Executive Summary
The US – China relationship is the most important bilateral engagement in the world today, as the two countries engage on issues of commerce, currency, and their respective roles in international relations. In recent years, another aspect has entered the dynamic: the future of clean energy policy, manufacturing, technology, deployment, and trade.
Some have painted competition between the two nations on these issues in stark terms with China feared or admired as an exports winner and the US criticized or dismissed as a manufacturing loser. But the relationship between the nations defies simplistic assumptions defined by economic nationalism. Chinese PV modules are often manufactured using US-made equipment while US wind turbines regularly contain Chinese-made components.
In this area as in so many others, China and the US are mutually dependent; each must rely at least in part on the other to achieve its clean energy and carbon reduction objectives. In this research note, Bloomberg New Energy Finances takes a closer look at this critical relationship as it impacts the solar and wind sectors and finds:
•For both countries, clean energy is viewed as an imperative, partly political, partly economic, and partly environmental. With 5% annual power demand growth over the next decade, China needs all sources of energy, clean or otherwise, to maintain growth; for the US, clean energy is an option meant to displace incumbent generation and spur technological innovation.
•China’s manufacturing base for clean energy equipment has expanded at a torrid pace over the past three years. On the wind side, the country offers local power generators high revenues in the form of fixed feed-in-tariffs and low costs in the form of lower priced equipment and capital. This has fostered a boom in new installations with the country installing 14GW of new capacity in 2009, compared to approximately 10GW in the US. Regarding photovoltaics (PV), the Chinese government created the domestic ‘Golden Sun’ subsidy program in 2009 during a period of soft global demand for modules.
•The US and China are on track to account for 65% of global wind turbine demand in 2010. US-based companies will account for 12% of manufacturing capacity (as measured in MW produced) while China-based firms will account for 39%. For PV, the US and China will together account for 14% of global demand. US-based companies will produce 9% of modules globally while Chinese companies will make 43%.
•Chinese solar companies have been successfully exporting into the California PV market, taking a 42% market share there in Q1 2010. However, significant barriers remain before Chinese wind turbines turn up on in large numbers on US horizons. We do not expect to see volume exports of Chinese turbines to the US before 2013 at earliest, but once there they could have a significant impact on the market.
•End product sales should not be the sole focus of any US-China clean energy comparison. A more detailed analysis reveals that US companies would capture at least 44% of the value of a hypothetical US wind farm using a generic 3MW Chinese wind turbine. In PV, capital equipment sales and system installation are proving to be significant value creators for US companies.
•Both countries have imposed, or threatened to impose protectionist measures. China previously implemented domestic content requirements favouring wind turbines made locally, but has since removed them. The US is now considering imposing “Buy American” requirements on a key subsidy programme. Such protectionism could deny market opportunities and has the potential to drive up clean generation costs in both countries. This would slow clean energy adoption and make it more difficult to achieve meaningful reductions in harmful greenhouse gas emissions. Both nations could be hurt should a full-fledged clean energy trade war be declared.
•Innovation levels at US PV cell and module companies remain high. Nascent US PV manufacturing firms have attracted no less than $3.7bn in venture capital and private equity investment over the past six years. Publicly-listed US PV firms tend to invest more in R&D than their Chinese counterparts. Both suggest the next big breakthrough in solar technology could come from the US.
•A focus solely on trade-based winners and losers in the US-China clean energy relationship neglects the gains from both lower cost and higher quality clean energy technology. Both countries, and indeed all countries, will benefit as the US and China drive the cost of renewable energy below that of conventional energy.
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