Reports

Zigor Aldama

Correspondent

Àsia

Chinese Tricks II

China is committed to renewable energies, but business interests are an obstacle to their development and are driving out foreign companies.

24 may 2010

China has gone all in on developing renewable energy sources with hopes of reducing its dependency on coal which provides 75% of the Great Dragon’s energy needs. Just looking at the massive size of the country, the fourth largest on the planet, and the number of people who live here, around 1.4 billion, the market can not be more juicy for the leading companies in the nuclear, wind, solar and hydraulic energy sectors. However, the situation is not at all easy, to the point that some foreign companies have decided to throw in the towel.

Photo: Antonio Guerra

The case of Acciona is a good example. The Spanish corporation with a potent renewable energy division started a wind turbine business through a joint venture with a state-owned Chinese partner, but the deal ended up falling well short of expectations. In its Chinese adventure, Acciona has only sold a mere 250 megawatts in a country that last year alone tendered more than 5,000. Not surprisingly, it has decided to sell his share of the company and to reduce its activities to only servicing the wind turbines it has already installed. Taking into account the growth experienced by the sector in the Asian giant, it looks like a totally wrong decision.

But there is more to this story. Interestingly, many of the wind turbines in China do not produce electricity. It is estimated that 30% of the total potential is not connected to the power grid. “They are not plugged in,” said Juan Ignacio Motiloa, Strategic Director at Gamesa, one of the world's leading companies in the wind energy sector, which already has four power plants in China and is currently building a fifth. And how is that possible? Especially given that China’s Renewable Energy Law requires this year that utility companies have installations equivalent to 3% (8% for 2020) of their total energy output coming from renewable energy sources other than hydraulic energy.

But notice, the law only obliges companies to install the capacity. There is no requirement for the production of renewable energy, so many are spared the cost of the infrastructure needed to connect the windmills to the grid. “Of course, this is changing thanks to the flotation of these state-owned companies. The moment these companies are traded publicly, they have to show profits, and we believe that this will mean, despite the pressures to buy Chinese products, that the power companies will choose the best quality, irrespective of the origin of the company that manufactures the power,” said Jesús Zaldua, president of Gamesa China.

But some recent legislation proposed by China is nothing less than frightening for foreign companies. Last month, foreign wind turbine manufacturers were asked to submit their comments on a proposed law that would provide “a complete cleansing of the sector.” The Communist Party believes that there is excess capacity among producers of wind turbines and wants that only those plants with an annual capacity of more than 1,000 megawatts, with machines of a minimum of 2.5 megawatts (as an example, Gamesa just introduced machines of 2 megawatts) and with 5% of sales coming from R&D to continue in operation.

Javier Ojeda, director of Acciona Renovables (Acciona’s renewable energy division) in China, believes that this draft law further justified his company’s decision of get out of the market for wind turbines. “It is a law that does not invite anyone to come,” he said. But China denies that protectionist measures are being introduced and insists that the environment for foreign companies has improved. And Chinese officials wield data to support this assertion. In an article in the official state organ China Daily, Yang Changyong, of the National Commission for Development and Reform, noted that, in contrast to the significant overall drop in direct foreign investment (by 39% across the world, 41% in developed countries and 35% in developing countries), “in China it fell only 3%, and has been growing since last August.”

However, in his article Changyong also warned that “it is necessary for foreign businesses and media to understand and respect China, including its laws and customs.” He then launched a veiled threat: “If foreign companies complain and the foreign press overstates these claims without analyzing the situation, they will only manage to slowdown the improvement of the investment framework in China and end up harming the interests of their companies.” The message is clear - better not draw attention to China’s tricks.

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