitan and expects to sign development contracts as early as 2013 and to begin volume production by mid-decade, its spokesman said.
For China’s solar industry, the biggest challenge to growth is steady and substantial access to capital, subsidies and other incentives. Chinese solar companies have benefited from government support, but further investment is needed to ensure the domestic solar market takes off.
State-run China Development Bank Corp. last year agreed to lend $17 billion in total to Yingli Green Energy Holdings Co., Suntech Power Holdings Co. and Trina Solar Ltd.. The three are among the largest solar companies in the country, and all are on the top 10 global list.
In December, it was reported that four Chinese government agencies had given the domestic solar photovoltaics industry a shot in the arm by announcing further support to spur development and scale production in a bid to bring unit costs down. The strategy includes funding for 13 development projects around the country that were announced in 2009 and 2010.
Some of those projects offer opportunities for foreign companies. Top-ranked solar PV manufacturer First Solar (Phoenix), for example, signed a memorandum of understanding (MOU) in September 2009 with Ordos City to develop a multiphase project that will eventually deliver 2 GW of power generation to the Inner Mongolia city. Phase 1 of the project, formalized last month, will be a 30-MW demonstration project. Phases 2, 3 and 4 will be production of 100, 870 and 1,000 MW, respectively. First Solar has said it will be the panel supplier for all phases of the project.
Although there has been some progress on the first phase—notably the announcement last month of a panel manufacturing agreement between First Solar and China Guangdong Nuclear Solar Energy Development Co.—construction has been delayed pending announcement of a feed-in tariff that would provide an economic underpinning for the project. A feed-in tariff is a premium paid by utilities and often passed along to consumers to cover the true cost of generating the renewable energy. The tariff subsidizes production of the energy until its cost reaches grid parity.
“An appropriately set national feed-in-tariff structure would allow market participants to secure a reasonable rate of return to make further investment in technology and cost reductions,” said a First Solar spokesman. “In our view, this is critical to the development of a sustainable and long-term solar market in China.
“We are hopeful that a feed-in tariff will be set in time to allow the expected start of Ordos Phase 1 construction this year.
Ordos City vice mayor Cao Zhichen (left) and First Solar CEO Mike Ahearn sign the 2009 MOU that launched the Ordos City Solar Demonstration Project.
Here come the EVs
China may not have been a player in the mid- to high-end fossil-fuel vehicle era, but it doesn’t intend to miss out on the emerging market for new-energy vehicles.
The country has set a coordinated national plan to encourage development. It has committed to investment in component and battery technology, and its domestic automotive industry is rolling out all-electric and hybrid vehicles both domestically and internationally.
The future looks promising on paper. China’s Ministry of Industry and Information Technology (MIIT) has drafted a development plan for the next decade that sets a tentative target to increase the domestic ownership of new-energy vehicles—including plug-in hybrids, all-electric vehicles and hydrogen-fuel-cell vehicles—to 5 million by 2020, according to China Outlook Consulting. MIIT is targeting total output of 15 million units by that date.
The plan includes support for the development of three to five major new-energy vehicle manufacturers and two to three internationally competitive automotive component suppliers, including engine and battery makers. The central government plans to invest more than $15 billion to grow the automotive sector and incentivize consumers to purchase EVs and hybrids. Consumer subsidies have been reported to be upward of $8,000 on all-electric vehicles in five Chinese cities, including Shanghai and Shenzhen.
Extensive EV charging infrastructure is being installed in a number of regions, according to Pike Research (Bolder, Colo.). “EVs represent one of the top priorities for China’s future innovation and growth strategy,” said Pike senior analyst Andy Bae.
China’s top automakers—including FAW Corp., China’s largest vehicle maker; JAC Motors; and Dongfeng Motor Corp.—are investing heavily in new-energy vehicle development. And last month, BYD Auto Co. unveiled its EV line in Detroit at the North American International Auto.
Battery technology will be key to the success of China’s EV industry. The country is becoming an important supplier of lithium-ion batteries, and many companies there are forming partnerships with European, North American and other Asian automakers that have intellectual property and more experience in making EV components and vehicles.
“This is a new era of cooperation, as foreign companies see these partnerships as critical to selling into the Chinese market,” said Pike senior analyst John Gardner.
BYD motors into new markets
Warren Buffett is behind it. So is the Chinese government. But will U.S. consumers buy Chinese cars?
That’s the billion-dollar question for BYD Auto Co., which announced its 2011 lineup of all-electric vehicles in Detroit last month at the North American International Auto Show.
Buffett thinks the answer is yes. In 2008, the multibillionaire chairman of Berkshire Hathaway Inc. took a 10 percent ownership stake in BYD Auto's parent company, BYD Co. Ltd., though Berkshire Hathaway subsidiary MidAmerican Energy Holdings.
BYD Auto also unveiled two plug-in hybrid models at the auto show that it plans to sell in select U.S. markets this year and in Europe in 2012. One model, the e6 sedan, takes six hours to fully charge and will run for about 200 miles per charge in cruising mode.
BYD’s first plug-in hybrid debuted in 2008. Its parent company is the world's second-largest producer of rechargeable batteries and a supplier of components to cell phone makers Motorola, Nokia and Samsung.
Not everyone is as bullish as Buffett on BYD’s prospects in Western auto markets.
The Shenzhen company “is stressing the affordability of its plug-in vehicles and will likely be [the competitor with] the lowest-cost vehicle in both the plug-in hybrid and all-electric vehicle segments,” said John Gardner, a senior analyst at Pike Research.
But “because it is unproven in the U.S. and Europe,” Gardner said, BYD “faces challenges convincing consumers that its vehicles will be as reliable as more expensive cars.”
Then again, Honda and Toyota faced the same challenge back in the 1970s.
Warren Buffett and friends celebrate BYD Auto's production of its 1 millionth car.
About the author:
Bruce Rayner is founder and chief green officer at Athletes for a Fit Planet, and a contributing editor and Webcast host at EE Times Group.