Government pressure and incentives, dynamics of Chinese domestic growth provide a range of advantages in technology race
TIANJIN, China There's a prospect that the West might someday trade its dependence on oil from the Middle East for a reliance on solar panels, wind turbines and other gear made in China, which is moving to dominate the global manufacture of renewable energy technologies.
"Most of the energy equipment will carry a brass plate, 'Made in China,'\u2009" said K.K. Chan, chief executive of Nature Elements Capital , a private equity fund in Beijing that focuses on renewable energy.
President Barack Obama, in his State of the Union speech last month, sounded an alarm that the United States was falling behind other countries, especially China, on energy.
"I do not accept a future where the jobs and industries of tomorrow take root beyond our borders ！ and I know you don't either," he told Congress.
The United States and other countries are offering incentives to develop their own renewable energy industries, and Obama called for redoubling American efforts. Yet many Western and Chinese executives expect China to prevail in the energy technology race.
China vaulted past competitors in Denmark, Germany, Spain and the United States last year to become the world's largest maker of wind turbines. In October, Austin-based Cielo Wind Power announced a $1.5 billion project to build a 36,000-acre wind farm in West Texas, one of the largest in the U.S. ！ a project that will be financed by Chinese banks and will use 240 turbines made by a subsidiary of China's Shenyang Power Group.
China's wind power industry is poised to expand further this year. The country has also leapfrogged the West in the past two years to emerge as the world's largest manufacturer of solar panels and is pushing equally hard to build nuclear reactors and the most efficient types of coal power plants.
Multinational corporations are responding to the rapid growth of China's market by building big, state-of-the-art factories in China. Vestas of Denmark has just erected the world's biggest wind turbine manufacturing complex here in northeastern China, and transferred the technology to build the latest electronic controls and generators.
"Nobody has ever seen such fast development in a wind market," said Jens Tommerup, president of Vestas China.
Renewable energy industries in China are adding jobs rapidly, reaching 1.12 million in 2008 and climbing by 100,000 a year, according to the government-backed Chinese Renewable Energy Industries Association.
Yet renewable energy may be doing more for China's economy than for the environment. China is on track to pass the United States in total power generation in 2012 ！ and most of the added capacity will be from coal, which is forecast to represent two-thirds of China's capacity in 2020.
As China seeks to dominate energy-equipment exports, it has the advantage of being the world's largest market for power equipment. The government spends heavily to upgrade the electricity grid, committing
$45 billion in 2009 alone. China's top leaders are focused on energy policy: On Jan. 27, the government announced the creation of a National Energy Commission composed of Cabinet ministers as a "superministry" led by Prime Minister Wen Jiabao.
Regulators have set mandates for power generation companies to use more renewable energy. Generous subsidies for consumers to install their own solar panels or solar water heaters have produced flurries of activity on rooftops across China.
China's biggest advantage might be its domestic demand for electricity, which is rising 15 percent a year. To meet demand in the coming decade, according to statistics from the International Energy Agency, China will need to add nearly nine times as much electricity generation capacity as the United States will. As a result, Chinese producers of generating equipment enjoy enormous efficiencies from large-scale production.
In the United States, power companies often face the choice of buying renewable energy equipment or continuing to operate fossil-fuel-fired power plants that have already been built and paid for. In China, power companies have to buy new equipment anyway, and alternative energy, particularly wind and nuclear, is increasingly priced competitively. Interest rates as low as 2 percent on bank loans ！ the result of a savings rate of 40 percent and a government policy of steering loans to renewable energy ！ have also made a difference.
As in many other industries, China's low labor costs are an advantage in energy. Although wages have risen sharply in the past five years, Vestas still pays Chinese assembly line workers only $4,100 a year.
The Chinese government charges a renewable energy fee to all electricity users. The fee increases residential electricity bills by 0.25 to 0.4 percent. For industrial users of electricity, the fee doubled in November to roughly 0.8 percent of the electricity bill. The fee revenue goes to companies that operate the electricity grid, to make up the cost difference between renewable energy and coal-fired power.
Yet grid operators are not reimbursed for the formidable cost of building power lines to wind turbines and other renewable energy producers, many of them in remote, windswept areas. Transmission losses are high for sending power over long distances to cities, and nearly a third of China's wind turbines are not yet connected to the national grid.
Most of these turbines were built only in the last year, and grid construction has not caught up. Under measure passed by the Chinese legislature on Dec. 26, a grid operator that does not connect a renewable energy operation to the grid must pay that operation twice the value of the electricity that cannot be distributed.
With prices tumbling, China's wind and solar industries are increasingly looking to sell equipment abroad ！ and facing complaints by Western companies that they have unfair advantages. The Texas wind farm project using Chinese turbines prompted calls in Congress to halt federal spending on imported equipment.
"Every country, including the United States and in Europe, wants a low cost of renewable energy," said Ma Lingjuan, deputy managing director of China's renewable energy association. "Now China has reached that level, but it gets criticized by the rest of the world."(Edited by EnergyChinaFroum.com. For more information, please email to: info@energychinaforum.com)
(Statesman,Feb 7,2010)
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