china is the place to be!

'China Price' gives green technology programs a profitable outlook Shai Oster From: The Wall Street Journal December 15, 2009 3:09PM Increase Text SizeDecrease Text SizePrintEmail Share
Add to DiggAdd to del.icio.usAdd to FacebookAdd to KwoffAdd to MyspaceAdd to NewsvineWhat are these? Revolution: The cooling towers of the Huaneng Gaubeidiang power plant in Beijing is one of three major energy producers in China that are working to ramp up clean coal technology. Source: Bloomberg
XU SHISEN put down the phone and smiled. That was Canada calling, explained the chief engineer at a coal-fired power plant set among knockoff antique and art shops in a Beijing suburb.
A Canadian company is interested in Mr Xu's advances in bringing down the cost of stripping out greenhouse-gas emissions from burning coal.

Engineers led by Mr Xu are working to unlock one of climate change's thorniest problems: how to burn coal without releasing carbon into the atmosphere.

Mr Xu is part of a broader effort by China to introduce green technology to the world's fastest-growing industrial economy - a mission so ambitious it could eventually reshape the business, just as China has done for everything from construction cranes to computers.

China looms large over the global climate summit in Copenhagen, where Chinese officials are pressing the US and other rich nations to accept new curbs on their emissions and to continue to subsidise poor nations' efforts to adopt clean-energy technology. China is the world's biggest source of carbon emissions.

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Less understood is the way China is now becoming a source of some of the solutions.

China's vast market and economies of scale are bringing down the cost of solar and wind energy, as well as other environmentally friendly technologies such as electric car batteries. That could help address a major impediment to wide adoption of such technologies: They need heavy subsidies to be economical.

The so called China price - the combination of cheap labour and capital that rewrote the rulebook on manufacturing - is spreading to green technology. “The China price will move into the renewable-energy space, specifically for energy that relies on capital-intensive projects,” says Jonathan Woetzel, a director in McKinsey & Co's China office.

China's government is backing the trend. It wants to replicate the success of the special economic zones that transformed cities such as Shenzhen from a fishing village near Hong Kong into one of the biggest manufacturing export centres in the world. Set up when China began its economic reforms in the 1980s, the zones were designed to attract foreign investment into light manufacturing to kick-start exports. They became engines of China's economic boom.

Regulators will announce several low-carbon centres next year that will have preferential policies to promote low-carbon manufacturing and exports.

China's goals face big challenges. The nation could end up becoming simply a low-cost manufacturing base, not a source of innovation. Worse, its drive to cut costs could stifle innovation overseas.

And Beijing has a long way to go to reducing China's carbon footprint. For each out of date power plant it shut down in a two-year clean-up campaign, it added the capacity of roughly two more. Even some of the better power plants are run poorly because company bosses don't want to pay to clean up their emissions.

In the fight against global warming, some of the biggest gains are to be made in scrubbing carbon from coal-burning power plants. China and the US together have 44 per cent of the world's coal reserves, and aren't about to give up on the cheap and reliable source of power. According to US government projections, world coal use could increase nearly 50 per cent by 2030.

"If emissions aren't reduced from power plants, global warming cannot be avoided," says Jonathan Lewis, a climate specialist at the US-based Clean Air Task Force, which has sought to pair US utilities with Chinese companies. "The solution can be led by the US and China."

‘Capture technology’ traps carbon dioxide gasses released by coal plants. The gas can be pumped deep underground, typically into salt caverns or aging oil fields. The carbon can be stripped either before or after the coal is burned. Post-combustion capture is simpler and can be retrofitted on existing power plants. Current versions cut energy output by one fifth or more.

Far more complicated is pre-combustion carbon capture, which involves completely redesigning plants. Coal is turned into a gas, the carbon is stripped out and the rest is burned. Called "integrated gasification combined cycle" plants, these cost billions of dollars and haven't been developed on a commercial scale yet.

China has a technological lead in turning coal into gas. It has been widely using the technology to make petrochemicals and fertilisers as a substitute for pricier natural gas. Houston-based Future Fuels has licensed gasification technology from China to use in a plant in Pennsylvania.

Critics say current carbon capture technologies are merely a band-aid for global warming. That's because they're so inefficient that even more coal has to be burned to produce the same amount of electricity. Also, the technology uses a lot of water and sequestering carbon underground isn't proven.

Still, some analysts estimate carbon capture could account for between 15 per cent to 55 per cent of the world's cumulative carbon emissions reduction by 2100.

Among those leading the ramp-up is Mr Xu. These days, he is busy with three clean coal projects. One is on the outskirts of Beijing, underneath looming cooling towers of the Huaneng Gaobeidian power plant.

Mr Xu and colleagues work at a state-run research institute partly owned by China Huaneng Group, China's biggest utility. The state-owned giant produces about 10 per cent of China's electricity, nearly all from coal.

The Beijing project, started before the 2008 Summer Olympics, traps a fraction of the carbon dioxide emitted by the plant, purifying and selling it for use in food packaging and for the fizz in sodas. Using what he's learned in Beijing, Mr Xu is building another capture facility in Shanghai that will be 30 times bigger.

If Mr Xu's team can figure out how to bring the costs down - mostly by recycling energy lost in the process of scrubbing out the carbon - these units could be retrofitted to coal-fired power plants around the world.

Mr Xu is also involved in the GreenGen project, a $US1 billion ($1.1bn) power plant led by Huaneng that will turn coal into a gas before burning it. The project is scheduled to go online by 2011. Burning gas is more efficient than burning coal - meaning less coal is required to make the same amount of electricity. The less coal burned, the less carbon released.

Though carbon capture has moved into the mainstream, it is still at least five to 10 years away from becoming a widespread technology, analysts say.

In the meantime, China is reshaping two of the biggest green technologies in use already - wind and solar power.

In 2004, foreign firms owned 80 per cent of China's wind-turbine market, according to energy consulting firm IHS Cambridge Energy Research Associates. Now, Chinese companies own three-quarters of the country's market, thanks to companies that make turbines a one third cheaper than European competitors.

Chinese wind-turbine makers are starting to export. In October, Shenyang Power Group struck a deal to supply 240 turbines to one of the largest wind-farm projects in the US, a 36,000-acre development in Texas.

China already has a 30 per cent share of the global market for photovoltaic solar panels used to generate electricity. Solar-power panel makers, including Suntech Power Holdings, Yingli Green Energy and Trina Solar, export most of their product to Europe and the US, contributing to a 30 per cent drop in world solar-power prices.

Chinese competition is forcing rivals to shift production. US Evergreen Solar said it will move its assembly line from Massachusetts to China. General Electric said it will shut a facility in Delaware. BP's solar unit said this spring it would stop output in Maryland and rely on Chinese suppliers instead.

Yet, despite China's armies of fresh engineering graduates, foreign companies still create and own most of the key technologies. “China lags about 10 years behind in technology," says Bernice Lee, a research director at Chatham House, a London-based think-tank that analysed patent holders on renewable and low-carbon technology.

As in other industries, China's cheap manufacturing may spark protectionism. In one hint of battles to come, Democrats senator Charles Schumer wrote a letter to the US Energy Secretary protesting the use of federal stimulus money to support the $US1.5bn wind project in Texas unless it relied on US-built turbines.

Critics in rich countries accuse China of unfairly subsidising companies via cheap loans from state-controlled banks and dumping excess supply overseas.

Others say China's mis-steps could hurt the market for all. "China is making prices cheaper in renewables today, by lunging into oversupply, as it does in most industries," says Daniel Rosen, principal of consulting firm Rhodium Group. "The question - and danger - is whether by over-supplying the market today China is damaging longer-term innovation and competition in the sector for the future."

In green technology, China has figured out ways to turn excess capacity to its advantage. Until this year, China's solar-panel makers exported nearly all their output to countries such as Germany and Spain, where government supported growth in the sector.

That changed this year when solar-panel prices fell as dozens of new Chinese polysilicon-makers started operating. The sudden glut in the raw material to make solar panels coincided with a drop in orders from European companies hit by the recession. The result: Polysilicon prices fell by half from January peaks. HSBC estimates they could drop another 20 per cent by the end of 2010.

Softening prices created an opportunity for Chinese regulators. Officials are now talking about raising solar power capacity targets fivefold or tenfold, so that by 2020 China could have more than double current global solar-power capacity.

Executives at Trina and Yingli say increased economies of scale from making more panels for China will push costs even lower. "We could go to $1 a watt by the end of 2010," which would be a landmark in bringing solar power in parity with conventionally produced electricity, says Yingli's chief executive, Miao Liansheng, a veteran of the People's Liberation Army who sold cosmetics before turning to solar panels.

"The Chinese manufacturers can now make (solar panels) a lot cheaper than Europe, the United States and Japan because the whole supply chain is now available in China," says Martin Green, who runs the photovoltaic centre at the University of New South Wales in Australia, a training ground for many scientists working in China's solar industry. "The Chinese are making it more affordable, and they're more adventurous in introducing new technology as well."

The ability to manufacture cheaply is attracting the notice of US utilities. Huaneng says it can make gasification equipment cheaper than foreign rivals.

Duke Energy of New Connecticut signed a pact with Huaneng in August to share information on clean-coal technology. Duke says it would take eight years to build an IGCC plant in the US - versus three in China.