EVERYTHING ANYBODY KNOWS ABOUT CHINA NEW ENERGY

Green initiatives attracting investments
Lara Farrar, September 10, 2009 (China Daily)

SUMMARY
The China Greentech Report 2009 is an astonishing compilation of information.

It is a 2,500-page study, the product of an 18-month "open source collaborative" research project between 80 foreign and Chinese companies. It is intended as an "actionable roadmap" for the development of New Energy and Energy Efficiency in China.

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It comes from the China Greentech Initiative (Managing Directors: Ellen G. Carberry and Randall S. Hancock; Lead Report Writers: Constantin Crachilov, Randall S. Hancock and Gary Sharkey; Research Team Leader: Hermes Chao -Ching Sun).

The Executive Overview (1) defines China’s greentech markets, (2) identifies China’s greentech market context, (3) describes China regulatory development, (4) evaluates greentech solutions for China, (5) identifies challenges slowing China’s greentech market growth, (6) suggests stakeholder opportunities to accelerate growth, and (7) provides summary “snapshots” of 7 of China’s greentech sectors

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The report’s Key Findings:
(1) China’s greentech markets cover a wide range of sectors, segments and solutions.
(2) China has transformed in the last 3 decades into a “colossal” and “resilient” economy, but there have been environmental costs.
(3) Rapid economic development is likely to continue but China is turning to environmental sustainability.
(4) The foundation is already in place for the growth of China’s greentech market and there are clear early and promising signs of a green transformation.
(5) Regulators have begun to address environmental issues in ways that will engender greentech market growth.
(6) International policies, agreements and relationships have affected China’s greentech markets and engaged China’s regulators in dialogues on global climate change as well as environmental and other issues.
(7) New green technologies, products and services are still being developed but many are already available in Chinese markets and at work in China.
(8) Greentech solutions could mitigate the impact of economic development on China’s environment without compromising growth. Because of this, they are very real commercial opportunities.
(9) 12 overall challenges remain to be addressed in 4 areas: (a) markets, (b) technology, (c) financing and (d) regulation.
(10) There are clear opportunities for greentech solution adopters, solution providers, financial investors, government regulators and other stakeholders. China offers them open source collaboration because China’s leadership is looking to accelerate greentech growth toward its vision of environmental sustainability.

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COMMENTARY
The report doesn’t leave much room for further commentary. It offers penetrating, well-documented and conclusive insights that:
(1) China's need for greentech solutions is “tremendous;”
(2) Government policies are driving greentech market development;
(3) Business and industry are deploying greentech solutions;
(4) Significant challenges remain but stakeholders have “clear opportunities.”

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Transformation in China in the last 3 decades, since Nixon opened it up to the West, has been “unlike anything the world has ever seen.” The annual growth rate has averaged 10%. China has become the world’s 3rd largest economy and 2nd largest energy user.

“Massive urbanization” has led to “radical” change in living standards, decreased poverty, lengthened life expectancy and spawned an emerging consumer market.
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China’s economy has shown itself to be among the world’s most “resilient.” A four trillion yuan (US$586 billion) economic stimulus package was the world’s 2nd largest and drove China’s economy to 7.1% growth in the first half of 2009. 2010 growth is projected to be 9%.

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China has 1.3 billion people, 1/5 of the world’s population and twice the total of the U.S. and Western Europe combined. 18 million people migrate to urban China yearly. China has more than twice the building floor space as the U.S. and adds more electricity capacity yearly than the total UK capacity.

But China’s environment has suffered from the growth and change. It is the world’s largest greenhouse gas emissons (GhGs) generator, producing 20% of the world total (although emissions per capita are still low compared to the West).

80% of China’s GhGs come from coal. Breathing in China is much the worse for it.

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China has less than 7% of the world’s water but 20% of the world’s population. It faces both water scarcity and water pollution. It also faces desertification and contamination from waste landfills and hazardous waste. Nearly half China’s landfills do not comply with environmental standards.

China’s immensity and lightening economic development have made it of global concern. But it will keep growing. It will become the world’s largest economy within 2-to-4 decades. Massive urbanization will go on unabated, doubling China’s building space. 200 cities will have populations of over a million. Demand will grow hugely for energy, water and material resources. Without greentech solutions, the strain on China’s environment will be unsustainable.

The China Greentech Initiative says necessity is already and will moreso in the future force China to move to environmental sustainability. Green technologies will be developed and deployed in greater magnitudes, with new business models and under new regulatory policies.

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The only sustainable vision for China’s continued growth must include wide adoption of New Energy and cleaner Old Energy to eliminate or mitigate air, water and solid waste pollution.

Greentech market growth and the transformation to a New Energy economy have already begun. Solar Photovoltaic (PV) and Solar Hot Water Heater manufacturing, alternative fuel vehicle manufacturing and implementation of Energy Efficiency have boomed. Wind power capacity has doubled for 4 consecutive years and China is now 4th in wind internationally with 10% of world installed capacity.

China intends to get 20% of its energy from New Energy sources by 2020. Nevertheless, China will still get 80% of its energy from coal and its use of energy per unit of GDP (energy intensity) is still 3 times the U.S. energy intensity and 4 times Japan’s. Less than 1% of all floor space built in 2009 will be green certified.

But the first signs of transformation are there. Government, businesses, non-governmental organizations and other stakeholders are moving to a vision of sustainability.

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The government is implementing a wide range of plans and programs, laws and standards, fiscal incentives and subsidies, industrial promotion and price management policies to support a New Energy economy. Business and industry are deploying greentech solutions.

There are more than 300 greentech solutions in China over 7 sectors. The report evaluates 125 (~18 per sector). It uses its own “Solutions Evaluation Framework” to assess solutions by “unit environmental impact potential, solution attractiveness, addressable market size and market accessibility” in short (under 1 year), medium (1-5 years) and long (5-10 years) periods, focusing on the 1-to-5 year evaluations.

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Greentech solutions can “greatly mitigate” the environmental harm of China’s economic boom. The New Energy, Electric Power Infrastructure and Cleaner Transportation sectors mainly cut GhGs. There are also Clean Water solutions and Cleaner Conventional Energy solutions for the air and water. Green Building and Cleaner Industry solutions address air and GhGs, energy, water, solid waste and materials resources consumption.

New Energy and Cleaner Transportation solutions have the highest impacts. Cleaner Industry and Green Building have the highest “attractiveness.” Cleaner Conventional Energy, Clean Water and New Energy solutions rank in the middle because they are not yet economically competitive in China. Electrical Power Infrastructure and Cleaner Transportation solutions are lowest in attractiveness because they are the least mature.

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Market size (what the market could be, or total revenues IF greentech solutions achieve high attractiveness) could be as much as US $500 billion-to-US $1trillion annually, 15% of China’s forecasted 2013 GDP. Solutions in Cleaner Transportation and New Energy have the biggest potential markets.

Many, though not all, of China’s greentech markets are open to foreign and private investment. The Cleaner Industry and Green Building sectors are most accessible. The Cleaner Conventional Energy, New Energy and Clean Water sectors are moderately accessible. The Cleaner Transportation and Electrical Power Infrastructure sectors have restricted accessibility. Though opportunities are “generally attractive,” there are challenges with markets, technology, financing and regulation that constrain solution providers. Limited awareness of the availability and benefits of greentech solutions sustain conventional practices. Underdeveloped value chains separate stakeholders. Vested interests make markets inefficient and limit innovation.

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Technology challenges slow development and application of greentech solutions. Greentech financing is limited. China’s regulatory environment is “a clear, positive driver for change” but the policy environment is complex and difficult to navigate, the size of payouts, timing and eligibility, monitoring and compliance, and transparency remain issues.

The report identified 5 over-arching opportunities for all sectors and every stakeholder group. They are (1) raise decision-maker awareness of benefits, (2) drive maturity, (3) support level playing fields by incorporating externalities in energy market costs, (4) build greentech skills, and (5) encourage commercial, governmental and non-governmental stakeholder collaboration. All stakeholders (organizations and other adopters, providers, investors, regulators, and academic institutions, NGOs, international organizations and others) can play roles.

The report concluded that China will surely become one of the world’s largest
markets for greentech technologies, products and services and its industries will become major producers of greentech solutions, both for local consumption and export. There are also significant opportunities for foreign companies, especially those with advanced technologies and other adaptable capabilities.

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It is less clear how much China will be a part of greentech innovation. The potential is there but the historic inclination toward low-cost, labor-intensive solutions works against it. The report concludes that “the jury is still out” on the question.

The report finishes with a “snapshot” of 7 sectors of China’s greentech markets: (1) cleaner conventional energies, (2) New Energies, (3) the electric power infrastructure, (4) green building, (5) cleaner transport, (6) cleaner industry, and (7) clean water.

In the New Energy snapshot, it details China’s solar, wind and bioenergy markets.

China’s unprecedented industrialization has driven a more than 5-fold growth in electricity consumption since 1990. China has become the world’s second largest oil consumer. Its heavy reliance on imports has led to national security concerns. Reliance on coal has led to serious environmental challenges. But China has abundant New Energy assets.

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Solar: 2/3 of China’s land area has more than 4 times the insolation of world-leading nations like Germany and Japan.

Wind: China’s wind energy could meet its entire present requirement.

Bioenergy: China’s 2006 biomass supply was 280 million tons of coal-equivalent.

China has numerous regulations, incentives and subsidies to support New Energy growth.

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Wind at present has the highest attractiveness to adopters because it is more technologically mature and cost competitive. Bioenergy and solar are thought to have larger potential markets, giving them a higher “overall commercial potential.”

Solar Water Heaters, Wind Energy Storage solutions and Biofuel solutions have “the highest average 10-year commercialization potential.”

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Challenges remain across all sectors and time frames. To maximize New Energy growth, China must: (1) Develop and enforce standards, interfaces and costing methodologies; (2) Bring innovative financing, such as pre-construction Power Purchase Agreements; and (3) Establish frameworks for public-private and Sino-foreign collaboration.

Instead of a conclusion, the report ends with a section it calls “Path Forward” that summarizes the Key Findings and stresses the report’s role as a “starting point.”

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QUOTES
- From the Executive Overview of the report: “Intended to be a starting point that defines and frames market issues and opportunities, the Initiative recognizes that the report doesn’t answer every question that market participants have. Given the broad scope of greentech markets in China, the country’s immense scale and the intense speed at which regulatory, end user, competitive and technology markets are changing, certain aspects of this report will become dated relatively quickly.”
- From the Executive Overview of the report: “Important questions that remain to be answered include evaluations of competing green technologies’ functionalities and cost curves, assessments of emerging business models, strategies for addressing intellectual property and technology transfer concerns, reviews of alternative financing and partnership models, the impact of the Copenhagen climate change agreement on China, and many others.

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- From the conclusion of the Executive Overview of the report: “This report is a starting point for defining and framing China’s greentech issues, challenges and opportunities, recognizing that these markets will continue to evolve rapidly.”
- From the conclusion of the Executive Overview of the report: “Stakeholders have clear opportunities to accelerate market development and create a more environmentally sustainable China…”
- Randall Hancock, co-founder/Managing Director/report co-author, China Greentech Initiative: "Our hope is that the report becomes part of a platform that enables more discussion and provides greater transparency as to what happens in China's marketplaces…Business must play a key role in developing and providing green technology solutions that are affordable to help China and the rest of the world solve environmental issues…"

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- Senator Maria Cantwell (D-WA):"The collaboration is happening at a business-to-business level and that is going to give us all the confidence that we can tackle this very tough issue…There is a lot that government can do and there is a lot that government can't do."
- Gary Rieschel, CEO, Qiming Venture: "Part of the struggle has always been getting good information…The scale of the market and how that intersects with government policy, who the main actors are on both the Chinese and multinational side - it is a great deal of work to take it down to some basic building blocks and reconstruct it…That will be one of the lasting legacies of this report."