According to the Chinese news agency Xinhua, China’s new energy vehicle plan aims to have more than 500,000 electric, hybrid and fuel-cell vehicles on the road by 2015 and 5 million by 2020. The platform from which the central government intends to realize its ambitious goals are 25 EV pilot cities around China.

Though it is logical for foreign investors to rush into the cities, producers should first understand the local cultures of the cities into which they would like to sell, and realize that results across the project are patchy at best, and localize their market entry strategies.

Read the full Analysis Report ($) …

Topics in the 1500-word report include:

• The Grand Plan
• The Jinan Model of Underachievement
• The “Top Three” Not So Tops
• City Barriers to Success
• Loftier Goals
• EV Market Entry Roadmap

The Grand Plan

China’s First Institute of Electric Propulsion recently published a report on the progress the 25 cities are making to implement EV in their areas. The report cited that the cities on average reached only 38-percent of the goals they were promoting. Local government officials, however, have been far from cowed by the lack of success, announcing even grander goals for their cities to meet on even more accelerated timetables. Reasons vary for the low penetration rates, including local government inertia, a lack of infrastructure, a lack of available EV for sale and high prices for private purchase of EV. Some cities, however, have stood out as proactive participants in the program, which was established in 2009.

As the world was mired in the Great Recession of 2008-2009, the central government announced it would commit hundreds of billions of dollars to the Chinese economy to keep it buoyant, while Western economies seemed to be sinking. The Ministry of Science, the Ministry of Finance, the National Development and Reform Commission (NDRC), and the Ministry of Industry and Information Technology jointly launched the “Ten Cities Thousand Vehicles” program in January 2009. The intention behind the program was to identify ten high-profile cities that would each launch 1000 EV in the first year of the program. Each subsequent year would see ten more cities added to the program. At the end of three years each city would have 10-percent of its traffic represented by EV by 2012.

The cities involved in the first round of the project in 2009 included: Beijing, Shanghai, Chongqing, Changchun, Dalian, Hangzhou, Jinan, Wuhan, Shenzhen, Hefei, Changsha, Kunming, Nanchang. (Undeterred that the first roll-call involved 13-cities, the name of the program has remained unchanged). In the first half of 2010 the ministries identified a second batch of seven cities: Tianjin, Haikou, Zhengzhou, Xiamen, Suzhou, Tangshan and Guangzhou. In the latter half of 2010 the project grew to include Shenyang, Chengdu and Hohhot (in Inner Mongolia), Nantong (in Jiangsu Province) and Xiangfan (in Hubei Province). The four ministries singularly informed the 25-cities that continued inclusion (and subsidies) in the program was a matter of “up or out”; that is, meet the goals or be ejected from the high-profile initiative. Despite such exhortations, Jinan, capital of Shandong province and a first-mover in the program, has performed abysmally.

The Jinan Model of Underachievement

The direct translation from the Chinese status report on the 25-cities is that Jinan is “the most backward” in its efforts at instituting EV on its roads. The report cited the number of EV in operation and the support infrastructure in use and under construction in the city were woefully below target. By mid-2010 Jinan had added to its roadways none of the 1600 EVs to which it had committed. The single recharging station it had built was hopelessly flawed in its design, unable to accept any vehicle larger than a compact car – electric buses could not maneuver into the space. The faux pas has done little to motivate the local government.

A source close to Jinan city hall claimed the leadership was “waiting” to see the progress of other cities before committing more fully to the EV program. The source said, “They’re not willing to try to feel out their own path, but prefer to wait and emulate other cities. They would rather wait until they see a mature and practical way forward to make their move.”

Liu Gang, deputy director of Institute of Economics at Nankai University, believed the reason Jinan was way behind the EV implementation curve was that the city did not have a business culture that supported EV, the way Shenzhen does with Shenzhen BYD, the EV and battery manufacturer.

The “Top Three” Not So Tops

The First Institute of Electric Propulsion report identified Hangzhou, Shenzhen and Hefei as being the most successful in establishing demonstration bases for China EV. Each has inserted onto its roadways 1374, 2011 and 2018 electric vehicles, respectively.

Though Hangzhou has the fewest EV in the list of the top three pilot cities, it is the most innovative in getting round some of the hurdles to implementation that seem to be so daunting for Jinan. EV vehicles for private consumption are prohibitively expensive for average buyers. Hangzhou has skirted the price point issue so far by renting EV out to drivers. Hangzhou Municipal Economic Commission Director He Xiulin explained the model is similar to its bicycle-rental system it uses on the shores of its famous West Lake. Drivers rent an electric vehicle by placing a deposit, then receive the deposit less any extraordinary costs when they return the car.

Shenzhen and Hefei have the advantage of being automobile production bases with companies intent on dominating the EV marketplace. The companies have worked out purchasing arrangements with local governments to populate the roads with their brands. Though Shenzhen has one of the most visible local brands to work with, it is far behind in achieving its goal of 34,000 EV on local roadways by the end of 2012.

City Barriers to Success

Even the top three of the 25 pilot cities share some of the same main reasons for their inability to meet their goals: a lack of EV capacity available from Chinese makers, and the high cost of the vehicles for consumers. He Xiulin said, “We are now facing a situation in which there are no cars [EV] available to buy. We have the demand; however, the national brands say they will sell no EV to us.” The price point for EV, as well, is a problem.

He Xiulin added, “The high price [of EV] also hinders our development. Pure electric passenger vehicles cost three times more than the average car, while electric sanitation vehicles are five times higher.” Nevertheless, local governments are so bullish on one day meeting centrally planned quotas for EV on their streets that they have publicly raised their goals and accelerated timetables for success.

Loftier Goals

Hangzhou plans by 2015 to have 23,000 new energy vehicles on the road. Shenzhen, not to be outdone, recently announced it would achieve 5-percent of the passenger vehicles on its streets would be EV. Hefei, far from in the mood to lose its mantle, has committed to flooding its city roads with 100,000 electric vehicles by 2015.

An unnamed government source told reporters, “The leaders have only attained two or three thousand electric vehicles on their roads, having not come close to their goals. It’s difficult to understand how they will be able to meet even loftier goals when the national standard is not clear, battery lead the prices are high, few cars are being purchased, and a lack of civic awareness and other issues are a hindrance.” Nevertheless, opportunities do present themselves to foreign car makers intent on making inroads into the EV markets of the 25 pilot cities and others.

EV Market Entry Roadmap

“Hard” and “soft” challenges present obstacles to foreign car makers entering local markets for EV in China. “Hard” challenges are technology-related: a lack of national standards for components such as recharge connectors, charging sockets, electric currents and the like; a lack of recharging infrastructure; and a lack of domestic engineers and designers with EV experience. “Soft” challenges include an overall lack of awareness of the benefits of EV by local citizens, local protectionism, and local cultural proclivities.

Foreign car makers can do little to overcome the “hard” challenges but lobby ministries to sway them to adopt international standards. Once the central government has rolled out national standards, however, local car makers would do well to produce quality products at the lowest cost points viable to establish their new businesses. They already have the advantage of being foreign brands, which has attained a level of cachet in the eyes of Chinese consumers that domestic car makers aspire to. The “soft” issues require car companies to understand local markets and the dynamics of local leadership intimately. Local culture will play heavily in the degree to which EV in general – and foreign brands specifically – will be able to penetrate a municipality, as in the case of Jinan, which has throughout the decades had a reputation of being a technology and business laggard.

Foreign car makers may find themselves subsidizing small “demonstration” projects of their own in county-level districts peripheral to urban centers, gradually building the web of relationships and trust they will need to break into the volume sales only urbanites can provide. Cities that do not have local car industries should be primary targets – for instance, Hangzhou and Jinan.

Despite disappointing results at the outset of the “Ten Cities, Thousand Vehicles” program, opportunities will open up for foreign makers, though they may have to wait another three to four years. The development of China’s EV market will not see the exponential growth that its traditional vehicle sales have; at least, not for another decade.

The time to begin building those relationships, though, is now.

Further reading: Chinaev.org, Chinadecoder.com

Beijing recently opened China’s largest electric vehicle (EV) charging and battery swapping station. Gaoantun charging station, located in the eastern Beijing district of Chaoyang, has been installed with more than 10 types of EV charging or battery swapping machines, covering all charging modes that are available in China.

China plans to have more than 500,000 electric, hybrid and fuel-cell vehicles on the road by 2015 and 5 million by 2020.

- tzxctz.com

Final approval for new nuclear power projects would not restart until China releases the nuclear power security plan, a requirement imposed by the State Council. The Plan has received tentative approval by the Ministry of Environmental Protection and is waiting for further approval by the State Council.

Wei Zhaofeng, deputy director of the China Electricity Council (CEC), announced China’s total electricity consumption amounted to 4.69 trillion kWh in 2011, posting a year-on-year rise of 11.7 percent

The CEC predicted that China’s total electricity consumption would stand at 5.13 trillion kWh in 2012, with year-on-year growth declining some 2 percentage points from 2011.

The country’s newly installed power generating capacity in 2012 is to decrease about 10 million kWh from 2011, the lowest since 2006.

Wei meanwhile said that China Southern Power Grid, one of China’s two major power grid operators, would face constant tight electricity supply in 2012 with the largest supply and demand gap likely to exceed 13 million kWh.

- Xinhua

Director General Su Wei said,“The most important task in the Five Year Plan period is to transform the way we develop our economy in China, and to try to build a climate-friendly as well as a resource-conservation society.”He continued, “One of the guiding policies in the Five Year Plan is green and low carbon development; in order to materialize that low carbon concept, we have set very concrete targets for both energy intensity and carbon intensity.”

In Q&A sessions throughout the day, Mr. Wei joined other members of the delegation and experts from WRI to address questions about China’s recent consideration of a nationwide cap on energy consumption and a resource tax. “In China we are not just talking about climate change, we are actually acting on climate change. We are serious about what we are talking about… We mean what we say,” Su Wei said.

- WRI

First published in 1995 (and revised in 1997, 2002, 2004, and 2007), the Foreign Investment Catalog has been the principal policy guidance regarding investment by foreign companies in China. The Catalog details the industrial sectors in which foreign investment is encouraged, restricted, or prohibited. Industrial sectors not listed in the Catalogue are generally considered to be “permitted,”; i.e., fully open to foreign investment but not benefiting from specific advantages such as tax incentives.

The revised Catalog clearly shows the Chinese government’s increasing desire to encourage foreign investment in high technology, high-end manufacturing, clean energy and energy saving, environmental protection, and modern services, among other sectors. Relevant encouraged sectors include:

• Manufacturing of key components and parts for new-energy automobiles (investment in certain subsectors are subject to a cap of 50% of foreign equity)
• Design and manufacturing of batteries used in automobiles
• Manufacturing of touch systems (such as touch screens)
• Manufacturing of functional and environmentally friendly clothes
• Manufacturing of oil pollution cleaning equipment
• Manufacturing of water pollution prevention and cure equipment
• Manufacturing of solid wastes disposal equipment
• Construction waste regeneration and utilization equipment
• Establishment and operation of charging stations for electric vehicles
• Manufacturing of new vaccines such as cervical carcinoma vaccine, malaria vaccine, and hand-foot-mouth disease vaccine
• Venture capital enterprises
• Intellectual property services
• Household services
• Vocational skills training

Shenzhen has grown over the last thirty years from being a fishing village that contributed little to the country’s GDP to being one of the nation’s most important manufacturing bases. The city has also become a flagship for the rest of the country through its introduction of electric vehicle (EV) and solar power technologies onto its city streets.

The policy push to implement alternative energy measures presents tremendous opportunities for foreign investors and cleantech businesses to gain a foothold in the growing Chinese market for cleantech. The reasons for the region’s becoming a standard bearer for cleantech, however, are anything but wholesome.

Read more of the Energy Policy Analysis here …($)

The impetus for phasing in the new technologies came from the city’s – and Guangdong’s – becoming a victim of their economic success in the mid-2000’s. Guangdong has become famous as the center for production of shoes, toys, and electric appliances. The first factories in the region were originally Hong Kong and Taiwanese enterprises, which operated in an environment of lax environmental and labor regulations. The cavalier approach the Hong Kong and Taiwanese businesses adopted became known as the Hong Kong model, synonymous with exploitation – of people, of resources, of society at large. As the test model for foreign direct investment into China, the region did not know to put into place policy controls that would regulate the stresses on the infrastructure and environment. Traffic jams created hours-long delays on the roadways; rivers, ponds, and lakes became black with toxic waste; and the air became almost unbreathable in some areas. Mainland Chinese investors quickly learned the Hong Kong business model and appreciated the laissez faire environment that Guangdong offered, and followed suit with their own factories.

The Hong Kong model for Guangdong had effectively run its course by 2008. Shenzhen, even before it was anointed a model new-energy city in 2010, began implementing alternative energy technologies in its city streets to try to alleviate energy consumption and pollution pressures. Shenzhen became a leader in the adoption of electric vehicles before other locations in China even knew about the concept.

EV Envy

In 2005, Shenzhen City introduced 863 new energy vehicles as a test of the new technology. The city brought a hybrid transit bus line with seven buses. Inspection results showed that the hybrid buses were quite energy efficient, with an average saving rate of 26.5%, while exhaust emissions met Euro ? standards. [1]

Shenzhen benefited as the home base of two major vehicle manufacturers, BYD and Continental Long. BYD entered the EV market with its acquisition of Chinese-based Qinchuan in 2002. In 2008 BYD introduced the first dual-mode plug-in EV model, the F3DM, in which a driver could switch from driving on gasoline or on electricity. F6DM pure electric cars will soon launch in September this year. IN 2011, BYD had 200 e-buses on the road in Shenzhen, and 300 of its e6-model electric sedans in service in taxi fleets in Shenzhen.[2] Meanwhile, Continental Long came onto the EV scene in 2002 after two years of R&D as the nation’s first hybrid bus manufacturer. Since then, Continental Long has successfully exported products to the United States and other regions. Other battery and automotive components makers have since entered the market.

The BAK Battery company, Hang Sheng Electronics, and Shenzhen Yisenneng Technology Co. among others have entered the local supply chain to create an EV ecosystem unique in China.

The City with a Plan

Shenzhen city leaders announced in 2010 the urban center would focus on implementing EV in three sectors: the city’s public transportation (rental), public service and private automobiles. [3] The Shenzhen government aims to replace its entire bus and taxi fleets with electric vehicles within five years to 2015, according to Leona Zhang, a public relations representative for BYD. Shenzhen has five Metro lines with 131 stations, 758 bus routes, and 12,833 public vehicles, which carry 8.8 million passengers each day.[4] The city also has 13,000 taxis. [5] Shenzhen’s 2010-2015 fleet electrification plan called for 150 charging centers to be in place before the end of 2015 according to local media reports. [6]

In December 2011, Shenzhen Mayor Xu Qin told a municipal people’s conference that Shenzhen was planning to have 2,000 more new-energy public vehicles on the road in 2012. As one of 25 pilot cities in China directed to spearhead the drive toward EV, the plan involved introducing 1,500 new-energy buses and 500 electric taxies, bringing the total number of new-energy vehicles in the city to more than 5,000[7]. EV consumers in Shenzhen would receive subsidies as high as 120,000 yuan ($18,977) from both the central and local governments, according to the announcement.

BYD Company Limited public relations manager for Du Guozhong said in a 2011 interview about Shenzhen’s EV plans, “The lack of [battery recharging] facilities is still a major obstacle to sales.”[8] At the time of the interview there were only three EV recharging stations in Shenzhen with about 100 piles total. It’s the lack of technology standards, however, that are proving the greatest drag on the momentum of accelerated adoption of cleantech in the city.

A Failure to Communicate

A significant barrier to greater adoption of EV in Shenzhen is the lack of a local power standard that matches international standards. China itself has yet to agree on a national connector standard. So Shenzhen, and the other Chinese cities that are building a charging infrastructure, can each chose their own type of connector, which may quickly become obsolete once the central standards committee resolves the issue. So, local cities like Shenzhen are reluctant to build recharging stations too quickly, lest their investments come to naught. The same applies to the preparation of technical standards for charging electric vehicles: central – and therefore, local – decisions had yet to be published at the end of 2011.

Nevertheless, the local power bureau, BYD and Continental Long have been working together to draft technical standards for Shenzhen recharging stations. “Now we have completed the standard draft for approval, and have handed the draft to the City Development and Reform Commission,” a spokesman from the Shenzhen Power Supply Bureau said. “The cities that want to seize the high ground of electric vehicle infrastructure stand to be dominant in the future.” Standards for the solar power industry, however, have been established and internationalized for some time, making implementation of the alternative energy technology in Shenzhen more straightforward than EV efforts.

Sunshine in Shenzhen

In 2011 Shenzhen required that all of the city’s newly constructed buildings (less than 12 floors) should be installed with the solar power. As a New Energy Pilot City, the central government placed the requirement on Shenzhen to adopt renewable energy over an area of seven million square meters before 2015.[9] Shenzhen, however, has had a substantial head-start over other cities in implementing large-scale solar power projects.

In 2004, Shenzhen built the first commercial 1MW grid-connected solar photovoltaic power generation in Asia at the Shenzhen International Park Expo. In 2007, the city implanted the first 1.2 MW grid-connected solar photovoltaic power generation project in China, at the Shenzhen Universiade Sports Center. The solar roof project was the largest relevant project invested by domestic private enterprise at that time. In 2010, large-scale Building Integrated Photovoltaic (BIPV) projects took off in Shenzhen with the largest domestic BIPV project built in China at the Shenzhen North Railway Station; an underground car park with solar power generation covering 10 million square meters; and the largest scale thin film photovoltaic roof project in China, “EB-DuPont solar photovoltaic power generation project” with a total installed capacity of 1.3MW. Since 2005, Shenzhen had established a total of 44 solar energy demonstration projects, of which 15 has became national-/state-level solar energy demonstration projects.

Only the Beginning

Shenzhen Mayor Xu Qin announced to the municipal people’s conference at the end of 2011 that in 2012 Shenzhen would invest 1.6 billion RMB for energy saving in various fields, including the new-energy vehicle program, nearly 130-percent more than the budget for 2011. Though China has captured the solar panel manufacturing sector, opportunities abound in Shenzhen for foreign manufacturers of inverters, equipment to actually make solar cells of increasing efficiencies, and pollution remediation chemicals, machinery and techniques. Though Shenzhen is likely to award most sales of its public vehicles to the likes of BYD and Continental Long, foreign manufacturers have opportunities to gain market share at the consumer level, where the quality, sophistication and brand of foreign makers typically wins out over domestic car makers. Foreign EV components makers, as well, have advantages in the technologies and quality they can offer the local market that domestic car makers are eager to adopt.

Just as Shenzhen had shown the way in China to become a formidable manufacturing platform, so too Shenzhen may provide the country direction in implementing EV and solar technologies at a local level in a practical, sustainable manner.

During the next five years, China will initiate a 160-gigawatt project for hydropower project.

IBISWorld estimates total revenues for China’s hydropower industry to increase at an annualized rate of about 11-percent over the next five years to total $47.46 billion in 2016.

- San Francisco Chronicle

The project will involve 100 units of 3MW offshore turbines at a total investment of 5.76 billion yuan ($914 million). The central government should complete approvals for the program 2012. The project will be connected to the grid before the end of 2015.

The wind farm will generate 752 million kilowatt-hours (kwh) of electric power annually, as well as 730 million yuan in annual sales revenues. It was also pay 58 million yuan in taxes to the local government.

Leting County has 124.9 kilometers of coastline, or a quarter of Hebei’s total coastline with the potential to generate 3.7 gigawatts (GW) in offshore wind energy.

The Shanghai East Sea Bridge Offshore Wind Farm went into operation in June 2010 with an installed capacity of 102MW. It is China’s first offshore wind farm to operate commercially.

Construciton on Longyuan Power’s intertidal wind farm continues in Rudong County, east China’s Jiangsu Province. The farm will be China’s largest when completed in March 2012, with an installed capacity of 150-megawatts complete.

- Xinhua

Shenzhen is one of 25 pilot cities in China for the utilization of new-energy vehicles. New-energy vehicle buyers in five of these cities – Shanghai, Changchun, Shenzhen, Hangzhou and Hefei – will receive subsidies as high as 120,000 yuan ($18,977) from both the central and local governments.

Xu said this year Shenzhen will pump 1.6 billion yuan for energy saving in various fields, including the new-energy vehicle program. The funds input will be 128 percent more than the 2011 level.

China’s new energy vehicle plan aims to have more than 500,000 electric, hybrid and fuel-cell vehicles on the road by 2015 and 5 million by 2020.

- Xinhua

Soon after ending a two-and-a-half year stimulus program for electric appliance makers, officials announced plans to replace it with new subsidies to “boost consumption,” the official English-language China Daily reported on Jan. 4.

The breaks for power-consuming appliances would tap a market of 10 million affordable housing units started in construction last year. The government plans seven million more in 2012.

The government has spent 30 billion yuan (U.S. $4.75 billion) on subsidies since mid-2009 to offer 10-percent discounts on new gadgets, including refrigerators, washing machines, air conditioners and computers.

Counting tax rebate pilot programs since late 2007, the program spurred sales of over 200 million appliances by November, the Ministry of Commerce said.

The trade-in scheme is separate from subsidized discounts for rural dwellers that generated sales of another 103 million appliances valued at 264 billion yuan last year, the Ministry of Commerce said.

Most often, the promotions for perhaps a half-billion new power-consuming appliances have seemed at odds with government campaigns to cut energy waste, which led to blackouts of whole neighborhoods at the end of 2010.

“If you want to make more air conditioners, then you need more factories using more energy to make more air conditioners,” said Philip Andrews-Speed, a China energy expert at the German Marshall Fund of the United States. “All the way down the line, you’re using more energy.”

Since then, the drive for energy savings has suffered increasingly from economic slowdown fears.

“Energy efficiency seems to have dropped down in the order of priorities and boosting consumption seems to have moved up,” Andrews-Speed said.

The NDRC has tried to deal with the problem by ordering moderate rate hikes and caps on coal prices. But coal traders “are evading the rules” and withholding supplies, the paper said, predicting prices will jump when the controls expire.

The government appears to be pulling in different directions on economic, energy and environmental policies.

Liu Tienan, director of the National Energy Administration (NEA), said the government will establish an “integrated system” to control energy use of the under the current five-year plan, state media reported. The NEA has provided few details, but steps are said to include consumption limits for provinces.

- Read the full article at Radio Free America

The NEB announced the first group of wind power projects for the 2011-2015 period in August 2011,  with a total installed capacity of 28.83 million KW. The NEB said it will not approve any wind power projects that are not part of the two approved tranches.

Qin Haiyan, secretary-general of the China Wind Energy Association (CWEA), said China’s newly-added installed wind power capacity is likely to exceed 20 million KW in 2011.

Analysts estimate China generated 70 gigawatt-hours of wind power in 2011, up 40 percent compared to the 50.1 gigawatt-hours generated in 2010.Growth in 2010 was more than 80-percent year-on-year, Shi noted, indicating a slowdown in electricity generated through wind power.

Shi said the NEB is considering expanding its power grid network to provide greater support for wind power, as well as developing large-scale energy storage facilities. The NEB is also considering a compensation mechanism for power networks that use a great deal of wind power.

The NEB is also considering establishing benchmark feed-in prices for wind power-generated electricity.

The NEB’s renewable energy development plan says China will have approximately 100 million KW of installed wind power capacity by 2015 connected to its power grid, which would generate 190 billion kwh of electric power annually.

-Xinhua

A group of solar panel manufacturers based in the United States asked the federal government to investigate the subsidies Chinese solar equipment makers receive that support the low prices at which they sell product into the United States market. The high probability of United States authorities upholding the complaints after investigation will likely prompt the Chinese government in 2012 to more quickly develop its domestic market for solar and wind power, increase the quality of the products it introduces to its own consumers, and encourage Chinese policy makers to retaliate against American makers in the solar and wind industries that are invested in China. Retaliation will ultimately serve only to retard China’s development of the technologies and processes it needs to meet its burgeoning energy demands through alternative- and clean-energy sources.

Read more ($) …

A group of solar panel manufacturers based in the United States asked the federal government to investigate the subsidies Chinese solar equipment makers receive that support the low prices at which they sell product into the United States market. The high probability of United States authorities upholding the complaints after investigation will likely prompt the Chinese government in 2012 to more quickly develop its domestic market for solar and wind power, increase the quality of the products it introduces to its own consumers, and encourage Chinese policy makers to retaliate against American makers in the solar and wind industries that are invested in China. Retaliation will ultimately serve only to retard China’s development of the technologies and processes it needs to meet its burgeoning energy demands through alternative- and clean-energy sources.

Taking the Wind Out of an Industry’s Sails

In 2010 China surpassed its 2020 target of 30-gigawatts installed wind power capacity by as much as 15-gigawatts. However, by the end of 2011 nearly 30-percent of the wind turbines installed in China are not connected to grids to provide electricity. Central government planners, it seemed, had little control over local priorities as only 26 of the 187 wind farms established in 2010 were actually approved by central government.

In an effort to slow the development of errant wind power projects the National Energy Administration (NEA) in the spring of 2010 set stricter access thresholds for wind power projects, and higher national technology standards for wind power access to the grid.  Wind turbine projects with a capacity less than 50,000-kilowatts from then on had to apply to the NEA, instead of getting approval from local governments.

Nevertheless, the State Electricity Regulatory Commission (SERC) published a report in December 2010 stating that “a rising trend of wind turbine breakdowns has been witnessed since 2010”.  Wind farms had 193 accidents in the first 8 months of 2011. As a result, SERC launched a national inspection of 360 wind farms with access to the grid and 80 wind farms currently under construction.

The face-losing breakdowns present opportunities to foreign wind turbine and components makers as great as any since international producers first entered the China market in the early 2000s. China in 2011 came to the public realization it still has not got a handle on the technologies, standards and processes involved in turbine manufacture; nor have they the number of skilled staff able to design, test and erect the structures across the varied geographies in the numbers and on the timetables national plans have demanded. Centralization of the approvals process for large-scale wind farms, however – to increase the overall quality of wind farms – implies that the approvals process for projects will be slower than in the past. 2013, then, will see a greater number of awards to foreign wind power equipment makers than 2012.

Solar Flares

The central government’s laissez faire approach to the development of it solar power industry has led to severe overcapacity and a sharp drop in the cost of panels. Local government subsidies of land and tax breaks have allowed hundreds of players to enter the market, whether they had track records in the energy industry or not. With the European markets a pale shadow of what they had been until the Great Recession of 2008-2009, Chinese exporters turned their sites to the American market. American producers accused the Chinese of dumping solar power equipment onto the American market below-cost, and of using government subsidies to unfair advantage. Chinese makers such as Suntech Power have been working to present to the American market that lower prices are good for consumers in the United States.

The probability is high during the election year in America that congressional leaders will back tariffs on Chinese solar power equipment. The move would accelerate China’s own plan to develop a domestic market for its own solar power products. Its announcement in the summer of 2011 that it would implement feed-in tariffs to support solar power was certainly an indication it would indeed develop the market; however, Chinese solar equipment manufacturers have not greeted the uncertainty surrounding the announcement with enthusiasm. An operator told the China Securities Journal, “The policy didn’t mention the length of time of the feed-in tariff. We’re not clear if the subsidy of RMB 1.15 KW-Hour lasts for one year or 20 years; two completely different conditions.” China Securities states that a lot of operators are choosing to wait before they buy into the program. One of the top ten PV manufacturers said, “We have a lot of worries before investing. For instance, the government may reduce the on-grid price after we connect. We don’t know, though, when that will happen.” China’s policy winds, however, may turn against American solar equipment manufacturers, no matter the incentives the central government provides the industry.

Terrifying Tariffs

American investors with solar power equipment production in China may find local governments less forthcoming with perks and solutions to operational issues should Congress pass measures to penalize solar power equipment imports into the United States. And American companies entering the China solar power market that are hoping to capitalize on the industry’s “encouragement” status under the Foreign Investment Industrial Guidance Catalog may find local governments and banks have withdrawn warm support for their cleantech projects. In the least, as solar companies feel less beholden to foreign solar power equipment makers for technology than their wind power cousins, American companies in particular may find themselves locked out of the Chinese market as the government implements incentives to produce and consume solar power products.

American maker complaints lodged at the beginning of 2012 against Chinese producers of metal wind power towers may as well result in punitive measures against Chinese exports in the industry. In isolation, the measures would have little effect on American wind turbine producers manufacturing and selling into the Chinese domestic market. However, should Congress take action to penalize wind tower makers and solar power equipment producers in 2012, American companies across the energy sector should be prepared for countermeasures at the national and local levels of government in China. Retaliation may not just happen in the solar and wind power industries, but may be seen in indirect industries – such as rare earth production – or electric vehicles.

Out and Out

Whatever quality and overcapacity issues Chinese alternative energy markets may suffer – and whatever the remediation – projections still remain for provinces in China to suffer power outages throughout the year, especially during the summer. Urbanization and modernization are still far outstripping the country’s ability to keep up demand as citizens migrate from the countryside to the cities for a better life, or because their land has been converted to commercial or residential use. Climate change and unbridled use of potable water (in agricultural and urban settings) has created extreme drought conditions during the spring of 2010 and 2011 through vast swathes of the country. Rivers upon which hydroelectric dams rely have either dried up or slowed to a trickle, resulting in the shutdown of hydropower plants in the southwest of China and along the Yellow River, in North Central China.

Local governments will once again find it necessary as they did in 2011 to place moratoriums on manufacturing operations during the peak summer season – when air conditioner use is at its greatest – and enforce the closure of retail outlets to conserve electricity.

Unintended Consequences

Alternative energy equipment wars, then, will have little impact on China’s real need to fill its energy gap as tens of millions of citizens each year take a hold of the good life as they move to the cities or install washing machines and other electrical appliances in their homes in the countryside. However, should the United States erect barriers against the import of cheap alternative energy equipment from China, American companies either already based in China or working to set up operations in the country may encounter national policy retaliation or local government less than cooperative in extending help and favors to their projects – whether or not the operations are directly involved with the solar or wind power industries. Chinese countermeasures will only retard the country’s intake of technologies and skills it needs to improve the quality and efficiency of its energy production – alternative and traditional. American companies may also be denied growth opportunities in the fastest growing market in the world for cleantech. 2012 may prove the year when trade frustrations America and China have had with one another for years erupt through industries meant to benefit all consumers, no matter the borders within which they live.

Priority activities for administrators in the region is to: speed up development of wind energy and continue to promote solar power. The government intends to develop: bio-energy, geothermal energy, tidal energy and hydrogen energy. Policy will also accelerate the development of new-energy demonstration zones; actively promote the construction of new-energy deployment systems and a smart grid; encourage new-energy technology R&D and industrialization; and develop new-energy related services and public platforms.

The Plan cited that by 2015, three offshore wind farms (East Sea Bridge, Lin Port and Old Port) will be established or extended. Shanghai plans to achieve one-gigawatt of wind power capacity by 2015.

Solar energy development will prioritize establishing “Golden Sun” demonstration projects and roof solar energy demonstration applications in industrial zones, including: Waibaoqiao, Old Port, or Chenjia Town, newly built districts, and large public buildings. The plan projects a total capacity of 150 megawatts met by 2015.

Biomass energy development will be combined with waste treatment. The construction of biomass demonstration power plants in the Chongming, Songjiang, Fenxian and Old Port districts are on the drawing board. The plan includes the development of several incineration plants. The newly-added capacity will contribute 200-megawatts to Shanghai’s energy portfolio.

Shanghai’s energy plan offers the development of Chongming into a national green-energy demonstration town and adding a new-energy plant with an installed capacity of 300 to 400-megawatts.

The Shanghai Municipal Government will invest 18 billion RMB in the new-energy industry during the 12th five-year plan, of which 10 billion RMB will go toward wind energy (3 billion RMB for land-based and 7 billion RMB for offshore); while 2 billion RMB, 4 billion RMB and 2 billion RMB will be used for solar energy, biomass energy and others respectively.

- eco-urbanliving.com

A veteran official with the state-owned China National Petroleum Corp (CNPC)said the energy super-ministry would focus on policy rather than detailed regulation.

The central government has been trying to draw up a long-term strategy on the security of overseas oil-and-gas supplies, rationalize pricing and taxation policies, boost nuclear and renewable energy sources, and cut carbon emissions. Beijing has struggled to achieve many of its priorities, including establishing a strategic petroleum reserve and reining in its chaotic coal industry, because of a lack of coordination between powerful ministries and state-owned enterprises. The lack of a single policy maker has also impaired China’s efforts to bolster energy security.

Wang Aochao, head of research at UOB Kay Hian in Shanghai, added, “Take overseas mergers and acquisitions, for example — the NDRC, the National Energy Administration, the Ministry of Commerce, SASAC and the Foreign Exchange Administration are all involved, making the M&A process very slow.”

The creation of the super-ministry would also devolve power from the National Development and Reform Commission (NDRC). The change would call for giving the new ministry the power to set oil, gas, coal and electricity prices, which the NDRC currently manages.

China launched its Green Building Evaluation Standard in 2006, and the evaluation work was formally carried out in 2008. The Green Building Label, also known as the Three Star System, assesses the building based on several environmental indicators, such as energy and water efficiency, indoor air quality and maintenance requirements.

In 2008, only about 10 building projects registered for the evaluation work. The number increased sharply to more than 200 in 2010.

By the end of October 2010, a total of 268 building projects were labeled as green buildings. Among them, 86 projects were awarded three stars, the highest level. A total of 106 were given two stars.

Yang Rong, an official at the Ministry of Housing and Urban-Rural Development, stated about 300 to 500 building projects should meet the requirements of the Green Building Evaluation Standard each year over the next three years.

Current methods of evaluation, however, assess the use of green technology in the buildings. Li Dexiang, a professor at the School of Architecture in Tsinghua University, said using methods that assess the green technology used in construction to evaluate the standard of green buildings is not enough.

“In addition to that, the total energy consumption level of a building project should also be measured,” Li said, “Although some building projects technically meet the requirements set by the green building standards, they ignore the final effect on energy saving. They don’t bring any improvement in quality and environmental protection. These are not real green buildings.”

-China Daily

- Bloomberg

Xinhua News Agency reported on the revision, “The focus is to optimize the foreign investment structure, push forward technology innovation and industrial upgrading.” The most dramatic change in the Catalog was the loss of encouragement status for foreign auto makers in the China market.

Other, energy-related guidelines in the Catalog saw restrictions tightening on oil refinery projects. New foreign investments in the refining sector are only allowed for projects with crude distillation capacities above 10 million metric tons per year. Catalytic crackers and hydrocrackers of over 1.5 million metric tons per year, or reformers of above 1 million metric tons per year will also see such restrictions on foreign investment.

The Catalog also cited the exploration and development of unconventional energy sources such as shale gas and deep-sea gas hydrates as encouraged by the central government; however, foreign investors will likely have to form joint ventures or to cooperative agreements with Chinese companies to gain access to projects.

-2.6billion.com

The agreements specify mandatory emission reduction targets and pollution control targets local governments and enterprises are supposed to meet over the next four years to 2015. The agreement lists major emission reduction projects that signatories have to fulfill within the timeframe.

Some of the projects include: at least 1,184 new sewage treatment plants with a daily capacity of treating 45.7 million tonnes of sewage; equipping thermal power plants with a total generating capacity of 400-gigawatts with de-sulfurizing technology.

- China Daily

On-grid electricity prices will increase by 0.025 yuan ($0.0039) a kilowatt hour (kWh) and electricity for industrial users will cost 0.03 yuan more for each kWh.

The government will cap the spot price for benchmark coal at Qinhuangdao Port at 800 yuan a ton and limit increases in term-contract unit coal prices to less than 5 percent.

Another important change in the power pricing system that the NDRC also announced is the end of uniform pricing for residential users.Up to 80 percent of all residential users will continue to pay uniform unit prices.

However, households whose power use exceeds a certain level – which has not yet been announced – will pay more than 0.05 yuan a kWh for the excess, with a maximum charge of 0.3 yuan a kWh for those who use the most electricity.

The China Daily reported an industry insider who declined to be identified said that the higher power prices coal-fired plants could charge would easily be offset by the increased costs of new emission policies that take effect next year.

The new emissions policy would require 100-percent denitration during power generation, which prevents the dispersal of compounds that contribute to acid rain.

- China Daily

Despite talks at the recent Asia Pacific Economic Cooperation Summit (APEC) in Hawaii earlier in November 2011, during which members agreed in principle to reduce barriers on clean energy goods and services by 2015, the Chinese side is adamant that that it may retaliate should the American complaint about Chinese solar panel manufacturers meet with Congressional approval.

Congress may apply stiff tariffs against Chinese solar panel imports to the United States, with penalties as high as 50- to 250-percent. The case could result in penalty tariffs of 50 to 250 per cent on imports of Chinese cells and panels if it concludes that anti-dumping tariffs or countervailing duties are warranted.

According to research from the Solar Energy Industries Association, the US exported more than $1.7bn of solar products to China and imported $1.4bn, mostly panels,

Gao Hongling, deputy secretary-general of the China Photovoltaic Industry Alliance, pointed out that China imported $830m of polysilicon from the US last year, adding, ““If we launch countermeasures, American raw material and equipment firms will take a very big hit.”

Fang Peng, chief executive officer of Shanghai-based JA Solar, said, “In the short term, maybe we will work through partnerships. In the longer term, we’re also evaluating the possibilities to set up operations in the region close to the customers.”

Jiangxi-based LDK told analysts the company may move some production to Africa, Europe or North American sites.

Suntech and Canadian Solar Inc, which makes panels in China, already have plants in North America, and JA Solar has an existing relationship outside China with a company to which it could outsource some manufacturing.

With the news, utilities in the CSI 300 advanced 1.2 percent, the most among the 10 industry groups. Huaneng, China’s biggest power producer, climbed 1.4 percent to 5.15 yuan. Shanghai Electric Power Co. added 2.3 percent to 5.45 yuan. The paper also reported retail power prices for commercial users may also be adjusted.

According to the China Daily, Jiang Kejun, a researcher with the Energy Research Institute of the National Development and Reform Commission, insisted China should raise electricity prices while inflationary pressure is easing. There will be a “severe” discrepancy between coal and power prices with power shortages this winter, Jiang said, according to the newspaper.

China Shenhua Energy Co., the biggest coal producer, advanced 1 percent to 28.44 yuan after it said commercial coal production rose 19 percent from a year earlier to 23.4 million tons in October.

Currently, a tax of 3- 8 yuan ($0.45-1.19) per ton of output is levied on coal producers, roughly equal to one-percent of their sales revenue. The tax revision is part of an umbrella resource tax reform that includes coal, electricity, oil, gas, water and minerals. It appeared the proposal for resource tax reform became stronger after the Central Committee of the Communist Party of China accepted it in October 2011.

The central government is reforming the resource tax code to increase local government tax income.

Unrest due to pollution-related incidents will increasingly impact the opportunities for promotion of local government officials charged with ensuring public harmony in their areas. Foreign cleantech investors in the China market will see local administrations becoming more open to vendors of technology that recycles or properly stores toxic waste discharged from domestic cleantech operations.

In the mid-2000s China’s central government mooted the idea of monitoring the “green credentials” of local government officials. The measure would examine the extent to which local officials protect the environments and the health of the populace in the regions in which they worked. The green credentials would complement the virtually exclusive standard of local GDP growth to balance the activities of the officials and to offer superiors a fuller view of the social benefits underlings were providing constituents. The initiative, however, was stillborn, as it became apparent by 2008 that economic growth was the overwhelming priority of the society and the government, second only to the Chinese Communist Party (CCP) maintaining iron control over the society and economy.

Measuring progress on environmental protection, as well, was going to be difficult as enforcement would be the domain of local Environmental Protection Bureau (EPB) agents. The lack of stature of EPB inspectors meant their opinions could be easily bought by polluting enterprises and their actions readily overridden by local Communist Party bosses. CCP local leadership always trumps local government administrative decisions. Cancer villages; areas made uninhabitable by toxic dump sites and increasing public health costs from residents exposed to chemical waste from cleantech facilities, among others; and mass protests by citizens upset with environmental disasters – potential and real – has prompted the central government to more aggressively promote environmental protection at a local level.

During mid-2011 the central government designated 4.75 billion yuan (about US$700 million) in subsidies to establish 100 counties as green energy demonstration zones during 2011-15. By 2008 the government had already identified 50 national sustainable development experimental areas and over 100 provincial sustainable development experimental areas. Commensurate with the status is the extent to which cleantech production in the areas is actually “clean”; that is, in which any toxic waste production created is adequately recycled and managed.

If the waste must be stored, citizens are increasingly holding local authorities responsible for ensuring storage is safe and secure from leakage into surrounding soil and water sources. The most prominent experimental areas have been working to make themselves centers of excellence in cleantech production, and polishing green environment badges of honor. The largest districts include:

• Xicheng District, Beijing;
• Chengdu Jinniu District, Sichuan;
• Wuhan Jiang’an District, Hubei;
• Beibei District, Chongqing;
• Zixing, Hunan;
• Jiangyang, Jiangsu;
• Dafeng, Jiangsu;
• Rizhao, Shandong;
• Yantai Mouping District, Shandong;
• Zhaodong, Helongjiang;
• Zhengding County, Hebei;
• Huainan Maoji District, Anhui;
• Changdao County, Shandong.

Foreign investors that apply their waste disposal or recycling technologies to bear in these designated areas may be able to kick-start their operations in China more quickly than if they randomly target potential buyers throughout the country. Chinese operations are under duress to invest in state-of-the art waste management technologies only to the extent their local governments feel the heat of higher-level officialdom; or, less often, to the extent to which the companies want to develop global brands that differentiate them from the pack in China.

Global branding of cleantech requires the image of end-to-end application of maintaining environmental integrity in the manufacture of their products. Most Chinese companies, however, still see investments in proper waste disposal or recycling as a balance sheet liability they would prefer to leave to future generations to pay. Foreign suppliers who have local governments on their side find it easier to persuade such companies to adopt more efficient and effective waste management technologies.

Foreign players in the Chinese market who identify local governments under duress to clean up their environmental acts by bending their local factories into shape will have a much higher probability of closing contracts with domestic cleantech producers than with local producers who are able to operate with impunity. Local governments – especially along China’s east coast – are also becoming more open to promoting local companies as national cleantech champions, to upgrade their credibility and gain visibility and credibility with superiors. Foreign companies that gain a few trophy wins to show in the China market will see more recalcitrant operators that will eventually follow suit for fear of finding the competition has outmaneuvered them in the fastest growing market for cleantech in the world.

Bill Dodson is chief editor of ChinaEnergySector.com, which provides policy news and analysis to Western cleantech companies engaged with or considering investment in the Chinese marketplace. Bill is a China business development professional with more than eight years experience in China working with foreign-invested companies to establish and extend their operations in the fastest growing marketplace in the world. He is a columnist for the China Economic Review on China cleantech issues. He is the author of “China Inside Out: 10 Irreversible Trends Re-shaping China and Its Relationship with the World” (John Wiley & Sons, 2011). His second book – about the technology trends, energy and environmental sustainability issues, and innovations China is adopting and adapting to become a global leader – will be published Spring 2012 by John Wiley & Sons.

Gao Hongling, deputy secretary-general of the China Photovoltaic Industry Alliance, said, “Foreign companies lowered polysilicon prices greatly in recent years and this has forced many Chinese polysilicon producers to go bankrupt.”

Gao claims that Hemlock Semiconductor Group, a US-based polysilicon company, received nearly US$170 million in subsidies in 2010,  while Renewable Energy Corporation received $155 million in subsidies for polysilicon production.

“These companies took advantage of the subsidies to lower prices in China, which seriously damaged the Chinese polysilicon industry,” she said.

- China Daily

The plan would require that 500-700 biomass power plants would need to be built during 2011-15 in order to meet the installed capacity target. However, a lack of the raw materials needed to run biomass plants has forced some power plants to pilot the use of straw, with some success.

To help biomass plants make a profit, China increased the on-grid price of biomass power by 0.07 yuan per kilowatt hour on average, to 0.75 yuan per kilowatt hour in 2010.

The Chinese central government also has agreed to provide a subsidy of 4.75 billion yuan to establish 200 counties as green energy demonstration zones during 2011-15.

- Xinhua