China and the Renewable Energy Technology Race

1. China & the Next Technology Race Jacques Boppe HEC Executive MBA - Shanghai Thursday, October 29th, 2009

2. China Electricity – Coal remains the main energy source Burning coal is essential in helping China reach its GDP targets In 2008, China added 65.8GW of coal-fired capacity (vs. 20.1GW and 4.7GW of Hydro and Wind capacity) Most coal reserves are in the North or North-west and present enormous logistic problem Nearly half the country’s rail capacity is used in transporting coal About 16% of China's electricity came from renewable sources in 2006, led by the world's largest number of hydroelectric generators China total installations of hydropower reached 145GW in 2007, with target of 190GW for 2010 Two large hydro projects are recent additions: Three Gorges of 18.2 GW, and Yellow River of 15.8 GW Limited large-scale hydro power capacity available Investment in renewable is now part of China's economic stimulus strategy Installed Capacity by energy source (GW) Total Power Output 2008 : 3.467 billion kWh Source: World Nuclear Association 2009 Source: National Bureau of Statistics 2008 2

4. 4 Nuclear power is relying on foreign technology China currently has three nuclear power bases Qinshan (Zhejiang) Dayawan & Ling’ao (Guangdong) 1987-1994 Dayawan, 1st to introduce foreign capital, equipment and technologies (CLP & EDF) Tianwan (Jiangsu) 11 nuclear power units in operation 9 GW installed capacity Additional 24 units approved by Government Total installed capacity to reach 25.4 GW by 2015 Nuclear power has an important role, especially in the coastal areas remote from the coal fields and where the economy is developing rapidly Total Installed Nuclear Capacity of 9 GW (Canadian design) (conjunction with Westinghouse) (domestic design) In Operation Planned / under construction Source: Xinhua News Agency, World Nuclear Association 2009

6. Nuclear fuel assemblies are fabricated and supplied indigenously

8. No technology transfer, hence less long-term interest to China

9. Expected to start construction in Q4 2009Nuclear Capacity (GW) Westinghouse + Shandong Nuclear Company Selected for four units but got two EPRs in Sanmen Full construction started in April 2009 New power plants are 70% owned by local partners Guangdong is the hub for foreign nuclear power Zhejiang to see most technology transfer Three partners to operate nuclear power plants China National Nuclear Corporation (CNNC) CGNPC China Power Investment Corporation (CPI) Source: World Nuclear Association 2009

11. Wind power capacity reached 15.85GWChina to reach 20GW in 2010 and 100GW in 2020 How can foreign companies participate to this phenomenal growth? Which technologies will prevail? 2008 Global Installed Capacity: 120,798 MW 2008 Global New Capacity: 27,051 MW China Installed Capacity (GW) Source: CWEA 2008 Source: CWEA 2008, China's National Energy Administration

12. 7 Inner-Mongolia or China new “Green Rush” China has the largest wind resources in the world and three-quarters of them are offshore China has doubled it Wind Power capacity in 2008 Onshore wind is where the action is Stimulus package Development of High Power transmission grid to connect wind-rich regions with electricity demand coming from the coastal regions Seven wind power “mega projects” with a minimum capacity of 10GW each by 2020 In the provinces of Gansu, Hebei, Jilin, Jiangsu, Xinjiang and Inner Mongolia Total Installed Capacity – Top 10 provinces (MW) Source: GWEC 2007, CWEA 2009

16. Control System :Germany,Sweden, America (Siemens, ABB, GE)Emergence of Chinese global leaders Key Domestic Manufacturers Key Foreign Manufacturers 8 Growing role of domestic wind turbine manufacturers 2008 Market Share by installed capacity (6.3 GW) Source: CWEA 2009 Domestic Vs. Foreign annual installed capacity Source: GWEC 2008, BOCI 2009

17. 9 Chinese leading manufacturers developing their own IP ?

18. 10 China already secured a comprehensive value chain

19. Race to scale up more advanced wind turbines (>1MW) Foreign manufacturer began to establish wholly owned subsidiaries to do their business in China Cheap production out of China is a threat to the European production of Vestas and Gamesa Chinese domestic turbine installations will gradually see quality improvement and China will start exporting 3rd generation wind power turbines will be Foreign or Chinese? Foreigners are fighting to stay in the game for advance turbine and increase productivity (load factor) Siemens 2.3 MW and 3.6MW in Shanghai, on the road to offshore Vestas “China-Only” turbine 90% of components made in China Direct-drive, variable speed Offshore China is set to lead wind power Intellectual Property Manufacturing capacity Control supply chain Installed turbine: the market is going for above 1MW Source: GWEC 2007 , WWF 2008 11

20. 12 Foreign private investments in Chinese wind sector

21. Wind farm operators: no place for foreigners China’s top 10 wind farm developers are state-owned utilities, together representing 71% market share Top national projects have to be built with turbines that contain 70% localized components Emergence of local industry with every part of the value chain being localized The “Big Five” power generators are also leading in Wind Power 20 Oct 2009: China Longyuan Power Group Corp, the country's largest wind project developer, to raise up to $1 billion from an IPO on the HKSE Subsidiary of Guodian With home-grown expertise, Chinese leading power generator are starting to go abroad Vietnam, Cambodia Chinese leading wind farm operators in 2007 Source: CGS 2008 13 13

22. 14 Fierce bidding for the right to harvest best wind sites Unhealthy allocation and tariff-setting mechanism In the past: bid with the lowest price wins Favor domestic wind turbine, with prices at a 20%-30% discount compared to their foreign peers Since 2009, NDRC applies a tariff scheme according to the region: 0.51 / 0.54 / 0.58 / 0.61 ¥/kWh Importance of Chinese equipments Industry Protection According to the related legislation, equipment localization rate must be over 70% in wind farm. Longyuan Power: 94.4% localization rate of wind turbine China Energy Conservation Investment Corp. 77.5% localization rate of wind turbine The regulator is nurturing it’s domestic industry 70% requirement localization rate Foreign turbine companies begin to establish wholly owned subsidiaries to do their business in china or in the way of JV Non economically-viable electricity pricing In 2007, the grid-connected electricity price for desulphurised coal-fired electricity was 0.297 ¥/kWh In 2009, China average on-grid tariff is 0.35 ¥/kWh 2006: Bidding price for Bayin Project (¥ / kWh) Coal-fired average Source: GWEC 2007

23. 15 Wind & Solar potentials are complementary China has the world largest wind power potential and abundant sun in western regions According to the China Academy of Meteorological Sciences, the country possesses a total 235GW of practical onshore wind power potential that can be utilized at 10 meters above the ground They can move industries ! Coastal cities have been upgrading their economy to more technology / knowledge intensive industries The energy intensive industries are being moved inland, especially energy-rich western China Solar Energy Resource Distribution in China On-shore China Wind Power Potential Green = great Pink = good Blue = ok Orange = poor I = great II = good III = ok IV = poor

24. 16 Solar power: from export oriented capacity… PV market was fueled by ambitious export to Europe and US solar PV markets From 2004-2008, the solar cell production in China reached 40% of the global output China's poly-silicon production capacity is 20,000 tons a year (2008) Output of about 4,000 tons (2008. In 2007, 96% of PV modules were exported Seven of the world's top 15 solar cell manufacturers are Chinese companies. Built on the expertise from the semi-conductor industry Vertically integrated: Silicon, Ingots, Wafer, PV cells, Module Already with Thin-Film R&D and manufacturing capacity Subsidize electricity to boost export: effective price dumping Electricity expenses account for 35 to 40 % of the total cost to produce polysilicon Chinese solar firm agressively entering the European and US market Recent initiatives to rein in PV production overcapacity in the country's solar energy sector Shanghai’s “100,000 Solar PV Roof Plan” Shanghai plans to build 100,000 Solar PV on roofs in the five years from 2006 to 2010, with an estimated total installed capacity of 400 MW In March, the government fixed a subsidy of 20 ¥/W for solar PV systems larger than 50 kW fixed on building roofs Beijing’s “Solar Road Lighting Project” Beijing plans to supply road lighting with solar PV power in rural streets and some main roads using government funding. Solar PV is also being installed in some of the Olympic venues Four Desert PV Stations The Ministry of Science and Technology has arranged specific funding to build four pilot projects of desert PV stations in Gansu, Tibet, Sichuan and one other location

26. China Guandong Nuclear Power and LDK Solar to form a bidding team.

27. Fixed FiT rate of 1.09 ¥/kWh (Industry players lobbying 1.3-1.5)

28. Enfinity was the only foreign player to participate in the tender and they wonThe local solar industry is going through the necessary steps that the wind sector successfully went through in the past 10 years Technology transfer, export, nurture value chain, price war Solar Capacity (MW) Source: WWF 2007, China Greentech Report 2009

29. China to win Renewable Energy Technology Race Country with a strong Balance Sheet investing in disruptive technology and nurturing its industry "We are now formulating a plan for development of renewable energy. We can be sure we will exceed the 15% target. We will at least reach 18%. Personally I think we could reach the target of having renewables provide 20% of total energy consumption." Zhang Xiaoqiang, vice-chairman of China's national development and reform commission. China to win the Next Technology Race: intellectual leadership coupled with domestics production capacity The green revolution will happen in China Nuclear (3rd generation EPRs) Wind (3rd generation wind turbines – direct drive, new designs) Solar (thin film development and first PV manufacturing capacity) Foreigners willing to take part in this Next Technology Race Nuclear Power Limited global players already own the technology (Westinghouse, Areva) Wind Power Invest in home-grown disruptive technology and new turbine design Supporting export of Chinese developed third generation turbine Solar Power China already owns the technology and the production (40% global output) Early / Short-term opportunities for Solar Power Plant developer and operator Other non electricity generation related sectors Energy Efficiency Water treatment 18