China’s Energy Gaps Create Opportunities

Wednesday, April 25, 2012 8:41


With China’s ever increasing appetite for energy resources increasing, and the continued gaps that lead to the various energy related outages that can occur in a country moving as fast as China is, opportunities are going to continue to avail themselves for those with solutions.

The recent article China ‘can still lead’ in green cars , provides a great example of how China is going to be forced into making different decisions about how it is going to grow, and about the industries that it has come to rely upon for that growth.  It is an industry that has struggled, even with massive domestic and overseas investments, because (in short) the economics were not sellable.  Which is to say that consumers had yet to see the value of the electronic car.

However, since 2008 China’s drivers (truck, taxi, and personal) have begun to feel the pinch through regulations meant to reduce car emissions in the Capital city and the increased costs of car ownership.. particularly at the pump. It has taken a while to get here, and while incentives in the past few years did not work, the ongoing cost of the current transportation model are growing to the point that pricing of fuel, toll fees, plates, etc are only going to go up.

Enter the opportunity for the (offset) solution:

McKinsey estimated that plug-in electric vehicles with 15 kilowatt-hour batteries will become cost competitive with internal-combustion engine vehicles in China by 2017. Plug-ins with smaller 10 kwh batteries could reach cost parity with combustion engine vehicles as soon as 2014.

China now risks falling short of its electric vehicle aspirations, with 6,000 electric vehicles, no more than 10 models, produced in 2011, only 0.03 percent of the year’s total output, well short of the 500,000 industry capacity it had slated to come on stream by 2015, according to the report. The 16,000 charging piles built in 2011 were also far lower than the industry’s target of 400,000 units by 2015.

More interestingly for me though, and I am already seeing tests in Shanghai, are for where the government (as a buyer) is able to bring online solutions that will integrate into their existing systems:

McKinsey’s research also suggested that public transport fleets such as bus fleets are likely to be in the first wave of electric vehicle adopters in China, rather than consumers. McKinsey estimated that the total electric bus fleet could grow to 100,000 units by 2016.

Highlighting the fact that governments themselves are seeing the economic benefit to having fleets of electronic (hybrid) buses and taxis. A GOOD thing in my opinion as when the investment is at the city/ provincial level, then the investment is one that is supporting the long term stability of energy and transportation systems.

Why now?

Perhaps it seems counter intuitive given the fact that oil prices are coming off highs (again), thus removing the immediate “we have to do something”, but it is important to keep in mind that beyond the p/ barrel costs China’s burden to supply the quantities of energy needed is growing exponentially… and even China is beginning to realize that the curve is getting too steep.

It needs to upgrade systems in a way that reduces the long term pressure on the economy financially through a continued low fuel cost, but more importantly it needs to create a system that is largely secure.

Which leads me to the opportunities.  for large firms like GE and Cummins, this has been a boon for them, and their sales teams have found success at the city/ national level selling products and services into these markets.  IBM has also done very well to sell their Smart City program (pilot programs) into different cities, and firms from McKinsey to ARUP have entire teams looking at city planning, transportation, and energy… and the opportunities do not stop there.I have had several conversations with SMEs who are looking to explore the China market with offer specific technologies and expertise.

And while there was a lot of debate about domestic innovation and buying practices, from what I can tell, the purchase of lower grade equipment and services is experiencing quality fade of its own. That, as the gaps grow in size and the need for solutions grows more tangible, the willingness to pay a premium for quality increases.

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2 Responses to “China’s Energy Gaps Create Opportunities”

  1. Dan says:

    April 26th, 2012 at 10:21 pm

    Years ago, I was incredibly gung-ho about foreign companies getting in on China’s cleantech drive, but far too often I have seen our clients with the best products AND the lowest prices lose out to Chinese competitors. I see this more in the enviro/cleantech industry than anywhere else and it has caused me to conclude that the Chinese companies really have an advantage here. Are you seeing the same thing? What is an American company to do? Partner with a Chinese company? JV? What?

  2. Rich says:

    April 27th, 2012 at 7:28 am


    I can only tell you what I am seeing, and that it that there are firms who invested in China who own the majority of the market… who are in cleantech, but are not attached to solar / wind installations. Water is a HUGE one, and if you look at the largest players (NALCO, GE, NORIT, etc) who hold the majority of market share in industrial and municipal markets, they are not just an example, they are also not going to be purchasing much in the way of Chinese products there is a market.

    I would say much the same thing could be said with regards to transportation (bus/ metro), food safety (organics or traceability, or healthcare (clinics, elderly centers, etc).

    JV bad idea (as always), partnerships with Chinese possible… but (as always)… WOFE is the way to go.

    It should also be said that while everyone seems to focus on the wind mill/ solar mfg, cleantech is a far wider industry. A LOT of western firms are working here, and many of them are successful with developing good (paying) projects. I do hear some grumbling at times, but for those firms who have found a niche, or have a proven track record (energy, environmental, urban planning, etc) they are seeing a lot of work. sometimes paid for by the city mayor. sometimes in partnership with university.

    And as I said. As the issues grow bigger and more severe, the more this trend will favor quality providers. Having a cheap, locally produced, windmill only makes sense if it is not connected to the grid. Once the energy is needed, that changes everything..