China now stands alone as the most attractive market for renewable energy investment in the world, a position it had previously jointly held with the US, according to Ernst & Young's most recent Renewable Energy Country Attractiveness Indices report.
The news became political fodder in a US mid-term election year and has been highlighted as an example of the nation's failings. With US jobs at stake people are worried, and for good reason.
That's one way to look at it. Another is that China's rise offers a new and crucial opportunity. Paired, the countries can float a tremendous clean energy market that could buoy the industry worldwide – or sink it if they fail.
'Imagine a small canoe, barely above the waterline with two sumo wrestlers, China and the US, in it – one at each end,' says Elton Sherwin, senior managing director at California-based Ridgewood Capital and author of the book Addicted to Energy.
The rest of the canoe, he says, is packed full of people from all of the other countries. The two sumo wrestlers account for 42% of the world's energy demand, are the world's biggest coal consumers and the largest importers of oil. Both have aggressive goals to integrate renewable energy into their supply mix and they lead the way in wind power development. Last year China installed 13.8 GW of wind power, the US added 10 GW.
A recent criss-crossing of the globe by industry leaders and government officials from both nations demonstrates a heightened understanding of their paired potential and they have been meeting to investiagte joint green energy opportunities. China brings to the table its cheap manufacturing capability and the US its high tech know-how.
'We can't view this as one against the other. Over the past 12 months, partnerships and collaborations and deals from the manufacturing side all the way up to the development and installation side have really taken off. It makes a lot of sense. We are working together on the government side and private sector side to grow the pie and make it beneficial and profitable for businesses in the US and China,' said Foley & Lardner partner Jeffery Atkin.
One such meeting, a panel discussion entitled 'US-China Private Sector Cooperation in Energy', brought together industry and government heavy hitters in early October at the Woodrow Wilson Center in Washington, D.C. Among the attendees was Jim Rogers, chief executive officer of Duke Energy, one of the US' largest electricity companies.
'I believe that China and the US are uniquely positioned to answer the environmental energy challenges for the globe,' he said at the forum. 'We are smart enough and have a clear enough vision to be able to cooperate and compete at the same time.'
While the two nations have many political and social differences, both face similar challenges in their power sectors. Both depend heavily on coal as a core energy resource; it accounts for 50% of the electricity mix in the US and 80% in China, which in turn makes the two countries the largest carbon dioxide emitters in the world. Also at the forum was US secretary of commerce Gary Locke, who said: 'If not addressed, this current energy mix will significantly impact our businesses, our environment, and our way of life in both countries.'
China's success in wind turbine manufacturing has some in the US concerned (Source: Sinovel)
The Great Grid of China
In addition to many similarities in energy supply, both countries are poised for enormous electricity transmission grid build-outs, which will be required to meet increasing energy demand through to 2050.
Rogers sees a 'daunting challenge' ahead for the US. The nation will need to spend an estimated $2.1 trillion to meet its electricity demand by 2030, with consumption set to grow at an estimated rate of 0.5%/year through to 2035.
Over the next 40 years almost all US power plants, with the exception of its hydroelectric sites, will have to be retired and replaced, said Rogers. This comes on top of the transmission and distribution overhaul needed for smart grid applications.
Conversely, China will focus less on upgrading an outdated grid and more on building new facilities. It has 700 million rural inhabitants, 15 million of whom, it is anticipated, will flock to its cities every year. By 2025, China is expected to build 40 billion m² of floor space across 5 million buildings – the equivalent of two Chicagos every year, said Rogers.
Electricity consumption rises in line with higher average incomes through the increased use of energy-hungry devices such as refrigerators and air conditioning units. By 2030 an estimated $3.1 trillion will need to have been spent to keep up with China's burgeoning demand.
With such levels of growth predicted in China and the US entirely new power infrastructures in both are expected to be built in the next 40 years.
Big Problems, Big Solutions
With such daunting figures, it is an enormous challenge for the two countries to simultaneously meet new demand and achieve reductions in greenhouse gas emissions, but significant progress is afoot.
China has a five-year plan for renewables to account for 15% of its energy mix on top of a 20% reduction in greenhouse gas emissions by 2020.
In just three years, the country became the world's largest producer of photovoltaic panels, according to Pricewaterhouse Coopers' (PwC) recently published document: 'US-China Cleantech Connection: Shaping a new commercial diplomacy'.
The US is also making hefty strides in cleantech development, an example being its solar industry, which by the end of the year is expected have seen a year-on-year doubling in size, despite ongoing global economic issues, according to trade group the Solar Energy Industries Association.
The president and CEO of SEIA, Rhone Resch, recently announced a target for the US to install 10 GW/year of solar by 2015. Simultaneously the US government began to approve the construction of large utility-scale solar plants on federal land. Construction work on several large projects is expected to be underway by the end of the year.
Bolstered by strong government commitment over the past two years, the US is shaping up to be the largest solar market in the world, with its potential serving to attract Chinese companies including Suntech Power Holdings. The company, the world's largest crystalline silicon PV module producer, said earlier this year it plans to construct its first manufacturing plant in the US, while Yingli Green Energy is also said to be considering building a facility in the country.
Can The Marriage Work?
However, not everyone in the US welcomes expansion of Chinese companies into the US clean tech market. One concern is that while China may excel at cheap manufacturing, there may be quality issues with its goods, a problem acknowledged in a recent report published by Greenpeace, the Global Wind Energy Council, and the Chinese Renewable Energy Industries Association.
Kumi Naidoo, executive director of Greenpeace International, said in the report '2010 China Wind Power Outlook' that China remains dependent on Europe and the US for key wind turbine design technology; that it lacks experience in operating and maintaining wind farms; and that its workers' skills are 'insufficient'.
'To face and address the long-term problems, China needs to learn constantly, create opportunities for international cooperation and communication,' he said. The country must also establish a 'cooperative mechanism of win-win and multilateral wins with wind power corporations and research institutes all over the world in order to learn other countries' strong points, compensate for [its]own weak points, and develop together'.
To date the Chinese solar industry has largely been driven by the production rather than the utilisation of its PV technology. Indeed in 2009, one third of the world's PV panels were produced in China, yet installations there accounted for less than 3% of the global total, according to PwC.
Some quarters have voiced concerns that this allows Chinese manufacturers to have less stringent quality standards. However, again according to PwC, as China finds a new balance and moves from largely being a solar technology producer into an adopter, an broad upturn in quality to Western standards is expected to follow.
A technologically-innovative and growing Chinese market is also expected to see more widespread applications in China itself, while welcoming the country into the global market will force it to raise the quality of the goods it manufactures.
The Chinese installation market remains wide open and therefore provides a huge opportunity for US companies that produce high quality products to seek to do business there.
In September 2009 US-based First Solar unveiled a memorandum of understanding with Chinese government officials to build a 2 GW solar power plant in the Mongolian desert. The development site, slated for completion in 2019, requires cutting edge technology and high quality components.
The growth of the clean technology sector in both countries is in part due to the state of the industry in the other, with companies from each becoming increasingly co-dependent. Bilateral trade and investment between China and the US has given and continues to give citizens from both countries greater access to high quality products and services, according to Locke.
An example of this is the growth in China's middle class, which has spurred demand for US products, helping US producers' order books and satisfying Chinese consumers, while lower-cost products from China which are being sold in the US mean a potential increase in the disposable incomes of US citizens. 'That is what a win-win relationship looks like,' said Locke.
Another major partnership opportunity between the US and China is the development of smart grid technology. The PwC report forecast that China could spend up to $100 billion over the next decade on smart grid development, which could result in the deployment of 300 million smart meters alone.
Not surprisingly, Intel Corporation recently consolidated its chip-making operation in Chengdu into a 2400-employee facility and is now the largest chip packaging and testing base in Asia.
To help US companies penetrate Chinese and other foreign markets, the Obama administration in March launched the National Export Initiative, which seeks to double exports from the United States over the next five years.
'I am confident that our efforts and a sustained focus on the National Export Initiative will allow the US, China and countries all around the world to reap the benefits of the emerging clean energy economy,' said Locke.
Entering the US market, however, is another story. Accessing this market can pose difficulties for international companies owing to a quagmire of local, state and federal regulations.
'The US is very complex compared with most other places in the world. It is more time consuming. That is a reason why foreign companies, the European companies, the Chinese companies, are joint venturing and partnering with local companies,' said Foley & Lardner's Atkin.
'You can build a solar facility almost anywhere in the world without a lot of complication in a couple of months. You go to do that in California and it is a much longer period of time,' he added.
Wind turbine manufacturing facilities in Dalian, China (Source: Sinovel)
Partnership Pros and Cons
Duke Energy is hoping that a United States-China partnership will lower costs, create more jobs and expedite the deployment of clean energy technologies. The North Carolina-based utility has entered into two agreements with the Chinese power companies ENN and China Huaneng.
The agreement with ENN, signed over a year ago, covers the development of several different cleantech projects, including a pilot smart eco-city near Beijing. By working with Chinese companies, Duke Energy hopes to gain experience both in scaling up and in driving down the costs of green energy deployment.
US universities and other research institutions are now also partnering with China. In September, some 30 senior executives from the State Grid China Corporation, the world's largest utility, met with representatives of the University of California San Diego, to tour its energy facilities along with executives from IBM and utility group San Diego Gas & Electric.
But despite recent efforts to promote business cooperation between the US and China, significant political and economic tensions remain. In September 2010, the United Steelworkers trade union filed a complaint accusing China of ignoring World Trade Organization rules, claiming that its government is granting too many subsidies to Chinese companies, making it impossible for US groups to enter China's market.
In addition, the union accused China of depressing its currency so exports of clean energy products sell cheaply abroad while foreign imports appear expensive. China's currency, the yuan, is appreciating, but at a much slower pace than China's economic gains, said the union.
Its complaint echoes similar charges by manufacturers in other countries, who argue that China grants hidden subsidies including free land and low-interest loans to its clean energy industries while restricting access to its domestic market.
In response, in October Zhang Guobao, a senior economic official for China, held a US news briefing in which he accused US trade officials of delaying trade talks with China, adding that the United States uses economic reforms to promote US companies over foreign investors.
Zhang also accused US politicians of looking for someone to blame for America's slow economic recovery. The criticism of China, he pointed out, had coincided with the then-upcoming US mid-term elections. 'Do they want fair trade? Or an earnest dialogue? Or transparent information?,' he asked rhetorically, before answering: 'I don't think they want any of this. I think [it] more likely, the Americans just want votes'.
The development of a large and technologically advanced clean energy industry is critical for both countries to successfully mitigate the effects of climate change, promote economic recovery, and compete in a globalised market,' said Locke.
Ultimately it would benefit both countries to put aside their differences and work together to accomplish a similar goal, he added, before saying: 'I am confident that these partnerships, especially in clean energy, will continue to strengthen over time and we will all be the better for it.'
Cooperation in the clean energy industry could be a starting point for further cooperation between the two countries, he continued, saying: 'The power sector is just one step on a ladder of cooperation that is needed to encourage other companies to work together, which could possibly influence the governments to work together as well.'
Many issues remain for the two countries to work out but the advantages of collaboration conspire to drive them together. Only time will tell if the two sumo players will continue to work together to develop the clean energy industry or if they will start wrestling instead, and sink the boat.
Elisa Wood is US correspondent for Renewable Energy World magazine
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