THE CHINESE CONQUEST OF NEW ENERGY CONTINUES

China Builds High Wall to Guard Energy Industry
Keith Bradsher, July 14, 2009 (NY Times)
and
Commerce Secretary: Americans ‘Need to Pay’ for Chinese Emissions
Keith Johnson, July 17, 2009 (Wall Street Journal)
and
U.S. officials praise China emissions efforts
Doug Palmer (w/Lucy Hornby and Nick Macfie), July 16, 2009 (Reuters)

SUMMARY
Yep, it’s another China wind story. Sorry. But when the biggest booster in the U.S. can’t get financing for a transmission system to deliver the power from a 4,000-megawatt installation he’s putting up the money to build (T. BOone Pickens in Texas), and UK utilities have to struggle to complete financing for a 1,000-megawatt offshore installation right next to one of the world’s biggest electricity consuming cities (the London Array), and the Chinese government is meanwhile building 10,000-to-20,000-megawatt installations a half-dozen at a time, somebody’s likely to take notice.

And that's just the tip of the iceberg. As reported here frequently, China is moving in solar and biomass and the other New Energies.

One of the things China seems to be bringing to the table is protectionist international trade policies. China is following practices exercised by Japan and South Korea to protect their car industries from U.S. imports by calling its New Energy industries “strategic” and keeping potential international competitors at a disadvantage.

Protectionism was at the heart of the diplomatic exchanges conducted by U.S. Department of Energy (DOE) Secretary Steven Chu and U.S. Department of Commerce (Commerce) Secretary Gary Locke, both Chinese-Americans, while visiting China to hold more widely reported talks on climate change and further U.S.-China cooperation on Energy Efficiency.

October 2008 stats from Green Chip Stocks. (click thru to source)

Both Secretaries praised China’s efforts in the New energies and on greenhouse gas (GhG) reductions and celebrated the launch of a $15 million cooperative program for efficient vehicles and buildings research and development.

Secretary Locke struck an even more conciliatory note by recognizing China’s need to balance economic growth with efforts against global climate change.

Meanwhile, U.S. and EU New Energy manufacturers and developers were taking note of Chinese actions against free trade.

October 2008 stats from Green Chip Stocks. (click thru to source)

Recent China protectionist actions:
(1) China’s world-leading solar panel manufacturing industry sells 95% of its production to the U.S. but required 80% of the materials for its first solar power plant to be made in China.
(2) 25 of 25 recent wind turbine contracts were awarded to China’s 7 domestic suppliers while bids from 6 multinationals were disqualified on technicalities such as insufficient data details.
(3) Turbines smaller than 1,000 megawatts were recently banned, eliminating the European turbines that had been successfully competing against Chinese manufacturers.
(4) China’s Renewable Electricity Standard (RES) calls for a specificed capacity, not a specified amount of electricity, inclining New Energy developers in China to inexpensive and unreliable (often domestically-manufactured) equipment with the same capacity rating as higher quality (often imported) equipment that would generate electricity at its rated capacity.
(5) Financing is much more difficult for foreign wind project developers because laws make it harder for them to borrow Chinese capital or sell carbon credits.

These measures only add to the basic fact of a very low-valued yuan that gives Chinese exports what some consider an unfair price advantage.

As a result of such policies, China’s manufacturers are expected to take 10-to-20% of the domestic New Energy supply market away from international companies this year. That would give them 75% of a market they only had 25% of 4 years ago.

October 2008 stats from Green Chip Stocks. (click thru to source)

That includes the market supplying equipment to what became, in 2009, the world’s biggest wind market, a market that at present has plans to build, among its other projects, SIX 10,000-to-20,000 megawatt installations.

It is widely understood China’s commitment to New Energy and Energy Efficiency is based first on its benefit to the domestic economy and secondarily on its benefit in the fight against rising emissions. That is not inappropriate in and of itself, but when means of competition include protectionist measures outlawed by the World Trade Organization (WTO), it tends to raise "foul!" cries.

Though protectionism such as China has mandated for its New Energy industries is against WTO free-trade rules, it escapes them on the technicality of having joined (in 2001) but not yet being an official signatory to anti-protectionist agreements.

October 2008 stats from Green Chip Stocks. (click thru to source)

WTO prohibitions against protectionist laws have been the main preventative against longstanding populist-led efforts on legislation in the U.S. Congress to impose import tariffs in response.

New Energy industry complaints about Chinese protectionism are new enough that a Commerce Department spokesman could avoid the question on the recent Chinese tour. But mutterings about the injustice of protectionist behavior are beginning to be heard. Such mutterings could precede a backlash that would start a trade war.

Secretary Locke, however, included in his remarks during the trip the relatively benign observation that China could benefit itself by benefiting global trade with a more open approach to trade.

If tension increases, China’s New Energy manufacturers could find themselves caught in a dilemma soon. The nation is running out of places to build projects where there is grid to carry the electricity generated. If China's domestic industries, so rigorously built up, hope to sustain their growth, they may have to sell into international markets until China’s national grid is further developed. Then the choice of protectionist policies might not seem so wise.

With the new Renewable Energy Law, all preceding predictions of installed capacity growth are rendered far too low. (click to enlarge)

COMMENTARY
China’s 6 planned 10,000-to-20,000-megawatt wind installations are proceeding as rapidly as materials can be supplied. Legendary energy entrepreneur T. Boone Pickens, on the other hand, was forced to postpone the first 1,000 megawatts of a planned 4,000-megawatt installation in Texas due to his inability to finance the transmission needed to deliver the projects' electricity to nearby Texas population centers. That highlights an advantage China has over the U.S.: As a centrally-planned economy, it can get transmission built to deliver the power from its wind projects to distant population centers or it can build new population centers near its wind projects.

The implication of such an option is that China may not have to turn to international markets anytime soon and can, therefore, continue to exercise protectionist policies.

It had been widely hoped U.S. President Barack Obama and China President Hu Jintao would reach an agreement on trade polices and climate change action at the recent G8 summit in Italy. When President Hu was called back to China to deal with the Han-Uighar unrest, bilateral talks were abandoned. Hopes have shifted to a summit between the 2 Presidents later this year in anticipation of the crucial December international convocation on climate change in Copenhagen.

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Though seen in Beijing as conciliatory, Commerce Secretary Locke’s acknowledgement of China’s position – that nations in the developed world where emissions-intensive products are predominantly consumed must take part in the responsibility for those emissions along with the nations where the products are manufactured - was received in D.C. as inflammatory and will likely meet with further Congressional protectionist sentiments in reply.

If tensions are not effectively managed, a trade war could result despite the disadvantage this could be to both the U.S. and China. Frank talks at the Presidential level on China’s protectionist policies are therefore urgently needed.

After building factories in China to comply with requirements that 70% of China wind project materials be domestically made, veteran EU wind turbine manufacturers’ bids for recent jobs were rejected on technicalities within 3 days while domestic manufacturers with no industry experience were approved. EU turbine makers have stopped bidding on Chinese projects.

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EU solar developers have similar complaints. China Premier Wen Jiabao reportedly recently told German Chancellor Angela Merkel his country would end discriminations against foreign solar parts suppliers but there has been no concrete action to change rules requiring New Energy facilities to stick with domestic materials and makers.

It is entirely understandable that China’s wind turbine-manufacturing industry would not yet be making equipment at the performance levels of U.S. and EU manufacturers. UN data shows that Chinese-made machines are cheaper but break down and require service more. What is less understandable is that Chinese law would take away wind project developers’ right to choose which they would rather pay for. The competition is probably the fastest way to move China's manufacturers to a higher level of quality.

When China’s domestic capacity to absorb new projects peaks and it is pushed into international markets, it will become apparent whether it is making inferior products that require protection or whether it can become like Honda and Toyota and shift the call for protection to the U.S. and the EU.

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QUOTES
- Commerce Secretary Gary Locke: “It’s important that those who consume the products being made all around the world to the benefit of America — and it’s our own consumption activity that’s causing the emission of greenhouse gases, then quite frankly Americans need to pay for that…”
- Energy Secretary Steven Chu: "I am greatly encouraged by what I saw on this trip…"

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- Lu Hong, Beijing New Energy program officer, Energy Foundation: “The Chinese government won’t consider such a big solar industry without considering the building up of the domestic industry…”
- Boris Klebensberger, COO, SolarWorld AG: “This is not a level playing field..."
- Victor Abate, vice president for wind energy, General Electric: “That has been a tough market for non-Chinese manufacturers…”
- Kevin Griffis, spokesman, Commerce Department: “Generally speaking…we support a business environment that is open, transparent, and fair so that all companies are able to compete based on product performance, not country of origin.”