Thomas L. Friedman's recent article in the NY Times lionising the CEO of Suntech Power [TimesSelect subscription required] was a wake-up call to America to the potential of Chinese alternative energy companies. China — the most population rich country in the world — is energy poor and it wants to catch up — fast. Other than dirty coal, China has next to no natural resources. And this nation of 1.3 billion people is going to require vast amounts of oil to fuel its vehicles and huge increases in electricity generation to power its new industries. It is my view that over the next 25 years, it just can't all be done without a substantial input of clean alternative energy.
Fifteen years ago, the streets of China's cities were empty — bar the constant stream of bicycles. Today there are 30 million motor vehicles. Yet they only contribute to consuming just four percent of the world's daily oil output. By 2020, China's roads are forecast to be holding a staggering 140 million vehicles — a nearly fivefold increase — but still only 11% of world oil demand, and this with a fifth of the world's population.
Then there's electricity. Today, China is making half the world's computers, half the world's clothes and for this Christmas, 75% of the world's toys. All of this requires vast amounts of power. Yet Chinese manufacturing has only just begun a relentless cycle of downward pressure on prices with massive economies of scale which will lead to even higher demands for electricity generation.
There is no question that China is experiencing the greatest industrialisation in the history of the world. So just what does this resultant energy shortfall offer the alternative energy investor?
Four Chinese Alternative Energy Companies
1. Suntech Power Holdings
Listed on NYSE
This multi-billion dollar solar company specializes in the design, development, manufacturing and sale of photovoltaic (PV) cells, modules and systems. Roughly 90% of sales are abroad with, as yet, very little uptake in China itself. The company seeks advantage by using low cost labour rather than high cost machinery.
2. China Biodiesel International
Listed on AIM
China Biodiesel is based in Longyan in the Fujian province of China, and the company believes it is the first of its kind to engage in commercial production of biodiesel in China. China Biodiesel has developed proprietary processes and technology, using waste cooking and other oils, for biodiesel production.
3. Renesola
Listed on AIM
Renesola is a manufacturer of silicon wafers for the Chinese photovoltaic industry. Production is anticipated to reach 80 MW by the end of 2006 putting the company on track to be the largest supplier of wafers to China's solar industry. The 2007 target was for 180 MW and was recently upgraded to 265 MW.
4. China Sun Biochem
Listed on the Singapore Stock Exchange
China Sun Biochem is a corn starch producer which is also building an ethanol plant in Shenyang, expected to have a production capacity of 100,000 tonnes when construction is completed in July 2007. This will be ramped up to 300,000 tonnes over the next 12 to 18 months.
Four Non-Chinese Alternative Energy Companies Doing a Lot of Business in China
1. Canadian Solar Inc
Listed on the NASDAQ
Canadian Solar Inc. (CSI) is a standard solar module and specialty solar module and product company, serving customers located in various markets worldwide. CSI is incorporated in Canada and conducts all of its manufacturing operations in China.
2. Nordex
Listed on the Xetra German Stock Exchange
Nordex AG is a developer and manufacturer of wind turbines. Their products include the serial produced multi-megawatt wind turbines Nordex N90 and N80 as well as the powerful megawatt turbines Nordex S70 and Nordex S77 for onshore use. For the rapidly developing international markets they make a smaller unit, the N60. Prodution of Nordex wind turbines recently started in a factory in China with production capacity planned to reach 300 MW annually.
3. Camco International
Listed on AIM
Camco works with industrial companies and utilities to identify and develop greenhouse gas emission reduction projects, managing the entire process from project initiation to carbon credit delivery. The company recently announced the world's largest carbon sales contract in China.
4. Suzlon
Listed on the Bombay Stock Exchange
Suzlon Energy is Asia's strongest growing fully integrated wind power company and ranks amongst the top ten in the world. Suzlon integrates consultancy, design, manufacturing, operation and maintenance services to provide customers with total wind power solutions. Earlier this year, the Indian company announced investment plans to manufacture 600 MW annually of wind turbines in China.
The Future
China's renewable energy law passed earlier this year undoubtedly will lead to a vast mandated increase in the uptake of alternative energy. Yet externalities such as the high price of oil, concerns over energy security, and the enormous pent-up demand of a vast and still poor country count for much more. All of these are driving China unstoppably into an alternative energy investment boom.
Expect to see many more IPOs of Chinese alternative energy companies over the next few years. Chinese manufacturing, which has so effectively reduced costs of consumer electronics like DVD and MP3 players, has a real chance to do the same to solar cells, wind turbines, fuel cells and hybrid vehicles. That's why in this business, China is just getting started.
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