Energy Price Reforms
NDRC announced that it would be removing price caps on coal from next year in a move towards a more market-driven price mechanism. This move comes at an opportune time when coal prices have dropped by 30 to 40% since the summer, but GLF points out an earlier post (see finding #4) on a recent MIT coal report that suggests the upstream coal industry has already moved towards a de facto market price system. Although the NDRC move “is a step in the right direction,” Huang Shengchu, president of Beijing-based China Coal Information Institute says in this interview that government macro-control is still needed to protect the rights of various coal stakeholdres in their contractual dealings with each other, accerlarate industry consolidation of the many small and inefficient mines and to set up a coal price index.
Separately, the proposed auto fuel price reform kicked in earlier than expected. So it turns out that the answer to our confusion (see earlier post) of how the government proposed to hike up taxes and keep fuel prices even was that they would adjust the base fuel price downward, predicated on the recent plummet of global crude prices. GLF maintains that this is silly logic, because once the false complacency of global oil spare capacity is uncovered for the illusion that it is, a rebound in crude prices will force the NDRC to revise base fuel prices up, breaking its promise to riders.
Energy prices are being adjusted in other areas. Fertilizers, a petrochemical product, is also slated for price control reform. Meanwhile, fuel surcharges for domestic flights will be adjusted downwards.
Our favorite company BYD Auto has launched into the market the world’s first commercially available plug-in hybrid electric vehicle (PHEVs). The “game-changing” F3DM (pictured right) is available in 14 Chinese cities at RMB 149,800 (about US$21,890)—approximately double the price of a similar-sized gasoline-powered car in China. It will however delay the shipment of F3DMs to the U.S. to 2011, rather than 2010 as originally planned. In the international arena, the U.S. and China will collaborate on green vehicle development. A good deal for the U.S., we would say, considering it appears that the U.S. car battery companies seems to be playing second-fiddle compared to their Asian counterparts and is seeking US$1 billion in aid.
Prior to the recently passed bailout of the U.S. auto industry, lingering in the background were discussions of the possibility of Chinese companies making bids for the assets of the embattled Big Three American automakers. Up the auto supply chain, it seemed that such prospects were already playing out–Gold Peak Industries North America, a subsidiary of China-based GP Batteries International, purchased an equity stake in Plug In Conversions Corp., a designer, developer and marketer of kits that allow hybrid owners to convert their cars to PHEVs.
But policies are working at cross-purposes to undermine any sort of sustainability push in the auto sector. The reality is that the auto sector in China is viewed as a sacrosanct pillar industry that must be protected and propped up to ensure the goal of 8% GDP growth is met next year. Recent comments by a Ministry of Commerce official who refused to be named indicate that incentives to scrap existing cars so as to spur new car sales, which have been sagging as of late, will be passed soon. Another government officials, this time from the Ministry of Commerce, is advocating just the kind of foolish consumerist GDPism that has gotten the U.S. into its current mess.
A claim under the Green Insurance scheme, one of the Green Whirlwind policies, was made for the first time. A chemical company in Hunan province was compensated 11,000 yuan for an environmental liability policy it bought from Ping An Insurance when chlorid gas leaked from its plants and poisoned vegetable fields of some 120 villagers. While environmental insurance is not new in the west and the goal of the Green Insurance scheme is to fairly compensate environmental pollution victims and also help enterprises manage environmental risks, GLF is left to wonder to what extent such insurance schemes create moral hazards for polluting enterprises.
A good overview of the Green Credit scheme, another Green Whirlwind policy, can be found here on China Dialogue.
At this month’s Cleantech Forum, panelists seem bullish about the cleantech investment climate in China despite the global financial turmoil. This optimistic sentiment comes as news emerged that venture capitalists were continuing to pour money into China during the third quarter of this year at a record clip. It is unclear, however, how the dramatic turn of events in the world financial markets have affected venture money flows in the final quarter of the year.
Fuels from Heaven
Econcern will invest $1.1 billion in onshore wind projects, totaling 720 MW of wind capacity, partnering with the likes of CNOOC New Energy and Sinohydro Renewable Energy.
China’s first grid-connected solar power plant built in the Tengger Desert of Wuwei City, northwest China’s Gansu Province, has started operating. The Datang Wuwei Solar Power Station in Tengger Desert (pictured right) was developed by the China Datang Corporation, China’s second largest power producer, and will have a total installed capacity of 1MW upon full completion next spring. Currently, the plant is operating at the planned capacity.
In Beijing, Yanqing county officials have announced that China’s first solar thermal power demonstration plant will be built in the Badaling area. Details on the size of the plant nor whether NDRC approval has been received is unclear.
Himin Solar, China’s top solar water heater manufacturer has received investments of US$100 million by Goldman Sachs and CDH Investments. Not too shabby considering the state of the global financial markets.
But Chinese solar companies, particularly those in the photovoltaic (PV) space, are hurting. A collapse in demand in overseas PV markets means that there will be a PV panel glut in China, leading to as much as a 30% slash in panel prices. How much longer will the government wait before it steps in to develop the domestic PV market?
Fuels from Hell (aka the “Keep your friends close, but enemies closer” section)
BP inked a $73 million agreement with the Chinese Academy of Sciences to develop cleaner coal technologies, including coal gasification, underground methane bed gasification and carbon capture and sequestration. This deal complements the existing GreenGen program in China, and cements China as the frontrunner of cleaner coal R&D. These efforts will be sorely needed, considering what is going on in Ningxia, and the efforts to increase access to coal fields in Shanxi.
In oil, China projected to have produced 189 million tons of crude in 2008, making it the world’s fifth largest producer. China is stepping up cooperation with Taiwan, and keeping the eye on the prize in Brazil.
Elsewhere, the construction of a 8 GW, 60-billion-yuan nuclear power plant in Jiangxi province is expected to begin soon. Located in Pengze in the Jiujiang city, the project is expected to come on stream in 2013 and will generate 60 billion kilowatts of electricity annually. Separately, a 6 GW, 70-billion-yuan nuclear plant is being built in Guangdong and will be completed by 2017. Not to be left out, Hubei (4GW and 50 billion yuan) and Zhejiang (26 billion yuan 2 GW expansion of existing plant) are going nuclear as well. To put the scale of these projects in perspective, China’s 11 current nuclear plants total just 9.1 GW in capacity. China plans to raise its total installed nuclear power generating capacity to 70 GW by 2020 and to raise the proportion of China’s nuclear power to 5% of the total installed electricity generating capacity by 2020. The prospect for civilian nuclear cooperation between China and the U.S. could get pretty interesting, but it is also worth asking what on earth is going fuel all these nuclear plants.
The World Bank has provided a $120 million loan to integrate the use of biogas in the agricultural systems of Anhui and Hubei provinces, Chongqing Municipality, Hunan Province and Guangxi Zhuang Autonomous Region (pictured right). Food security was also an agenda item for U.S.-China cooperation at the Strategic Economic Dialogue, a right move considering the growing share of imports in China’s food supply.
While Guangzhou’s 48.6 million yuan plan to clean up the Pearl Rivers make for good policy, Guangdong’s proposals to reclaim new land to increase agricultural land borders on ridiculousness, and speaks to the kind of lunatic policy making when subunits of national government are left to their own devices. Surely, smarter planning of existing land-use, and modernizing agricultural practices (such as “digital farming” in rural Shanghai) would more directly address the underlying problem of food security. Instead, Guangdong is just going to throw money to fix the problem. From the standpoint of national interests, how does one justify the monetary and energy expense of land reclamation in a country as big as China?
The Circular Econonmy is unraveling. With global commodity prices collapsing, the recycling business in China has collapsed, says China Law Blog and the New York Times. A pictorial in the Dec 5 issue of CEOCIO Magazine (《IT经理世界》) indicates that recycling companies are buying various used products from scrap collectors at dramatically reduced rates–metal scrap prices have decreased from 3.7 yuan/kg to 0.8, old newspapers have decreased from 2.4 yuan/kg to 0.7, while plastic water bottles have decreased from 0.1 yuan per bottle to 0.1 yuan per three bottles. The result, scrap collectors are not finding it worth the effort to collect recyclables, which are piling up in mounds but not being processed.
But perhaps that is not a bad thing considering this report that suggests that recycling of paper and plastic is not worth the energy required for the recycling process.