China surges past rivals and faces gripes of unfair advantages

Sydney Morning Herald
Monday 1/2/2010 Page:

CHINA vaulted past competitors in Denmark, Germany, Spain and the United States last year to become the world's largest maker of wind turbines, and is poised to expand even further this year. China has also leapfrogged the West in the past two years to emerge as the world's largest manufacturer of solar panels. It is pushing equally hard to build nuclear reactors and the most efficient types of coal power plants. These efforts to dominate the global manufacture of renewable energy technologies raise the prospect that the West may some day trade its dependence on oil from the Middle East for a reliance on solar panels, wind turbines and other equipment manufactured in China.

Most of the energy equipment will carry a brass plate, 'Made in China,'" said KK Chan, the chief executive of Nature Elements Capital, a private equity fund in Beijing that focuses on renewable energy. The US President, Barack Obama, in his State of the Union speech last week, sounded an alarm that the US was falling behind other countries, 1HEHSA1 BOA,, especially China, on energy. "I do not accept a future where the jobs and industries of tomorrow take root beyond our borders - and I know you don't either," he told Congress.

The US and other countries are offering incentives to develop their own renewable energy industries, and Mr Obama called for redoubling US efforts. Yet many Western and Chinese executives expect China to prevail in the energy technology race. Multinational corporations are responding to the rapid growth of China's market by building big, sophisticated factories in China. Vestas of Denmark has just built the world's biggest wind turbine manufacturing complex in north-eastern China, and transferred the technology to build the latest electronic controls and generators. "You have to move fast with the market," said the president of Vestas China, Jens Tommerup. "Nobody has ever seen such fast development in a wind market."

Renewable energy industries in China are adding jobs rapidly, reaching 1.12 million in 2008 and climbing by 100,000 a year, according to the government-backed Chinese Renewable Energy Industries Association. Yet renewable energy may be doing more for China's economy than for the environment. Total power generation in China is on track to pass the US in 2012, and most of the added capacity will still be from coal. China intends for wind, solar and biomass energy to represent 8% of its electricity generation capacity by 2020. That compares with less than 4% now in China and the US. Coal will still represent two-thirds of China's capacity in 2020, and nuclear and hydro power most of the rest.

China's leaders are intensely focused on energy policy. Last Wednesday the government announced the creation of a National Energy Commission composed of cabinet ministers as a "superministry" led by the Prime Minister, Wen Jiabao. Regulators have set mandates for power generation companies to use more renewable energy. Generous subsidies for consumers to install their own solar panels or solar water heaters have produced flurries of activity on rooftops across China. The country's biggest advantage may be domestic demand for electricity, rising 15% a year. To meet that in the coming decade, according to statistics from the International Energy Agency, China will need to add nearly nine times as much electricity generation capacity as the US.

So while Americans are used to thinking of themselves as having the world's largest market in many industries, China's market for power equipment dwarfs that of the US, even though the US market is more mature. That means Chinese producers enjoy enormous efficiencies from large-scale production. As in many other industries, China's low labour costs are an advantage in energy. Although wages have risen sharply in the last five years, Vestas still pays assembly line workers only $US4100 ($4600) a year.

China's commitment to renewable energy is expensive. Although costs are falling steeply through mass production, wind energy is still 20% to 40% more expensive than coal-fired power. solar energy is still at least twice as expensive as coal. With prices tumbling, the wind and solar industries are increasingly looking to sell equipment abroad - and facing complaints by Western companies that they have unfair advantages. The deputy managing director of China's renewable energy association, Ma Lingjuan, said: "Every country, including the United States and in Europe, wants a low cost of renewable energy. Now China has reached that level, but it gets criticised by the rest of the world."