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 October 23, 2007
China's Renewable Energy Market

 This Market report was prepared by China Strategies, LLC., and is reproduced here in GLOBE-Net with the kind permission of Lou Schwartz, president of China Strategies, LLC, and publisher of China Renewable Energy and Sustainable Development Report. This report appeared in the September 2007 edition of the China Renewable Energy and Sustainable Development Report.

Introduction

China's extraordinary economic growth and heavy reliance on increasingly expensive foreign oil, the vast environmental toll that is one of the most apparent costs of China's economic success, persistent rural poverty in China and periodic power shortages all have impressed upon Beijing that renewable energy must be a large part of China's economy if China is to both complete its economic transformation and achieve "energy security".

China rapidly has moved along the path of renewable energy development. In 2005 China had the world's largest total investment in renewable energy sources (excluding large scale hydropower plants) with expenditures of $6 billion dollars U.S. and the largest installed capacity of renewable energy with 37,000 MW of installed capacity.

By 2006 China's total renewable energy output equaled 8% of non-renewable energy generation or 200 million MT of coal equivalents. China's goal is for renewable energy to account for 10% of all energy consumption by 2010. In the medium term China plans to develop 120,000 MW's of renewable energy by the year 2020; this would account for 12% to 16% of China's total installed energy producing capacity that year.

In the long term China has set an objective of having 30% or more of its total energy requirements satisfied by renewable sources by 2050.

China's ambitious growth target for renewable energy production will require an investment of approximately 800 billion Yuan (~$100 billion U.S.D.) by 2020.

On September 4, 2007 the National Development and Reform Commission (NDRC) issued the {Medium and Long Term Development Plan for Renewable Energy}, which notably calls for the investment of 2 trillion Yuan (~$263 billion dollars U.S.) before 2020 on renewable energy development in China. Including hydroelectric power, China's renewable energy output equals approximately 8% of all energy consumed in China.

The {Medium and Long Term Development Plan for Renewable Energy} calls for that percentage to rise to 10% by 2010 and 15% by 2020. According to Chen Deming, a deputy chairman of the NDRC who commented on the new plan, these goals are more far-reaching than what many countries have required, but that they also pose a challenge to China. In 2006 consumption of power generated from coal accounted for 69% of total energy consumption in China.

By 2020 the plan calls for the development of a total of 300,000 MW of hydropower, 30,000 MW of wind power, 30,000 MW of bio-mass, 1800 MW of solar power, 300 million square meters coverage of solar hot water heaters, 44 billion square meters of methane gas per annum and 50 million tpy of bio-fuels.

The {Medium and Long Term Development Plan for Renewable Energy} calls for the development of six 1000MW-scale wind farms by 2020; these six large scale wind farms will be located in Xinjiang Province's Dabancheng, Gansu Province's Yumen, the Jiangsu Province/Shanghai coastal region, Hebei Province's Zhangbei, Jilin Province's Baicheng and Inner Mongolia's Huitengxile.

One principal of the {Medium and Long Term Development Plan for Renewable Energy} is that China will not affect food security in developing bio-fuels, but that the emphasis will be on developing non-grain plants to be converted into bio-fuels. Presently there are 4 plants in China that use grains to produce ethanol; those four plants have a combined capacity of 1.02 million tpy, yet going forward the emphasis will be on utilizing land that is less hospitable for grain cultivation to raise such fuel crops as tung trees and sorghum.

According to Chen Deming, the deputy chairman of the NDRC, Beijing is sensitive to where power prices are, but will gradually take into consideration environmental factors in setting power prices. Beijing also cannot completely deregulate power prices because the price of renewable energy is still much higher than coal fired power plants. China will be proactive in promoting renewable energy development by adopting a variety of policy measures to encourage the use of renewable energy; these policies will include preferential finance and tax policies, including specialized funds to subsidize the development of renewable energy sources and tax policies that reduce or eliminate taxes for qualified renewable energy development activities.

China's Solar Power Industry

In 2007 Shandong Province established a 2.133 billion Yuan fund to support energy conservation and reduction of emissions. From that fund the provincial government will allocate funds to subsidize hotels, schools and other establishments to build solar hot water supply systems.

Shandong Province now has more than 100 companies that are involved with renewable energy and those companies produce more than 3 billion Yuan/annum in revenue. To date a total of 15 million square meters of buildings have a solar hot water heating system.

In remarks made on September 18, 2007 at the "2007 World Solar Energy Conference", Shi Dinghuan, the Chairman of the China Renewable Energy Institute and a member of the Counselor's Office of the State Council, said that after 2020 China will experience scale development of solar power. Nearly 1000 individuals from more than sixty countries attended the conference. In his remarks Mr. Shi called on greater cooperation between developed countries and developing countries, especially in the realm of technology transfer of key renewable energy technologies.

Construction began on August 18, 2007 on a 12 billion Yuan, 15,000 MT solar energy grade silicon project in Xinyu city, Jiangxi Province. The first phase of the project, which will total 6000 MT of polycrystalline silicon materials, is expected to be completed and in operation by the end of 2008; the entire project will be open by 2009. The project is being developed by Jiangxi Saiwei LDK Solar Energy High Technology Co., Ltd., which went public on the NYSE on June 1, 2007, raising $469 million U.S.D.

According to Shi Dinghuan, the chairman of the board of the China Renewable Energy Society, solar hot water appliances already cover 90 million square meters of buildings in China and serve 40 million households and 200 million people. China is now the world's largest producer and user of solar hot water appliances.

On August 8, 2007 the 200 million Yuan, 25MW solar cells project of the Tri-crystalline Silicon Products Manufacturing Co., Ltd. formally set up in Quanzhou, Fujian Province. The project will be manufacturing mono-crystalline solar cells by 2008.

In early August 2007 a group of Chinese solar module manufacturers were having preliminary discussions regarding forming a national photovoltaic industry alliance. The motivation for the discussions included the desire to contain what was referred to as "disorderly, pernicious competition" among companies in the solar energy module industry. The background to these discussions is the rapid growth of the domestic solar industry in China over the past 1-2 years, fueled by a great deal of capital which perceived a new market opportunity.

Being near the tail end of the solar industry production chain, the solar module industry doesn't have a great deal of technology that it contributes, which means that there are fewer barriers to entry than in the solar cells or silicon industries. According to one industry insider by the end of 2006 there were approximately 200 solar module manufacturers in China and because there is a lot of capital that is available and which likes this sector, there will be another increase in the number of solar module manufacturers in China in 2007. Solar module manufacturers are competing to increase the scale of their operations to reduce costs; in this manner they see the way to overcome the price competition which has ensued as a consequence of so many new entrants into the industry.

One example is the Wuxi (Jiangsu Province) Guofei Green Energy Co., Ltd. which had 10MW of capacity in 2006, which will increase to 30MW in 2007 and further increase to 40-50MW in 2008; the company is increasing capacity despite the fact that it sold only 6MW of solar modules in 2006. The price of modules has declined over the past two years. In 2005 the price was $35 U.S.D. to $38 U.S.D. per watt; as of the beginning of 2007 the price had dropped to $32 U.S.D. per watt and it is expected that the price will drop again by the end of 2007 to $30 U.S.D. per watt. Consequently, gross profits at most profitable solar module manufacturers are only 10%.

The solar cell manufacturers, which are the upstream suppliers of the solar module industry, are also experiencing an increase in production capacity and fairly robust competition. The suppliers of the solar cell manufacturers, which are the polycrystalline silicon manufacturers, are not reducing prices as the supply of silicon is insufficient at present to address the current demand; the U.S. and Japan are the principal suppliers of polycrystalline silicon.

One such example of a solar cell manufacturer is the China Power (Nanjing) Photovoltaic Co., Ltd., which went public on NASDAQ in May 2007. Beginning in August 2004 when the company started-up it had five production lines producing solar cells. By the end of 2006 the company had 6 production lines producing a total of 192MW of solar cells; by the end of 2008 the company expects to have expanded further to a total of 12 production lines and be producing 390MW of solar cells. Industry experts believe that the solar module manufacturers will have their toughest time in 2008.

By 2009 the price of polycrystalline silicon will have moderated somewhat and by 2010 as China's output of polycrystalline silicon grows the price will decrease further. By 2010 China's domestic polycrystalline silicon output capacity will reach 60,000 to 100,000 tpy and international suppliers will provide another 100,000 tpy; in 2010 the demand for polycrystalline silicon will be only 100,000 tpy.

GT Solar Incorporated of Merrimack, New Hampshire entered into a $171 million U.S.D. supply agreement with Glory Silicon Energy Co., Ltd. of Zhenjiang, Jiangsu Province to sell its DSS450 furnaces for the production of multi-crystalline silicon ingots. This order will equip what will be one of the world's largest silicon wafer factories, having approximately 1500MW per annum of capacity.

More than 90% of regions in China enjoy as much as 4500 mega-joules per square meter of irradiation from the sun. More than 2/3rd of China's regions have in excess of 2200 hours/year of the sun's exposure. If only 1% of the sun's exposure on China were converted into power, all of China's energy requirements for the year would be satisfied.

China's Wind Power Industry

Among the 23.334 billion Yuan the city of Chongqing will spend on alternative energy, conservation and environmental projects during the 11th Five Year Plan period are 8 wind farms with a total installed capacity of 450MW that are to be built in six counties in Chongqing. The wind farms are planned to be completed and operating within 5 years.

China continues to look favorably on the vast potential of wind power. According to the central government's estimates China has as much as 1 million MW of wind power generating potential, including 253,000 MW of land based wind power potential and the remaining amount in near land sea-based wind power generating potential. As a comparison, China's hydropower potential is approximately 390,000 MW. By 2010 China will have at least 5000MW of wind power operating; by 2015 wind power capacity will have grown to at least 10,000MW and by 2020 to at least 30,000MW. After 2010 China will be the world's largest market and world's center of manufacture of wind power equipment.

Though the price of wind power in China continues to be higher than coal fired power plants, the cost of producing wind power is decreasing rapidly. For example, the Inner Mongolia Huiteng Xile Wind Farm, whose equipment is almost entirely imported, was developed for a cost of 7800 Yuan/KW and the price of power which it produces (on-grid price including taxes) has been reduced to 0.45-0.5 Yuan/KW. If the turbines are produced in China they estimate that the price of power which they produce could be reduced a further 10-15%. The average cost to develop a wind farm in China is 8000-9000 Yuan/KW, with 60%-70% of that cost in equipment.

Currently China is estimating that total installed wind power generating capacity will be at 10,000 MW by 2010. In order to achieve this level of installed capacity Chinese companies will have to invest approximately 45 billion Yuan in wind power equipment purchases by 2010. After 2010 equipment purchases for wind power development are likely to be 13 billion Yuan/year.

Hainan Province has announced in mid August 2007 that it would construct a total of 1234.5MW of wind power at 12 locations over a period of years in accordance with the {Plan of Hainan Province for the Construction of Wind Farms}. Initially Hainan Province plans to have 4-6 wind farms operating by 2010; those 4-6 wind farms will have 250-300MW of power generating capacity.

Before 2015 total installed wind power generating capacity in Hainan Province will have reached 400MW and by 2020 will have increased further to 600MW. It is estimated that land-based wind resources are as high as 20,000 MW. Presently Dongfang city in Hainan Province has a wind farm that generates 87MW of power.

Of the 230 million kwh wind potential throughout China, it is estimated that Inner Mongolia has wind resources of approximately 101 million kwh or 40% of the total. There are some 200 companies that have already entered or plan to enter Inner Mongolia's wind power industry. Through the end of 2005 total installed on-grid wind generating capacity was 170MW and there is another 962.1MW of installed wind generating capacity which is under construction.

By the end of 2010 Inner Mongolia expects to have a total of more than 5000MW of wind generating power operating and that amount will equal 7.5% of total power generating capacity in Inner Mongolia. Yet based on the announced projects, it is likely that the total amount of wind power capacity in Inner Mongolia by the end of 2010 will exceed 5000MW. For example the city of Chifeng already has entered into an agreement with the Datang Company to develop 1000MW of wind power and by the end of 2010 Chifeng city alone is expected to have total installed capacity of 1500MW. Among others, Airtricity, one of the world's largest wind power developers is pursuing projects in Inner Mongolia.

Construction of Shanxi Province's first windmill was completed on September 10, 2007 in Shibao County by the Shanxi International Power Group Company. The entire wind farm will entail a total of 117 windmills which will be able to produce 330 million kwh per year. The cost of the project is 2 billion Yuan.

AES Corporation, a U.S. company and Guohua Energy Investment Co., Ltd. will establish a joint venture company to build own and operate a 49.5MW wind farm.

With one 100MW wind farm already completed and another six wind farms under construction (with capacity of 350MW), Gansu Province has announced that it is planning another 10 wind farms. The 10 wind farms will be developed by the China Power International Co., Northwest Power Grid Co. and other entities that participated in the development of Gansu Province's first wind farm. The planned capacity of these 10 wind farms is 1000MW in total. The wind farms are being construction in Guazhou, Gansu, which is known as the "world's wind reservoir".

China's Bio-Mass Energy and Bio-Fuels Industries

Beginning in August 2007 for approximately 2 months, Hainan Province will be investigating the creation of a formal bio-fuels industry. At the same time, Chinese companies, including the China Hainan New Fuels Industry Development Co., Ltd., have already invested in the bio-fuels industry in Hainan Province. One such project is the cultivation of the Jatropha Curcas tree, a poisonous shrub that is a good feed stock for bio-fuels. The China Hainan New Fuels Industry Development Co. Ltd's project is the largest to date in Hainan Province; the company has planted 240,000 Jatropha Curcas trees and another 5 million seedlings. According to the general manager of the company, within a year the company plans to have a total of more than 1300 hectares of land under cultivation with Jatropha Curcas trees.

The China National Offshore Oil Corporation (CNOOC) also is planning to have a 60,000 tpy bio-diesel refinery in place in Hainan Province within the year and will be cultivating more than 600 hectares of land with Jatropha Curcas trees. Two-thirds of a hectare of Jatropha Curcas trees can produce approximately 3 MT of seeds and those 3 MT of seeds are capable of producing 1 MT of bio-diesel. According to the United Nations China has yet to develop scale production of bio-fuels and at present China is producing only 40,000 to 50,000 tpy of bio-fuels, though projects under development or in planning will have total capacity of 3 million tpy.

Hunan Province's first bio-mass power generation project broke ground on August 20, 2007. The 500 million Yuan Yueyang Kaiyou Bio-Mass Power Plant will be located in Yueyang city's Jieyuan Management District. In the 50 kilometer radius around Yueyang farmers produce upwards of 225,000 tpy of wheat husks and another 348,000 tpy of cotton stalks and rapeseed stalks, all of which previously had just been treated as waste. The Yueyang Kaiyou Bio-Mass Power Plant will use the proprietary technology of the Wuhan Kaiyou Joint Stock Investment Co., Ltd., which promises to increase heat efficiency of the agricultural waste to energy plant by 35-40%. When operating the agricultural waste to energy facility will burn approximately 400,000 tpy of agricultural waste and will produce 288 million kwh of power. Farmers in the area who sell their agricultural waste may earn as much as 7200 Yuan/annum (@180 Yuan/MT).

China's agricultural sector has plentiful bio-mass resources. By one estimate China's agricultural sector has a total of 500 million MT of coal equivalent energy which it produces in bi-mass each year, including 150 million MT of coal equivalent energy from crop waste. China has approximately 670 million hectares of land which can be used to grow energy crops. Experts estimate that the bio-mass which China's agricultural sector is able to produce each year would be sufficient raw materials to produce 50 million tpy of fuel ethanol and bio-diesel.

China's Small Hydroelectric Power Industry

According to Shi Dinghuan, the chairman of the board of the China Renewable Energy Society, total installed capacity of small hydroelectric power already exceeds the total installed capacity of large hydroelectric generating capacity in China.

The Shaanxi Province, Ningshan County small hydroelectric project was registered as China's 107th CDM project on August 23, 2007. The United Kingdom and Northern Ireland are the foreign partners.

In the first week of September 2007 the CDM executive board registered the following three small hydroelectric projects: 1) the 10MW Gansu Hongyuan hydroelectric project; 2) the 12MW Gansu Wuhuzha hydroelectric project; and 3) the Shaanxi Xunyang Guihua small hydroelectric project.


Prepared by China Strategies, LLC. Originally published in the September edition of the China Renewable Energy and Sustainable Development Report

An interactive map of China's renewable energy projects is now available on China Strategies' website. To view the China Renewable Energy Interactive Map visit www.chinastrategiesllc.com, click on the tab for "China's Renewable Energy Industry" and follow the directions to register and receive access.

The China Renewable Energy Interactive Map was developed with the assistance of Ryan Hodum, a very talented young environmental and renewable energy professional who recently completed a Master of Arts in Global Environmental Policy from American University in Washington, D.C. with a focus on renewable energy utilization in China.


Lou Schwartz, president of China Strategies, LLC, and publisher of China Renewable Energy and Sustainable Development Report, earned degrees in East Asian Studies from the University of Michigan and Harvard University where he studied Chinese language and literature, economics and law, among other disciplines. Lou also earned a J.D. from George Washington University Law School. Fluent in Mandarin Chinese, Lou has worked on various matters involving China's legal system, economic development, trade and investment while with a large U.S. law firm and currently as President of China Strategies, LLC.