CHINA VS. NEW ENERGY FREE MARKETS

Is clean tech China's moon shot?; So far, wind turbines are not Sputnik. But one day they could be.
Gerard Wynn (w/Chris Buckley, Larry Aragon, Peter Henderson, Jim Impoco and Sara Ledwith), January 27, 2010 (Reuters)

"The global race to develop clean technology is not just about who can build the best solar parks or wind farms. It is also shaping up as a contest between Chinese-style capitalism and the more market-oriented approach fancied by the United States and Europe…[W]ill China's highly capitalized command-and-control economy trump laissez-faire in a low-carbon shift that is widely portrayed as the next industrial revolution?

"…[The] Chinese are coming on strong…Beijing's top leaders have made clear their intention to have their nation dominate this new industry, up and down the value ladder…[T]hey are not burdened by concerns facing their Western counterparts -- such as the impact of wind turbines on landscapes, higher energy prices for consumers, or investor returns…The recession has made it tougher for Europe and America to effect meaningful climate policy change...[P]oliticians likely will find it harder to earmark additional voter money for clean technology…Instead, recession-hit Western economies are hoping the private sector can plug an estimated worldwide $150 billion annual funding gap to avoid more extreme droughts and floods."

Unhesitating growth. (click to enlarge)

"But investors almost always follow the returns, and if the performance is not there, they are not likely to risk their capital…[P]ension funds -- which are as influential as they are big -- [may not invest more because fund managers must answer] to pension holders…Since a trough in global equities last March, energy efficiency stocks have risen 126 percent and clean energy and technology by 88 percent, compared with wider global stocks' 70 percent...But there are limited opportunities for investors. Oil majors, for example, dwarf the asset value of green companies, and cleantech funds can't move the dial for the big funds…

"The global wind industry highlights diverging tactics between China and the West in developing important new markets…China is leapfrogging global wind power rankings with a combination of aggressive growth targets and domestic support. It has doubled its entire installed capacity each year since 2005…This month, the British government announced plans for 32 gigawatts of offshore wind by 2020…[but the plan] depends on 100 billion pounds of increasingly finicky private capital. And this is an election year…British policymakers have to make a choice: either create bigger incentives for investors to underwrite offshore wind power or impose additional taxes on fossil fuels, which would make carbon-based energy less profitable."

Hesitating growth. (click to enlarge)

"…China has its own distinct advantages. First and foremost is…[cooperation] between state-owned utilities, grid companies and banks…China is expected to announce a target soon for about 150 gigawatts of wind power by 2020, which it would hit if it simply maintained present annual capacity growth…The country also has two turbine makers, Sinovel and Goldwind, in the world top 10…[China’s] next five-year development plan [will] run from the start of 2011..[and] the state banks and state power companies will support and foster the New Energy industries]…

"How fast wind power develops in the United States depends on a climate and energy bill…But China has been on a tear…Some Western analysts still believe a markets-oriented approach works best and will ultimately prevail…They argue that subsidized inputs will result in a less efficient industry, more focused on volume than cost and quality…[N]ew capacity has also run ahead of grid connections…[Many] believe the United States still has an advantage in innovation…[O]f 41 U.S. venture capital investors, more than three-quarters [told Reuters] the United States would be the best market for cleantech over the next five years, and 88 percent believed America was the best [base]...China ranked as the second best market…

"An undeniable edge for China is its huge pile of foreign exchange reserves…[and] Beijing's aggressive economic stimulus, which included funds for energy-efficient buildings…[A]n overheating Chinese economy may turn that tap down...Western economies are expected to spend much of their green recovery cash this year and next…In recession-battered Western nations, and in China, the prime motives for promoting clean technology are jobs, profits and energy security -- not climate change…An estimated $150 billion invested globally last year was only about half what is required annually by 2015 to avoid dangerous climate change..."

Can the turmoil of a free market match this commanded, controlled growth? (click to enlarge)

"If over the next 20 years the world is to boost renewable power, build greener buildings and roll out more fuel-scrimping cars including hybrid and electric models, it must invest more than an additional $500 billion annually…Many forms of renewable power are expected to be more expensive than their fossil fuel counterparts for at least another decade…Given the incompatibility of communist-style targets with western democracies, how can free markets mobilize more green technology cash?

"…Western nations could boost clean investor returns with a tax on fossil fuels or guaranteed higher prices for renewable power. And...governments could adopt standards...requiring homes to install smart meters, for example...[but this] doesn't seem politically palatable at the moment…But pension funds and other institutional investors can do more. Even if they don't put more of their own money into clean tech, they can use their clout to encourage more conventional energy companies to clean up…A discouraging sign...is the cloudy future of cap-and-trade plans…Opposition to cap-and-trade among U.S. Republicans and some Democrats could block the roll-out of a federal trading scheme…[and] last month's U.N. summit in Copenhagen [did not advance an international system]… Does all this suggest China is destined to win the clean tech race? Hardly, though it does seem to have a little more forward momentum...But it's still very early goings, and there's more at stake than business success."