China’s incipient cleantech boom

While the rest of the climate-change world went to Cancun to watch the UN just about rescue its process, a team of intrepid HSBC researchers travelled to China, from where they returned with bullish news on clean energy.

In a mammoth report entitled Low-carbon China, the team found that the country was on track to outstrip its own targets on clean technology by a long way. This chart below shows the bank’s forecasts for solar and wind for 2015 and 2020 at around 50 per cent and 65 per cent above official targets.

Extra capacity

The numbers involved are massive. Just to hit the 2020 targets would mean:

  • 150GW of wind
  • 80GW of nuclear
  • 20GW of solar

Exceeding them, as HSBC expects, will prove a massive growth opportunity for lots of companies. And this expectation is not pie-in-the-sky: it is already happening. The report notes:

Provincial plans to build out nuclear, rail and wind far exceed national targets. This, local governments are currently planning to install 250GW of wind power capacity and 160GW of nuclear by 2020.

(It’s not clear why rail was mentioned – perhaps as an example of provincial building plans outstripping national targets in general.)

That’s good news for investors in clean energy. However, there are still some obstacles and potential pitfalls, especially in the wind and solar sectors, which are primed for the steepest growth.

Wind problems

In wind, two problems are holding back the boom. The first is that the impending end of the Kyoto protocol means that it is harder to sell emissions reductions certificates, which are issued mainly by the EU under the protocol. Forward prices for certificates after 2012 are at two-thirds of current prices, and developers don’t want to sell at that level.

The second is that the pace of grid construction has not kept up with the pace of wind farm construction. HSBC estimates that at any one time, 30-40 per cent of installations are not grid-connected.

But even if its own wind farm development slows, China continues to lead the way on wind turbine manufacture. While companies like Vestas and Gamesa claim that their turbines can compete with cheaper Chinese ones because they are more efficient, it is not an argument that holds much sway with their customers. The HSBC researchers state:

[Of] the wind developers that we spoke to… almost all are using Chinese machines and all claim that “for now” the supposed inefficiency or reliability of domestic machines has not made the levelised cost of electricity uncompetitive of domestic machines versus the international manufacturers’ claims.

It is a truth implicitly acknowledged by Vestas’ decision to cut 3,000 jobs in their northern European factories.

Solar problems

As for solar, the main obstacle remains government subsidy. The industry already employs 1m people, mainly exporting to western countries. But it could explode if domestic demand also picked up. The problem at the moment is that it is an expensive technology, and policymakers worry that forcing its adoption could slow growth.

While HSBC thinks there will be a solar feed-in tarrif at some stage, stimulus in the short-term remains unlikely, which means, “The resultant boom can only come at the expense of lower prices and profitability.”

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