STATE CAPITALISM AND SOLAR ENERGY IN CHINA
Solar-energy magnate Zhu Gongshan told the Wall Street Journal a shortage of polycrystalline silicon---the main raw material for solar panels---was threatening China's burgeoning solar-energy industry in 2007. Polysilicon prices soared, hitting $450 a kilogram in 2008, up tenfold in a year. Foreign companies dominated production and were passing those high costs onto China. [Source: Jason Dean, Andrew Browne and Shai Oster.Wall Street Journal, November 16, 2010]
Beijing's response was swift: development of domestic polysilicon supplies was declared a national priority. Money poured in to manufacturers from state-owned companies and banks; local governments expedited approvals for new plants.
In the West, polysilicon plants take years to build, requiring lengthy approvals. Mr. Zhu, an entrepreneur who raised $1 billion for a plant, started production within 15 months. In just a few years, he created one of the world's biggest polysilicon makers, GCL-Poly Energy Holding Ltd. China's sovereign-wealth fund bought 20 percent of GCL-Poly for $710 million. Today, China makes about a quarter of the world's polysilicon and controls roughly half the global market for finished solar-power equipment.
Preferences to Local Companies in the Wind and Solar Energy Markets
Preferences given to domestic companies through government procurement and policies have drawn complaints from major multinationals and the U.S., Japanese and European governments, AP reported. Washington filed a case in the World Trade Organization last year challenging subsidies China gives clean-energy makers that the complaint says allows them to sell solar and wind power equipment at unfairly low prices. [Source: AP, April 20, 2011]
In an example cited by the EU Chamber study, wind turbine manufacturers face rules requiring that 70 percent of wind farm equipment had to be made locally---a requirement some local governments interpreted so strictly that Chinese manufacturers from other provinces were sometimes excluded. Though Beijing scratched the requirement last year, some local governments seemingly continued to apply it, the study said.
The study doesn't name names. But Denmark's Vestas Wind Systems A/S, the world's biggest maker of wind turbines has had trouble elbowing aside Chinese competitors in China and increasingly faces them abroad. "It seems we are never 'domestic' enough," the study cited a wind power manufacturing executive as saying.
Before Hu Jintao visited the United States in 2010, China promised to not favor domestic companies in “innovation” contracts.
Wind Power in China
China’s wind power generating capacity has doubled annually for four years and in 2010 IT became yet another field in which China surpassed the U.S. to become number one. According to the Global Wind Energy Council China ranked first in wind power installations in 2010, creating 16,500,000 kilowatts of renewable energy compared to 221,000 kilowatts for No. 18 Japan. But wind still accounts for just 2 percent of China’s electricity capacity---and only 1 percent of actual output, because the wind does not blow all the time.
As of 2007 China ranked fifth in the world in the annual instillation of windmills behind the United States, Germany, India and Spain. Rapid growth helped China make a leap to second place in 2008. In 2007 China added 1,300 megawatts of wind power, the equivalent of two average-size nuclear power plants. Total wind power production in 2007 was 2.6 gigawatts, still less than 1 percent of total energy use.
Countries with the most existing wind-energy capacity (gigawatts in 2008): 1) the United States (25,170); 2) Germany (23,903); 3) Spain (16,754); 4) China (12,210); 4) India (9,645); 6) France (4,404); 7) Italy (3,736); 8) Britain (3,231); 9) Denmark (3,180); 10) Portugal (2,862); Rest of the World (16,686)
Countries with most wind-energy capacity per capita (megawatts in 2008): 1) Denmark (581.6); 2) Spain (414.2); 3) Germany (290.1); 4) Portugal (268); 5) United States (83.6); 6) Italy (64.3); 7) France (53.4); 8) Britain (53.3); 9) China (9.2); 10) India (8.5); Rest of World (4.7).
Wind farms have been set up in Guangdong, Fujian and Hebei Xinjiang and Inner Mongolia, where strong consistent winds blow across coastal areas, the deserts and steppes. China is building one of the world’s largest offshore wind farms, with wind turbines with 80-meter-long blades that generate 1.2 megawatts of electricity, enough to power hundreds of homes, at Huangha in the northern coastal province of Hebei. The plant is expected to cost $1.1 billion and produce 1 million kilowatts and is expected to be completed in 2020. There are plans for a similar plant on the southern island of Nano to provide energy for Guangdong Province. The Japanese firm Kyushu Electric is planning to build a $100 million, 200,000-kilowatt wind farm in Inner Mongolia with the Chinese power company China Huandian.
China spenT $5.8 billion to more than triple its wind power capacity between 2007 and 2010 to 8,000 megawatts. . Greenpeace has estimated China’s wind power potential to be 1 million megawatts, more than twice China’s current total power-generating capacity of 440,700 megawatts. In November 2009, Chinese banks said they would invest $15 billion in a 14,569-hectare wind farm in Texas, which will produce enough energy for 180,000 American households.
A report in Science magazine contends that the Chinese could increase the country’s current output by a factor of 16 from wind-generated electricity. A single wind-generating complex in Gansu Province in northwestern China will, when completed, has 38,000 megawatts of generating capacity, enough to supply the total electricity needs of entire countries like Poland and Egypt.
Wind power infrastructure is lagging behind turbine construction. Already there are transmission bottlenecks and many wind turbines stand idle waiting for new transmission lines and connections to main power grids.
Wind farm in Xinjiang
Wind Power Industry in China and Chinese Wind Power Companies
China became the world’s largest maker of wind turbines in 2009, and is currently expanding its lead at a rapid pace. In 2009, China had three turbine makers---Xiungiang Gold wind Science & Technology, Confand Electric and Sinovel Wind--- in the top 10 in terms of sales by megawatts, according to the Danish think tank BTM Consult APS. Other major wind companies in China include Dongfang Electric. Because the market in China is huge,Sinovel and Dongfang are among the largest win firms in the world even though they have few foreign sales. Together Sinovel, Dongfang and Goldwind sold one in eight wind turbines sold world wide in 2008. According to BTM, Vestal was the leader with 19.8 percent and GE was second with 18.6 percent.
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. You have to move fast with the market, said Jens Tommerup, the president of Vestas China. Nobody has ever seen such fast development in a wind market.
There are dozens of wind turbine makers in China. The quality of Chinese-made turbines is behind that of manufacturers in the United States and Europe but is quickly catching up. As it stands now the technology of Chinese wind companies lags behind rivals like Vestas and General Electric. But its prices are up to 50 percent lower. A spokesman for Vestas told AP: “China is a major player and will dominate the future development fo wind.”
The National Development and Reform Commission (NDRC), a powerful planning agency, has said that the wind-power industry is already suffering from over-capacity, raising doubts about the need for large-scale investment in alternative energy. Evan Osnos wrote in The New Yorker: Until recently, wind farms were required to use turbines with locally manufactured parts. The requirement went into effect in 2003; by the time it was lifted, six years later, Chinese turbines dominated the local market. In fact, the policy worked too well: China’s wind farms have grown so fast that, according to estimates, between twenty and thirty per cent aren’t actually generating electricity. A surplus of factories was only part of the problem: local bureaucrats, it turned out, were being rewarded not for how much electricity they generated but for how much equipment they installed---a blunder that is often cited by skeptics of China’s efforts. [Source: Evan Osnos, The New Yorker, December 21, 2009]
Wind farm outside Urumqi
China’s Goldwind Science & Technology is one of the world’s largest makers of wind turbines but it is virtually unknown outside of China and almost all of its sales are domestic as of 2009. But the company expects to change that really soon.
Goldwind founded by Wu Gang, who was born in 1958 in Xinjiang, home to ferocious winds created vast plains and peaks and great extremes in temperature. There have been winds strong enough to blow trains from their tracks. Engineers from Europe have been testing wind turbines since the early 1990s.
Evan Osnos wrote in The New Yorker, “In 1987 Wu, then a young engineer in charge of an early Chinese wind farm, worked alongside engineers from Denmark, a center of wind-power research. He immersed himself in the mechanics of turbines. “Where are their stomachs, and where are their hearts?” he said. In 1997, state science officials offered him the project of building a six-hundred-kilowatt turbine, small by international standards but still unknown territory in China. Many recipients of government research funding simply used the money to conduct their experiments and move on, but some, like Wu, saw the cash as the kernel of a business. He figured that every dollar from the government could attract more than ten dollars in bank loans: “We can show them, “This is money we got from the science ministry.” [Source: Evan Osnos, The New Yorker, December 21, 2009]
Wu saw little reason to start from zero: Goldwind licensed a design from Jacobs Energie, a German company. Manufacturing was not as simple. Early attempts were a “terrible failure,” Wu said. “Whole blades dropped off.” He shook his head. “The main shafts broke. It was really very dangerous. Goldwind shut down for three months. The company eventually solved the problems, and, with the help of 863 and other government funding, it expanded into a full range of large and sophisticated turbines. Many of them were licensed from abroad, but, as they were built in China, they sold for a third less than European and American rivals. Goldwind’s sales doubled every year from 2000 to 2008. In 2007, Wu took the company public, and garnered nearly two hundred million dollars. [Ibid]
Goldwind operates a plant and a laboratory in a cluster of high-tech companies in an outlying district of Beijing called Yizhuang. Osnos wrote: the turbine-assembly plant is---an immaculate four-story hangar filled with workers in orange jumpsuits piecing together turbine parts that were as big and spacey-looking as Airstream trailers. The turbines were astonishing pieces of equipment---large enough so that some manufacturers put helicopter pads on top---and the technical complexity dispelled any lingering image I had of Chinese factories as rows of unskilled workers stooped over cheap electronics. Wandering among the turbines, we passed some Ping-Pong tables, where a competition was under way, and stopped in front of a shiny white dome that looked like the nose of a passenger jet. It was a rotor hub---the point where blades intersect---and it was part of Goldwind’s newest treasure, a turbine large enough to generate 2.5 megawatts of electricity, its largest yet... Wu was set to unveil the new turbine at a press conference the next day. A flatbed truck, loaded with turbine parts and idling in the doorway, was bound for wind farms throughout Manchuria. [Ibid]
Goldwind and other Chinese companies hope their lower labor costs and prices will give them an advantage over more established rivals such as Denmark-based Vestas, the world’s largest maker of wind turbines. Goldwind is already erecting turbines in the United States and hoping to exploit markets in Europe soon. Kerry Zhou. Goldwind’s director of development, told AP, “There are a lot of leads and we are following them up. We certainly expect that by 2011 we can get good results.”
Liberal Management at Goldwind
When I reached Goldwind, the first thing I saw was a spirited soccer game under way on a field in the center of the campus. An artificial rock-climbing wall covered one side of the glass-and-steel research center. I met the chairman, Wu Gang, in his office on the third floor, and I asked about the sports. “We employ several coaches and music teachers,” he said. “They do training for our staff.” A pair of pushup bars rested on the carpet beside his desk. At fifty-one years old, Wu is tall, with wire-rim glasses, rumpled black hair, and the broad shoulders of a swimmer. (“I can do the butterfly,” he said.) For fun, he sings Peking opera. [Source: Evan Osnos, The New Yorker, December 21, 2009]
Wu said that he had not been a robust child: “My education was very serious. Just learning, learning, learning. I wanted to jump out of that!” Wu integrates his hobbies into his work life in the manner of a California entrepreneur. He once led seventeen people, including seven Goldwind employees, on a mountaineering expedition across Mt. Bogda, in the Tian Shan range, in western China. “We Chinese are very weak in this field---teamwork,” Wu said. He recently put his workers on a five-year self-improvement regimen; among the corporate announcements on Goldwind’s Web site, the company now posts its in-house sports reports. (“All the vigorous and valiant players shot and dunked frequently,” according to a recent basketball report on a game between factory workers.)
Wu was born and raised in the far-western region of Xinjiang, home to vast plains and peaks that create natural wind tunnels, with gusts so ferocious that they can sweep trains from their tracks. In the nineteen-eighties, engineers from Europe began arriving in Xinjiang, in order to test their wind turbines.
Solar Energy In China
Solar power in Xinjiang China is the world’s largest manufacturer of solar panels. Chinese companies have a 30 percent cost advantage over European firms in producing solar technology according to Goldman Sachs. Still China lags behind Europe. the U.S. and Jaoan in terms of instillation. Even if China triples its instillation of solar cells in 2010 it will trail behind Germany, Italy, United States and Japan . The Chinese government has said it will pay up to 70 percent of the cost for new solar power systems. The aim is boost China’s solar industry.
In Kunming and other places people are installing solar water heaters on the roofs of their homes and apartments, negating the need to burn coal for electricity and heating water. Army outposts have installed solar panels to provide electricity and heat offices and barracks. The energy is especially appreciated in remote border outposts. Solar has helped cut coal consumption by 127,000 tons a year in Tibet.
In September 2009, the U.S. firm First Solar announced it was going to build the world’s largest solar plant in Ordos, Inner Mongolia. The plant is expected to produce 2-gigawatts of power, enough to power about 3 million Chinese households.
Chinese Solar Water Heaters
China is a leader in the manufacturing and sale of solar water heaters---relatively unsophisticated, mattress-size, stainless steel devices that use the sun rays to heat water and cost about $220. Used for household purposes such as showering. washing dishes and washing, the device consists of an angled row of cola-colored glass tubes that absorb heat from the sun. The most common models are filled with cold water. As the solar heater is heated, the water rises into an insulated tank where it can remain hot for days. [Source: David Pierson, Los Angeles Times, September 2009]
Solar-powered yurt Models produced by Dezhou-based China Himi Solar Energy Group cost between $190 and $2,250 and work even when temperatures are below zero and the skies are filled with clouds or smog. Unlike solar panels that use expensive technology to produce electricity the solar water heaters consist of a row of sunlight-capturing glass pipes angled below an insulated water tank. Sunlight travels freely through the glass, generating heat that is trapped in a central pipe where the heat is transmitted to water. The secret to operating in cold temperature is the vacuum separating the inner tube with its energy-trapping coating from an outer tube.
In Rizhao, a seaside city in Shandong Province with 2.8 million people, 99 percent of the households use solar water heaters. The devices used there have improved so much over the years some don’t need direct sunlight and function on cloudy or smoggy days. Advanced models have electrical water heaters that switch on during frigid cold days.
As of 2009 more than 30 million homes in China had solar water heaters, accounting for two thirds of the world’s solar water heating energy and preventing more than 20 million tons of carbon dioxide from entering the atmosphere. Christopher Flavin of the Washington-based Worldwatch Institute told the Los Angeles Times, “China absolutely dominates the global market and they have done it relatively quietly and without a lot of fanfare. It’s an interesting example of their ability to take technology that was developed elsewhere and adapt it to their market on a scale no one had conceived of.”
The heating of water typically accounts for a quarter of the energy used in a building. The use of water heaters is so high in Rizhao because the local government there requires solar water heaters to be installed in all homes and subsidizes their cost. For many families that installed the devices it was the first time they ever had reliable hot water. In Dezhou, another city known for energy conservation, 90 percent of the household and streets are lit with solar-powered lights.
The solar water heater market in China is very competitive. More than 5,000 companies manufacture water heaters there. The president of Gold Giant, one of 150 manufacturers in Rishao, told the Los Angeles Times, “The market is huge but the competition is fearsome.” Another water heater maker has had success with the slogan that his water heater will “take the feathers off a chicken.” The largest in China, Himin Solar Energy Group, got a $50 million investment from Goldman Sachs. Some are looking for export market abroad. The American market, where people use an average of 400 liters of water daily, will be difficult to crack because the heaters don’t heat that much water.
Chinese Solar Energy Industry
Suntech solar panels The solar energy industry is fragmented but quite large. It employs 250,000 people, about an eight of all those employed in China’s renewable energy industry. Seven of the planet's top 10 solar panel makers are now Chinese.
China is the world’s largest manufacturer of solar panels. Chinese companies had a 30 percent cost advantage over European firms in producing solar technology according to Goldman Sachs.
China’s share of the solar module industry grew from 7 percent in 2005 to 25 percent in 2009. China has access to the rare earth neodymium, a critical ingredient in wind turbine magnets, and a large supply of cheap labor.
When the California Solar Initiative started un 2007 only 2 percent of the model were Chinese. In the first quarter of 2009 he figure was 46 percent according to New Energy Finance.
The entrance of China into the solar power industry has had wide and rapid global consequence and helped to significantly reduce the cost of solar power. According to the California Solar Initiate, only 2 percent of the roof top module used in 2007 were Chinese. In the forth of quarter of 2009, according to Nathaniel Bullard of New Energy Finance, the figure was 46 percent. [Source: The Economist, April 2009]
the state-rim China Development Bank agreed in 2010 to lend as much as $17 billion to Yingli, Suntech and Trina for development.
Not only are Chinese solar companies doing well in their own right. Many foreign companies are outsourcing production to China. Marc Pinto of Applied technology told The Economist half the world’s production capacity is already in China, with two thirds of growth in capacity in 2010 expected to be in China.
Solar Energy Companies In China
Yingli Solar was launched in the late 1990s. It is expect to ship a gigawatts with of solar cells in 2010.
Yingli Solar, which only began making solar cells in the early 2000s, expects to ell more than a gigawatts.
In August 2009, the London-listed Chinese solar company, ReneSola, was awarded a deal to develop a $700 million, 150-megawatt solar power plant near the city of Wuzhong in Ningxia in northern China. The move is particularly important for ReneSola, because it allows the Chinese firm to move from being a manufacturer of solar wafers, cells and modules into a full-blown scheme developer. [Source: Terry Macalister, The Guardian, August 20, 2009]
Analysts at Goldman Sachs singled out ReneSola, formally based in the British Virgin Islands but with all its manufacturing operations in China, as an attractive investment. Renesola aquired rival JC Solar in 2009 and has been ramping up its annual polysilicon production capacity, which is expected to reach 2,900 tons by the end of 2010 compared to 400 to 500 tons in 2009.
Solar electricity provided by technology sold by the Chinese company SunOasis costs $0.25 per kilowatt hour, compared to $0.0375 to $0.05 per kilowatt hour for power from a coal-fired plant and $0.0125 to $0.025 per kilowatt hour for power from a hydroelectric dam. SunOasis is working with Shell to bring light to 80,000 peasant families as part of a $300 million project and develops solar power bug zappers.
Suntech Power Holdings, makes silicon photovoltaic solar cells. It was valued at $9 billion in 2007, up 300 percent from its public stock offering in December 2005. Suntech is owned by Shi Zhengrong, listed as the seventh richest man in China on the Forbes list in 2006, with a fortune estimated at $1.43 billion.
Shi founded Suntech in Wuxwi near Shanghai in 1992 after earning a Ph.D. in engineering in Australia. By coming up with and developing, in the words of the Wall Street Journal, “first world technology at developing world prices,” he quickly forged Suntech into one of the top four solar cell manufacturers in the world along with Sharp and Kyocera in Japan and BP.
Shi told the New York Times he owes his success to Chinese provincial government subsidies and his reliance on low-tech labor rather than high tech machines to make his cells. Suntech cell produce energy at about $4 per watt. The goal is to reach $2 per watt by 2015. Roughly 90 percent of the company’s business is abroad but as prices come down he is ready to expand quickly in China.
Bill McKibben wrote in National Geographic, “Suntech has emerged as one of the top two leading makers of solar photovoltaic panels in the world. New employees are added weekly, and on their first day on the job they watch Al Gore in An Inconvenient Truth. The young tour guide showing me around the company's headquarters in Wuxi, near Shanghai, paused by the photos of solar panels at base camp on Mount Everest and the portrait of her boss, Shi Zhengrong, named by Time as one of its "heroes of the environment." "It's not only a job," she said, a tear welling in her eye. "I have a mission!" Of course, that tear might have come in part from the air. Wuxi was among the dirtiest cities I'd ever visited: The 100-degree-Fahrenheit air was almost impossible to breathe. The solar array that forms the front of the Suntech headquarters slanted up to catch the sun's rays. Because of the foul air, it operated at only about 50 percent of its potential output.” [Source: Bill McKibben, National Geographic, June 2011]
Himin Solar Energy Group
Himin Solar Energy Group is the world's biggest producer of solar water heaters, as well as a pioneer in niche products such as sun-warmed toilet seats and solar-powered Tibetan prayer wheels. The company claims to have installed more renewable energy than any other company on Earth. Now it has opened a low-carbon five-star hotel and is building Utopia Garden, a gigantic, eco-friendly luxury apartment complex---both with solar-heated pools. [Source: Andrew Higgins, Washington Post , May 17, 2010]
Huang Ming, boss of the company, is known to many as the "sun king," but he said, "I prefer to be called solar madman." "Renewable energy doesn't mean people have to be uncomfortable," Huang told the Washington Post in an interview at his Dezhou corporate headquarters, the Sun-Moon Mansion, a fanlike structure studded with photovoltaic cells and sun-collecting vacuum tubes.
Andrew Higgins wrote in Washington Post: “Huang, an oil industry engineer turned solar energy tycoon, is driving one of China's boldest efforts to promote, and profit from, green technology. A member of China's parliament, he first started tinkering with solar water heaters in the early 1990s after the birth of his daughter, which he said got him thinking about the environment. At the time, he was working in a petroleum research institute and "felt guilty." He later quit the institute and set up his own company. He said he realized that clean energy would work only if the profit motive kicked in: "If it can't make money, this experiment will be a big failure."
“His heating devices, which use vacuum tubes to absorb sunlight, get rave reviews, particularly from re-housed farmers who had no hot water before. "We used to go to bed covered in dust," recalled Wang Fang, a former village resident who lives in a six-story Dezhou apartment block. Instead of going to a communal bathhouse a couple of times a month, she and her family take hot showers at home three times a week.” [Ibid]
Himin Solar Energy Group Marketing
Bill McKibben wrote in National Geographic, “Huang estimates that it's erected more than 160 million square feet of solar water heaters. "That means 60 million families, maybe 250 million people altogether---almost the population of the United States," he said. Huang, sells some of the best solar-thermal systems in China, but even he admits that it's fairly simple technology. He says that the key to his company's success has been opening people's minds, which it's done with revival-style marketing campaigns that storm one city at a time. "We do road showing, lecturing, PowerPointing," he said. And now they're harnessing the power of sightseeing too: The Sun-Moon Mansion is merely the anchor of a vast solar city that will soon include a solar "4-D" cinema, a solar video-game hall, a huge solar-powered Ferris wheel, and solar-powered boats to rent from a solar marina.” [Source: Bill McKibben, National Geographic, June 2011]
“The company showroom, Feel It Hall, captures a few contradictions. The solar panels heat water for hot tubs and have giant flat-screen TVs above each. But that's the only way to sell the idea of renewable energy, Huang insisted, as he described the gigantic apartment towers he's building on the edge of town, with racks of solar panels that curve like the back of a dragon. "At night that's what you see---a floating dragon," he said. "So many developers come to our Solar Valley to copy from us, to learn from us. That's just what I wanted." [Ibid]
"This is real," Chiel Boonstra, a Dutch architect told the Washington Post. He heads the International Solar Cities Congress, a grouping of scientists and policymakers that champions low-carbon living. Dezhou, he said, "will be a new center of gravity for renewable technologies." Also impressed is Goldman Sachs, which, along with Beijing-based CDH Investments, has invested $100 million in Huang's company.
Dezhou, China Solar City
“Dezhou, a gritty city of 600,000 with a surrounding suburban sprawl housing 5 million people, used to be known mainly as a producer of braised chicken,” Higgins wrote. Today, it touts itself as China Solar City, a hub for clean-tech manufacturing.” Dezhou hosted the International Solar Cities World Congress in 2010. [Source: Andrew Higgins, Washington Post, May 17, 2010]
“In an internal December report on Dezhou's economic prospects, Mayor Wu Cuiyun said the city must “use all its strength to support” Huang's solar energy company. She pledged “comprehensive preference in policy, land, capital and other areas to make it a world-class enterprise group.” The Dezhou Construction Committee is doing its bit: It requires that all new buildings be equipped with solar water heaters of the type made by Huang's company. More than 80 percent of buildings in the city now have them. So, too, does the Beijing mausoleum housing Mao Zedong's embalmed corpse. The mausoleum is a Huang customer.” [Ibid]
“Dezhou has moved far more than most Chinese cities toward solar energy. But officials said it still gets the bulk of its electricity from a coal-fired power station. The role of coal will probably increase even as Dezhou's economy, which grew by 12 percent last year, gallops.” Huang acknowledged that, so far, solar energy is "a drop in the ocean," but he said that Dezhou offers a model for the future. "I like big plans," he said. [Ibid]
Huang is buildings Solar Valley, a new industrial zone in Dezhou touted as China's clean-tech version of Silicon Valley and "The Biggest Solar Energy Production Base in the Whole World..” His corporate headquarters, a big white building, has already been built. "This is an experiment. It is a big laboratory," Huang told the Washington Post. [Ibid]
“Solar Valley is a massive exercise in social, economic and ecological engineering. The $740 million plan has attracted about 100 companies and spawned factories, a research center and wide boulevards illuminated by solar-powered lights. It highlights the promise---as well as the limits---of China's efforts to reconcile breakneck economic development with environmental concerns. To make way for it tens of thousands of farmers have been moved into concrete apartment blocks. [Ibid]
Solar Energy Company Exploits U.S. Subsidies and Chinese Labor
Deng Xunming, a China-born U.S. citizen who is a pioneer of America's solar industry and whose innovations light up the first solar-powered billboard on New York's Times Square. The Wall Street Journal reported: “His company, Xunlight Corp., has been nurtured by U.S. financial aid and embraced by politicians eager for the U.S. to win the race to develop new energy technologies. Xunlight has pulled in more than $50 million in state and federal grants, loans and tax credits, partly aimed at bringing needed jobs to Toledo, Ohio, where the company is based. [Source: Jason Dean, Andrew Browne and Shai Oster. Wall Street Journal, November 16 2010]
“But two years ago, Mr. Deng, who left China in 1985 to study at the University of Chicago, set up a Xunlight unit on a giant industrial estate near Shanghai. The company now also makes its thin-film solar panels there and employs 100 workers. The panels are exported back to the U.S. Mr. Deng says he is trying to keep the Chinese operation "low key." It isn't mentioned on Xunlight's website, and Mr. Deng declined to comment on the China factory in an interview.” [Ibid]
"China will be a good market for the future," Deng told the Wall Street Journal. "But right now, the bigger market is in Europe. We're putting our attention on the Europe and U.S. market. But meanwhile we're developing efforts for the China market," which could eventually be bigger, he said. While the state seeks new technology, it also uses control of banking to feed cheap credit to industries it wants to foster. The government sets interest rates for China's bank depositors low relative to rates of growth and inflation. That means Chinese households, through the banks, effectively subsidize the state's industrial darlings.
Sour Solar Deal for American Company in China
Keith B. Richburg wrote in the Washington Post, “With great fanfare, an Arizona-based energy company signed a preliminary agreement with China last fall to build the world's largest solar-power plant in the Mongolian desert. The deal was hailed as the first major example of the United States and China cooperating on a big-ticket energy project, and the largest foray by a U.S. company into Asia's fast-growing alternative- energy market. The agreement became a centerpiece achievement of President Obama's visit to China last November. Nearly a year later, the deal has not been completed and there is growing skepticism as to whether it will happen. [Source: Keith B. Richburg, Washington Post, August 13, 2010]
“Chinese competitors in the solar business have complained openly about the U.S. company, First Solar, getting such a lucrative contract. A planned June 1 date to break ground has been missed. Government officials from the Chinese region of Inner Mongolia, where the plant would be built, say they plan to open the project to competitive bidding. Many solar-industry insiders now say the deal, outlined in a "memorandum of understanding," was mainly a showpiece for Chinese officials to demonstrate support for one of Obama's signature initiatives, strategic energy cooperation.” [Ibid]
“What happened to the Mongolian solar farm project reads like a cautionary tale on the pitfalls facing U.S. firms trying to enter the Chinese market, particularly in a sector such as alternative energy, which has many indigenous competitors. It also underscores what U.S. business executives here say is a lack of reciprocity in access to China's markets. About the same time First Solar was signing its preliminary agreement for the Mongolian project, China was making an aggressive push into the U.S. alternative-energy market. A Chinese consortium invested $1.5 billion in a 36,000-acre wind farm in West Texas, with all the wind turbines to be made in China.” [Ibid]
“First Solar signed a "partnership agreement" with the city of Ordos on Sept. 8, 2009, to build a huge 2,000-megawatt solar farm in phases over several years. The plant, when complete, would provide power for as many as 3 million households. On Nov. 18, First Solar's president, Bruce Sohn, and the mayor of Ordos, Yun Guangzhong, signed a separate framework agreement, in the presence of top Chinese leaders and U.S. Energy Secretary Steven Chu. The 11-year-old company is the world's largest maker of thin-film photovoltaic modules and has been expanding into constructing solar farms. The signing was part of the summit between Obama and Chinese President Hu Jintao.” [Ibid]
“But the price subsidy generated controversy among Chinese solar producers. They said that if the government set the price too high, there would be enough money only for a few solar companies out of the thousands here. Others raised nationalistic concerns, questioning why the government should subsidize a U.S. firm. An official in Ordos confirmed that the process to build the plant is now wide-open. Gao Gengui, energy section chief for the Ordos government's development commission, said the government is treating First Solar the same as competing Chinese solar companies, and he said First Solar should "go through the bidding process."
U.S. Solar Energy Companies File a Complaint Against China
In October 2011 seven American solar panel makers filed a trade case against China accusing the Chinese solar industry of receiving unfair government subsidies and dumping its products in the United States at below cost. The companies that filed the October complaint said massive subsidies by the Chinese government enable Chinese producers to drive out U.S. competition, and asked for tough trade penalties on Chinese solar imports. [Source: New York Times, AP]
The case has caused a split in the solar industry, with some U.S. companies saying imports of Chinese solar panels have lowered prices, helping consumers and promoting rapid growth of the industry. Solar and other renewable energy technology has emerged as an irritant in U.S.-Chinese trade. The two governments have pledged to co-operate in development but accuse each other of violating free-trade pledges by subsidizing their own manufacturers.
Chinese Solar Energy Companies Set Up Shop in the United States
Keith Bradsher wrote in the New York Times: “Like Detroit automakers taking on the Japanese a generation ago,the seven American solar panel makers that filed a trade case against China might find that a legal victory, if it comes, may not translate into business success. In the 1970s and “80s, American car companies won a long series of trade cases to limit Japanese car imports. Japan’s automakers responded by moving assembly lines to the United States, creating many new blue-collar jobs. But they kept most of the high-paying design and engineering positions back in Japan. The new factories in the United States not only shielded Japanese auto companies against most further trade protectionism but helped them stay competitive when the yen soared against the dollar. Meanwhile, American consumers had many new, affordable choices in cars---while Detroit continued to have trouble competing with its Japanese rivals. [Source: Keith Bradsher, New York Times October 20, 2011]
Don’t be surprised if Chinese solar companies try to pursue a similar path, which could benefit American consumers of solar power if it helps propel the technology beyond its current niche status. Chinese solar panel makers have already begun moving operations to the United States to avoid trade restrictions. With the new case, filed at the Commerce Department, some industry executives expect the Chinese industry to increase its American expansion. That could help the Chinese companies avoid import restrictions and insulate them from currency fluctuations as China allows the renminbi to appreciate gradually against the dollar.
Suntech Power of Wuxi, China, the world’s largest manufacturer of blue solar panels---the most commonly used type---has already moved some simple assembly tasks to the United States. Other big Chinese manufacturers like Yingli Green Energy and Trina are considering similar moves. A partial shift of Chinese production could help create some new and mostly blue-collar American jobs. But a broader move into the United States could turn Chinese solar panel manufacturers into even fiercer competitors with their American counterparts.
The solar energy trade complaint “will only accelerate the setting up of solar module and solar cell manufacturing in the United States,” Ocean Yuan told the New York Times. Mr. Yuan is the president of Grape Solar, a company based in Eugene, Ore., that is a big importer of solar panels from China, Korea and Taiwan. Grape Solar has already been in discussions with big Chinese panel makers on ways to move more manufacturing to the United States.
Mr. Yuan said that once the necessary construction permits were obtained, it took only three to six months to build a factory that did the final step of assembling solar cells into solar panels. It takes six months to a year to build a highly automated factory to make solar cells from solar wafers. Many American cities have already been seeking Chinese solar power factory investments, which could speed the permit approval process. Chinese state-owned banks have extended nearly $41 billion in loans and lines of credit to the country’s solar panel manufacturers, according to the trade case against them. Investing even a small part of that money in factories in the United States would sharply increase capacity.
Suntech moved production of the last step in the manufacturing process from China to Goodyear, Ariz., last year. About 100 mostly blue-collar workers in Goodyear assemble panels that each have five or six dozen solar cells that were shipped in from China. The workers then add a glass cover, bolt on an aluminum frame, attach a junction box and package it for shipping. This process has already enabled Suntech to label the solar panels as “Made in U.S.A.” As a result, they now qualify for federal “Buy American” subsidies.
Retaliations and a Pyrrhic Victory in the Solar Energy Trade Dispute
The steep tariffs sought in the trade complaint could also cause China to retaliate. The country might, for example, shift more of its hefty annual purchases of solar panel manufacturing equipment to German suppliers instead of American ones. “It would be a travesty for the solar industry,” said Tom Zarrella, a former chief executive of GT Solar, a New Hampshire supplier of the manufacturing equipment.
American companies like GT Solar ship a total of about $1 billion worth of products a year to China, while other American firms ship an additional $1 billion a year in raw materials to the Chinese solar companies. In the first eight months of the year, Chinese panel makers shipped $1.6 billion of products to the United States.
The current betting by trade experts is that the American solar panel industry will win its case, which could lead to tariffs early in 2012, even if the proceedings take a year or so to play out. That is because the United States still classifies China as a nonmarket economy, which sets off special rules for the evaluation of antidumping and antisubsidy cases that heavily favor American companies. American companies have won almost all the antidumping and antisubsidy cases they have filed against Chinese companies for the last 20 years. The solar industry has clear differences from the auto industry, of course. The American solar power market totaled only $6 billion last year, with the industry employing no more than 100,000 people and possibly considerably fewer, depending on whose estimates one believes. In contrast, the United States’ auto industry in the ‘70s had revenue in the hundreds of billions and employed more than a million people.
But while the solar industry is in its relative infancy---solar power now contributes about one-tenth of 1 percent of the United States’ electricity---it is growing fast. The new solar wattage installed in the United States has been growing 74 percent a year since 2008, according to GTM Research, a renewable energy market analysis firm in Boston. Companies that develop solar power projects in the United States would not welcome paying tariffs on panels that might exceed 100 percent of the wholesale price.
Victory in the case could still buy the American industry time to reduce costs and improve their efficiency. That may be why shares of the biggest Chinese solar power companies, which trade in New York, fell 5 to 9 percent after the trade case was announced. But setting up solar panel factories is faster and simpler than building a car assembly plant, which could allow Chinese solar power manufacturers to respond quickly.
To avoid punitive tariffs, Chinese companies would need to make solar cells in the United States and then assemble them into panels---steps that together represent only about half the cost of a solar panel. The other half of the cost consists of a series of initial steps that result in the production of a polysilicon wafer, which the Chinese industry would probably continue to find cheaper to do in China.
China Criticizes U.S. Choice to Probe Solar Panel Imports
China criticized a U.S. decision to investigate whether Chinese companies are harming the American solar panel industry, saying it was made without sufficient evidence and highlights a strong U.S. tendency for protectionism. The U.S. International Trade Commission had earlier voted to investigate a complaint by seven U.S. solar companies that Chinese competitors are selling solar products on global markets at unfairly low prices. [Source: Associated Press, December 4, 2011]
The vote does not impose any penalties but says there is reason to believe that Chinese imports harm or threaten to harm the U.S. solar panel industry. China's Ministry of Commerce said in a statement that the decision was made without sufficient evidence showing the U.S. industry had been harmed and did not take into account Chinese companies' arguments or opposition from U.S. industries and other affected groups. "China is deeply concerned about the decision, which does not tally with facts and highlights the United States' strong tendency for trade protectionism," it said on its website.
The statement said China hopes the U.S. will objectively analyze why some U.S. solar panel companies lack competitiveness. "The United States should avoid abusing trade remedies which will affect bilateral trade and mutually beneficial co-operation between China and U.S. enterprises in the new energy sector," it said.
Image Sources: Wiki Commons, Mongabey; Environmental News; Suntech
Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.
Last updated April 2012