The China Energy Sector Blog will be taking summer holiday from August 23rd and return September 2nd.

Cheers!

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by Bill Dodson

Far East Wind Power and the Beijing Tongchuang Hengyuan Technology Development Company have recently signed a Letter of Intent to undertake a joint venture to finance a wind farm in Ningxia Hui Autonomous Region. The windfarm would produce 50MW of electricity, with the provincial government announcing in 2006 nine wind power projects with a combined capacity of around 2GW. Ningxia is in north-central China, squeezed up against the southern border of Inner Mongolia. Far East would take 49% percent of the shares to Beijing Tongchuang’s 51% . Far East is a publicly traded American investment company (FEWP) overseen by overseas Chinese and American finance veterans with an office in Beijing. As of this writing Far East was trading at about $.44, with a plainly downward trend in share value since February 2010 (then at a high of about US$1.50). An online search in English and Chinese language turns up virtually nothing about the potential Chinese partner, Beijing Tongchuang, which leads me to believe it is local government finance vehicle (LGFV), a company constructed by provincial- and/or district-/city-/county-level (take your pick) governments for the purpose of obtaining loans from banks. James Kynge writes extensively about LGFVs in the Financial Times article “Financial frailties might slow China’s growth”. Kynge conservatively estimates LGFVs throughout China have accumulated more than US$1 trillion in debt since the beginning of 2008, when the central government opened the vaults of the State-owned Banks to loan money primarily to State-Owned Enterprises (SOEs), local governments (primarily through LGFVs) and to property developers. Upwards of a third of the loans, according to Kynge, may be unrecoverable. Typically, local governments create several LGFVs to extract loans from different banks, collateralizing the same land in their jurisdictions multiple times. The greatest problem with these loans – in addition to over-leveraging – is the lack of transparency in appraisals, loan transactions and ownership holdings – which, in China, is typically convoluted specifically to thwart close scrutiny.

The theory of a finance company – especially foreign – partnering with a local government to help build a renewable and clean energy business is laudable – especially in a region as poor as Ningxia. However, the typical lack of definition and transparency with which Chinese governments do business is a strong concern, especially in light of the debt load most local governments are carrying now. Further, of course, are the issues of actually monetizing wind power in China, where some local districts would prefer the turbines turned off to pander to local coal-producers that prefer demand for their product remain high, and power plants that may find additional capacity devalues commitments they’ve already made to coal-generated power.

Whatever the true nature of the deal between Far East and Beijing Tongchuang, realizing shareholder value even in the long-run will be difficult indeed.

Further reading: BusinessWeek, Wind Power Monthly

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by B.S.D. Mistry

There are over 250 domestic Chinese firms currently engaged or shortly entering the PV market. The last two years has seen a huge number of players enter the industry backed by local governments keen to establish Green Technology parks. Many of these firms such as Hebei Zhongming Energy & Technology had not existed before 2008 and are now pushing ahead with the third phase of their factory expansion plan bringing there total build capacity to 200MW of low (12-14%) efficiency solar cells.

The net result has been some of the more established players have expanded their product ranges by including Thin Film in an effort to present a more forwarding thinking approach. However the recent EU exemption of the use of Cadmium for the Solar sector and almost daily breakthroughs in Thin Film technology using ever more complex substrates and materials cry out that the technology is not stable and requires at least another 3 years to settle down to product.

In the long run the Chinese firms who have adopted Thin Film early may be left with an Thin Film production line that in reality was just an expensive marketing campaign.

Further Reading: CIGS manufacturing technology, Amorphous Silicon Solar Cells’ Hydrogen Efficiency, NewsBlaze.com, Recharge News.com

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Image Credit: carbonfreegroup.com

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by Bill Dodson

China would have the world believe its own statistics about energy consumption over and above the International Energy Agency’s own estimates that China has surpassed the United States as the largest energy consumer in the world. Chinese estimates, according to the Financial Times, are less than the IEA’s 2265m tons of oil equivalent energy use in 2009 against China’s own estimate of 2175m tons oil equivalent of energy. For a country with notoriously dodgy figures about everything from GDP through industrial output through unemployment figures and even the number of abortions each year, China’s statistics czars certainly have a lot of chutzpah.

Of course, with China’s Face at stake in its highly publicized goal of reducing energy consumption by 20% per unit of GDP over the five year period starting 2005, and with the deadline a mere five months off, the country’s leadership is loathe to present the society has failed in the attempt. Reuters reported the Chinese government recently revised its energy usage figures since 2005, showing an even steeper drop in energy consumption than previous re-calculations. Now, the Government claims energy intensity fell almost 16 percent in the past four years.

Frankly, as dramatic a drop in energy consumption in this economy is a near impossibility. The only time during the five-year period a substantial drop was measured was from the Spring of 2008 through the Spring of 2009, when the global economic downturn ate deeply into industrial production. During that time, as well, the Central Government’s efforts to cool an over-heated property development market had taken effect. The steel-production industry, as well, took a hit as over-capacity came home to roost and international demand for Chinese product took a hiatus. With the whiplash created by virtual stoppages of the export sector, concrete and steel production, it’s little wonder that Chinese energy consumption took the dip it did during the period. However, since Spring of 2009 all bets have gone off and the nearly US$2 trillion in bank funding dumped into the economy has seen energy consumption on the ground here in China at levels perhaps never before seen in the rest of the world: purchase and use of automobiles is way up over 2008, with annual growth in the double digits; and property development – commercial and residential – are like no time before in China, with most cities in China sprouting construction sites that work 24/7 to beat the next shift in government policy that could end the boom times on any day; and transportation infrastructure development projects sprouting out of the hundreds of murky corporations set up by local governments specifically to scoop up banking largess.

In other words, there is something seriously wrong with the measures, because it’s plain to see here in China everyday and most nights that China is far more energy-intensive and energy-dependent than at anytime in its modernization history. Perhaps it’s in the measure itself, or perhaps its in the way GDP is metered (where’s the real wealth generated from millions of empty concrete husks called apartments?); but one thing’s for sure: China is working hard to comb over the fact that it is as addicted as the USA to energy and is only becoming more so.

Further reading: FT, Reuters

For an insightful analysis of the way China is calculating its energy usage: Green Leap Forward

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UN Stops CDM Credits to China Wind Industry

Airing My Laundry in China

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by B.S.D. Mistry

Through our trading company Eastwind Engineering, I have recently been sourcing Photovoltaic (PV) cells for a client. As part of the sourcing process, I have visited a number of factories and audited their quality process. During a visit to one supplier close to Shanghai the audit had gone surprisingly well. The supplier was well organised, documentation was well presented and the factory in good working order. The factory owner had spent serious money on an X-ray machine for use on the line to find defects in the panels. On the surface it all looked good but on closer inspection I found that the machine was in a diagnostic mode and the modules were passing through without testing. The quality manager hosting the audit quickly ushered me away. When we returned 2 minutes later the X-ray machine was magically working. Despite watching a number of units pass through the machine, none were rejected; in fact, no one was even paying attention to the images being produced.

I was once again reminded that despite the best intentions and quality processes that can be put in place, the actions of uneducated production line workers can still throw rather large spanners in the works.

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Automation Nation

Green-washing Solar Panel Manufacture

China PV Manufacturers: New Kids on the Block

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by Bill Dodson

The recent convictions in Chinese court of two overseas Chinese who carried passports from Western countries have thrown a wet blanket over the heat foreign direct investment into China has created the past seven years. Stern Hu, an Australian citizen, was convicted in February this year of bribery of and by Chinese steel mills involved in negotiations with Mr Hu’s employer, Rio Tinto, over discounts on the annual benchmark pricing of iron ore mined from Australia. And during the first week of July Chinese courts convicted Xue Feng, an American geologist, to an eight-year prison term on charges of illegally obtaining state secrets related to the oil industry. China is sending two clear messages in the convictions: overseas Chinese who return to the motherland with foreign passports and foreign employers are no safer from arbitrary arrest and detention than the country’s own citizens; and China will stop at nothing to protect the interests – no matter how picayune – of what it designates as “pillar” or strategic industries. Other industries that have the distinction of being central to the development and security of the Chinese economy and nation include aerospace, automobile, and, yes, renewable and clean energy technologies.

The central government, however, is clearly unaware of the undertone of the message it is beaming out to well-educated Chinese overseas professionals: don’t step out of line. Unfortunately, the government does not want to show where the lines are in these gray areas in which business and geopolitics merge. For the past five years central and local governments have been offering educated overseas professionals perquisites to lure them back to the Mainland to contribute their expertise in areas the Mainland would sorely like to develop. Some of the perks included subsidized housing, tax breaks, residence permits, education opportunities for children and more. The governments in China clearly know they require such outside experience to kick-start 21-st century industries like pharmaceuticals, aeronautics and alternative energy generation. The governments, though, do not understand how their wayward charges tick, nor how the value systems of Overseas Chinese might have changed from those of stay-at-homes.

Though Mr Hu did confess to taking bribes, his ten year conviction was certainly vindictive. Mr Xue Feng’s conviction was the same sort of poke in the eye at overseas Chinese who return to their homeland as conquering heroes, but who are treated with envy and scorn by the very government that encouraged them to come in the first place. In the end, though, it is China who will lose through its archaic and ham-fisted approach to nurturing the brains that will continue to drain from the country.

Further reading: The Economist

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Image Credit: lifewiththeclub.blogspot.com

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by B.S.D Mistry

There has been a news story doing the rounds for about a year now concerning the sources and usage of Neodymium in green technology products. Neodymium is a rare earth element, which when combined in an alloy with iron and boron forms the strongest known type of permanent magnet. The fact that the magnet flux in this material is so strong means that for a relatively light weight, you get a powerful magnet.

As a result, this relatively unknown material has become ubiquitous in hard drives, computers and now green technology hybrid vehicles. The vehicles use these magnets in their DC servomotors. Wind turbines use the magnets in their generators.

Rare earth elements and minerals were mined in the US and Australia until the early 90′s when China started exporting the minerals in abundance and flooded the market. Nearly all mines outside of China have ceased operation and China now controls over 90% of the world’s supply, of which the exported quantity has now fallen by about 40% since 2002. Whilst global demand is booming, last year china exported 31,000 tonnes, only a quarter of global demand.

China now has the technical know-how to produce Neodymium Iron Boron magnets. With exports falling and China green technology manufacturing experiencing a domestic boom, the writing is on the wall: if you use rare earth magnets in your products, then it’s advantage to China-based manufacturers. At least, until foreign mines re-open.

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Further Reading:  China Out to Dominate in Electric Cars, From Dependence on Oil to Chinese Neodymium, Concern as China C;amps Down on Rare Earth Exports, Japan Asks China to Relax on Rare Earth Exports, EENews.net

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by Bill Dodson

China government policy emphasizes large-scale projects such as land-based wind farms and offshore wind platforms. To date power micro-generation and small scale wind projects have received little domestic interest and investment, despite having provisions for implementation in rural areas in China’s Renewable Energy Law (2006) – and despite the huge commercial opportunities.

My colleagues B.S.D. Mistry and Basile Waite will be presenting a paper on power micro-generation in China at the China Wind Power Trade Show and Conference in Beijing, October 13-15. Entitled, “Small is Beautiful: Market Opportunities for Power Micro-generation in China,” they’ll be talking about:

• Domestic Policy Environment and opportunities in Small Scale Wind

• The Promise of Micro-generation

• Potential Markets and Barriers

• Technology Implementation Issues

If you’re at the Show, be sure to stop by their presentation to say “Howdy!” (though B.S.D. is a Brit and may not understand your meaning! )

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by B.S.D. Mistry

China’s marine structures industry has a massive opportunity to mass produce offshore wind turbine foundations. At present all offshore Wind Turbine foundations being deployed are one-off constructions specifically designed for each location. However, as market demand is increasing at an accelerated pace, there will be more pressure to stop re-inventing the wheel for every project. China’s Marine engineers have a golden opportunity to gain an edge in this niche market. They are not only serving substantial domestic demand, but Europe and the US are increasingly looking East in search of cost savings. As Henrik Bang-Andreasen, Managing Director of Seaproof Solutions, said,” In Europe, which supplies part of the market here in China, we’ll look for steel structures; some will be very interesting to supply from China..”

China now has a very well-developed marine structure and ship building industry, if its engineers answer the call, foundations manufacturing could become a cornerstone industry for the offshore energy sector.

Image Credit: archiexpo.com

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by Bill Dodson

Recent tectonic movements in the Chinese labor markets has prompted a lot of foreign companies with export bases here to consider whether China is still the best location for their operations. Some American companies have moved back to U.S. shores and to the Mexican border, because costs of production State-side are actually becoming competitive with what they’re finding in China. Moves by Foxconn, the Shenzhen-based Taiwanese manufacturer, and Honda, the Japanese car manufacturer to mollify employee dissatisfaction by hiking salaries as much as 40% have been having repercussions throughout China and across industries, directly and indirectly. The upshot is that one of the only advantages China had in manufacturing stuff cheap for international consumption is evaporating, and with it, China’s preeminence as an export platform. Even the Chinese themselves in the renewable energies sector are feeling the pinch on margins for exported products, with the recent announcement of a Chinese joint-venture with an American company to build wind turbines in Nevada for shipment to North, Central and South American markets.

Most Western clean and renewable energies (CRE) companies invested in China are not here primarily for the export market, but for the potential the domestic market offers. Though as sensitive as any foreign company to salary pressures, CRE manufacturers are already paying handsomely relative to other industries for salaries that reflect the dearth of Chinese talent and experience in specialized technology industries. However, as salary levels continue to escalate Chinese exporters who are relying on the components Western technology companies offer will begin to feel the pain of foreign companies invested in China to supply them locally. High-efficiency PV makers and wind turbine manufacturers who are trying to break into export markets will feel more inclined to set up shop in the countries and regions in which they would like to sell: labor would be competitive while expertise may be more plentiful.

So, though car makers and consumer electronics exporters may be feeling their margins pinched now by quantum leaps in salary levels for staff, CRE operations in China have a bit of wiggle room for the next couple years because of favorable Chinese government subsidies for wind power, and the national and local policies of other countries in the PV market (especially in Europe). After that time, government largesse no matter the country will no longer be able to suspend gravity for Chinese CRE exporters brought down to earth by the increased salary levels of their professionals.

Further reading: Nevada lands first Chinese wind turbine in U.S., The End of Made in China

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