Beneath a War of Words, Money Paints a Different China-U.S. Picture

JEFFREY BALL
Friday, 15-June-2012
ALTERNATIVE INVESTING China's Suntech Power Holdings opened a solar-panel plant in Arizona in 2010.

 

While Washington and Beijing joust over Chinese solar panels, clean-energy investors and executives from the two countries are doing deals.
A new innovation has the U.S. clean-energy business buzzing, one with big political risks and potentially bigger economic and environmental rewards. It isn't a wind turbine, or a solar panel, or an electric car. It's Chinese cash.
Read the headlines and you find a war of words between the U.S. and China over clean energy, with the two countries trading barbs over whether Chinese solar-panel makers are dumping their wares onto the U.S. market at prices so low they're illegal. Follow the money more broadly, however, and you see something different: clean-energy investors and executives from the two countries starting to do deals.
Chinese businesses, typically with Beijing's support, are beginning to buy stakes in U.S. clean-energy companies and projects, often with Washington cheering. The deals span technologies from cleaner ways to burn coal to cheaper ways to use renewable power.
Each side has reasons to expand this capital flow. The Americans get the Chinese money and, with it, access to China's vast market, which is far hungrier for clean-energy innovation than the U.S. The Chinese get U.S. technology to help sate their soaring energy demand and a place to invest that looks positively low-risk compared with their home turf.
The investments so far are minuscule by energy-industry standards. China invested $264 million last year in renewable-energy deals in the U.S., according to Rhodium Group LLC, a New York-based consulting firm. That's about one-tenth of what state-owned China Petroleum & Chemical Corp. agreed in January to pay Texas-based Devon Energy Corp. for a stake in a collection of U.S. oil and gas plays. Yet that $264 million is up from zero six years earlier, according to Rhodium, which counts deals in which Chinese investors took equity stakes of at least 10% in U.S. renewable-energy assets. And recent announcements suggest that number could rise fast.
Earlier this year, China's ENN Group said it intends to build a $5 billion "ecological center" in Nevada that would include a solar-panel factory. Skeptics question the viability of the project, given a global glut in solar-panel manufacturing capacity. But executives at other state-owned Chinese energy companies say they, too, are aggressively shopping for U.S. clean-energy technologies and projects. And the Obama administration is pushing for more Chinese investment in the U.S. clean-energy industry.
Cash Trumps Qualms
There are legitimate qualms in the U.S. about welcoming China into the American energy industry: concerns about national security, about intellectual-property rights, and about the unwelcoming treatment of U.S. companies gunning to go head-to-head in China against domestic players long favored by Beijing.
Those issues are worth vigorously pursuing. So, at the same time, is Chinese clean-energy cash.
One reason is economic. Federal stimulus money for the energy industry is tapering off, and other federal clean-energy subsidies, many of which failed to deliver enough bang for the buck, are likely to get pared back, too. More than ever, U.S. clean-energy companies could use the help of China's investors and consumers.
Another reason is environmental. Many clean-energy technologies are getting cheaper but are still too expensive to compete against conventional fossil fuels. The only way they stand much chance of gaining real scale is if the world develops and deploys them in the most economically efficient way: across national borders. Moreover, if American clean-energy technologies aren't deployed in China, where air pollution is thick and greenhouse-gas emissions are rising, then whatever cleanup those technologies accomplish on U.S. soil won't much matter.
In one deal, GSR Ventures, a venture-capital firm that's based in Beijing and has an office in Silicon Valley, has helped bankroll a move into China by Boston-Power Inc., a maker of batteries for electric cars. Boston-Power started in Massachusetts and hoped to ramp up manufacturing there. But it headed across the Pacific for financing—and to build its plant—when it failed to get a federal stimulus check.
"Innovation is borderless," says Sonny Wu, a Beijing-based GSR principal whose business card, in both Chinese and English, now reads "Executive Chairman" of Boston-Power.
Some Americans worry that taking Chinese money to expand the U.S. clean-energy industry amounts to just another kind of foreign energy dependence—a new version of U.S. reliance on Mideast oil. That concern misses an important nuance. Clean-energy technologies are chiefly about resources in people's heads rather than buried in a country's ground.
Using more Chinese money to expand U.S. clean-energy technology needn't undermine America's push to produce more of its energy at home. There's little question that these investments buy China access to U.S. technological know-how that will help China develop more clean-energy technologies that it then can sell. But like it or not, the U.S. today needs foreign help to harness many of its domestic energy resources.
Expanding Supply
In addition to shale gas, the U.S. has huge supplies of coal and essentially unlimited supplies of wind and sunshine. But having isn't the same as using. The U.S. appears unlikely to build many more coal-fired power plants, largely because of environmental concerns, and wind and solar projects are likely to slow as government subsidies to renewable-energy developers get slashed.
China's money and energy-hungry domestic market could help validate new technologies to burn coal more cleanly and to produce renewable energy more cheaply—technologies that then might be deployed in the U.S.
In short, Chinese money, used judiciously, ultimately could help expand America's domestic energy supply.
Whether it will be used judiciously remains to be seen. The prospect of Chinese coin is unleashing a gold rush, particularly in Silicon Valley. Investors from Beijing and Shanghai are flying in on clean-technology shopping trips, Valley start-ups are rolling out the red carpet, and lawyers, bankers and consultants are salivating at the potential matchmaking fees. In a sign of the times, San Francisco has created a program, dubbed ChinaSF, designed to woo Chinese investment, particularly in clean energy.
So far, this has produced more conversation than contracts. Particularly as the solar-panel trade spat intensifies—the U.S. imposed tariffs of more than 30% on many Chinese solar panels in a preliminary antidumping decision in May—protectionist politics could thwart trans-Pacific investment. And even with Chinese backing, plenty of U.S. technologies will fail.
But the energy crunch has become a global problem, and fixing it will take global capital. The U.S. is awash in technology; China is awash in money. Little wonder that clean-energy capitalists from both countries are scrambling to sign on the dotted line.
Mr. Ball is scholar-in-residence at Stanford University's Steyer-Taylor Center for Energy Policy and Finance. He can be reached at reports@wsj.com.

 

    

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