Chinese Renewable Energy

Brian Hicks

Updated August 4, 2008

We’ll see if 8 is really China’s lucky number when the Olympics begin this week on 8/8/08. As it happens, in the mad dash to get ready for the games, China’s energy problems are catching up to it. Here’s how you can play Chinese renewable energy to win.

It’s been a bad summer for China’s national electrical supply. Record consumption has spread from the eastern industrial heartland around Beijing, Shanghai, and Tianjin all the way out to the boondocks of central China.

Shaanxi province, where I reported from the ancient capital of Xi’an last fall, is part of China’s primary coal resource area. It has long been home to mom-and-pop collieries that were seldom inspected and prone to disaster. Indeed, just today a tremendous cave-in trapped nine miners there.

The central government has been hard at work trying to root out the bribes and code violations that make accidents frequent. But they’re also trying to keep China’s coal industry going steady to power the country’s industrial growth, and to avoid brownouts and blackouts.

Still, record high consumption has combined with coal shortages (and some reports of inferior quality coal when it does come out), and declining government subsidies to make power plants relatively impotent.

With 75% of China’s electricity currently coming from coal, this all spells heartburn for utilities.

Over a dozen provinces are in rationing periods, with rolling power losses hitting factories and homes alike. It’s the country’s worst energy crisis in four years, and with the whole world’s eyes on China, it’s come at exactly the wrong time.

But the Chinese government doesn’t accept failure as an option. Through a 21st-century combination of Communist Five-Year Plans and stock market offerings, China is charging forward.

China’s Energy Future

China’s sheer size has, or is about to, put it on top of a lot of lists…

It’s expected to have both the largest Christian and largest Muslim populations of any country within a generation.

It’s the largest solar cell producer, but also the leading greenhouse gas emitter.

And a report just released by the Climate Group, an industry and government coalition, says China’s on track to be the top player in solar power, wind power, and low-emissions technology (cleantech), within a few years.

The government is behind these goals for developing non-fossil energy answers, but it can’t just wave a wand and make it so.

Beijing planners want energy intensity (energy use per unit of GDP) to come down by 20% in 2 years. That’s a lofty goal considering double-digit GDP growth.

The top brass also want 23% of all electricity to come from renewable sources by 2020, in line with many developed countries’ "20% by 2020" plans.

But they include hydroelectricity, which by some standards is not a true green energy source, in that renewable figure. Especially given that the crowning Three Gorges Dam generation project displaced some 1.3 million people, Chinese hydro’s responsible energy credentials are dubious.

Nevertheless, the Chinese government has put billions into renewables in the past year to try to avoid the downside of a coal-based energy economy.

$12 billion in 2007, to be exact…

Yet the Climate Group says this is woefully underweight since China really needs to put $33 billion a year towards its 2020 target. That’s nearly 400 billion bucks altogether.

Chinese Renewable Energy Stocks

Having turned Maoism on its head in favor of leader Deng Xiaoping’s economic reforms, China reached its current world standing. We’re now at a point where China, India, and Brazil are able to successfully fight EU and United States trade pressure (as happened last week at the WTO talks).

We’re also at a point where Chinese stocks have already gone through a boom-bust cycle in the past few years, and the downturn phase may not be complete.

With energy concerns just below China’s short-term goal of not having any marathon runners collapse from smog inhalation, there are a slew of listed companies inside and outside of the major mainland exchanges trying to capitalize on the transition to renewables.

  • Suntech Power (NYSE:STP), which trades in the U.S. as an American Depositary Receipt, markets solar photovoltaic cells and systems around the world from its eastern Chinese HQ.
  • And Trina Solar (NYSE:TSL) is part of China’s renewable energy leadership as well.

Too bad, though, that Suntech and Trina are down 60% and 50% on the year, respectively. That’s worse than the droopy Dow and most major Chinese indexes, too!

That’s why with Green Chip International, we’re looking elsewhere, to countries who have a more measured approach to renewable energy progress. They’re operating in China from foreign bases, as well as a variety of other countries, and frankly, they’re run better than these fresh listings that came to the NYSE with a nudge from the Chinese government and a promise of riches from U.S. investment banks.

I’ll also reiterate my top worldwide energy recommendation, Switzerland’s ABB (NYSE:ABB). ABB makes automation systems for power plants to run more smoothly, and it’s been involved in major undersea and overland grid hookups that allow countries to share juice when shortages threaten supply.

If you’re looking for an angle on China’s energy demands, ABB’s made equipment for public transportation in Beijing, Shanghai, and other cities, and it’s set to employ 12,000 workers in China by the end of this year. Ranging from the Three Gorges Dam to wind-farm hookups to major grids, ABB’s got the leg up on other contractors.

And 11 of ABB’s Chinese divisions and joint ventures were among the top 100 electric companies in China in 2007.

If you’re in the mood for a medal count, ABB’s already winning in China.



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