China: A clean-tech gold rush? Valley sees big market

By John BoudreauMercury News
Article Launched: 06/18/2007 01:29:56 AM PDT

ZHANGJIAGANG - Sam Huang has found a new land of opportunity for Silicon Valley - in the shadow of a giant smoke stack in the Yangtze River Delta.

Dressed in a black designer suit, with a Treo attached to his ear, the executive with San Jose-based Echelon, whose smart-building technology is usually associated with gleaming high-rises, paid a recent visit to a new client: China's third-largest steel mill. The plant is trying to go green by using Echelon's products to reduce the energy consumed to forge steel and iron to feed China's around-the-clock construction craze.

Less energy used means fewer tons of coal burned to produce electricity. At the Jiangsu Shagang Group, a vast complex located 100 miles west of Shanghai, that saving could be as much as 65,000 tons a year. It is a tiny step for cleaner technology - and clean air - in a nation that is building coal-fired power plants at an assembly-line speed of one a week.

Silicon Valley companies, which first looked to China to manufacture PCs and iPods, now see potential profit in its environmental meltdown.

They see opportunities to sell a vast range of clean-tech products and services. Those include water filtration systems; green building technologies that reduce energy use; processes to convert waste into biofuels; better wind turbines; solar power technology; "smart" street lights; and even software for energy companies to help manage operations more efficiently.

"Every market is big in China," Huang said.

`Next 24 months': Clean tech expects flood of funding

Gary Rieschel, a veteran valley venture capitalist who relocated to Shanghai, sees a "tidal swell" of interest in the China energy and clean-tech market from abroad. "The wave will occur some time in the next 24 months," he predicted. "Silicon Valley has a huge play here."

Already, venture capitalists are increasing their clean-tech bets in China, from $7 million in 2004 to $222 million last year, according to VentureOne and Ernst & Young. In that same period, venture funding for clean-tech deals in the United States soared from $522 million to $884 million.

Chinese government officials and environmentalists say the only hope to head off environmental catastrophe is through the kind of technology Silicon Valley offers. China's air, water and land are so polluted that environmental hazards kill hundreds of thousands of its people each year. And China's pollution problems are spilling over onto other countries. Dirty air traced back to China can be found in California's skies, and could become a major source of pollution.

Cleaning up China's environment "will require good technological assistance and sheer political commitment," said Hal Harvey, environment program director at the William and Flora Hewlett Foundation in Menlo Park, which funds projects in China.

Doing business in China is never easy for foreign companies, and executives who move into this growing sector face the same challenges others have run into, including corruption, intellectual property theft and a wall of distrust erected by Chinese industry leaders.

But the opportunities in China are too great to ignore, particularly for risk-taking valley entrepreneurs and investors who relish change-the-world business plans.

Some initiatives are driven by personal reasons. Peggy Liu, a former Silicon Valley Internet executive now living in Shanghai, grew tired of watching her two young boys breathe "black air."
So Liu, whose home is outfitted with four air filters, created an international network linking academics, government officials, entrepreneurs and investors on both sides of the Pacific to find practical - and profitable - solutions to China's environmental woes.

"It's the do-good, save-the-world, on-the-edge, it's-OK-nobody-has-figured-it-out-before mentality," said Liu, who in 1996 co-founded an early e-commerce Web site. "I was one of those people."

In early April, she organized a conference on energy for U.S. investors in Shanghai that attracted high-level Chinese government officials and members of the Bush administration (www.mitenergyinchina.org). She then founded the Joint U.S.-China Cooperation on Clean Energy, a network of government officials, investors, industries and researchers to promote innovation in areas such as energy-efficient buildings, transportation systems, non-food biofuels and "clean" coal technology.

High-priced tech: `We may not be able to afford it'

"It's not just the technology that comes out of Stanford University," said Liu, chief operating officer of Mustang Ventures, a $40 million fund focused on investing in start-ups in China. "There is a whole industry of things that will appear, a whole slew of service-based companies."

But for any venture to succeed in China's new and often ruthless market economy, it must produce clear economic benefits, and those can be hard to achieve.

"On the one hand, we want the best technology," Lai Ming, general director of science and technology with the Ministry of Construction, said in his office in one of Beijing's boxy, Soviet-era buildings. "On the other hand, we may not be able to afford it. The Silicon Valley guys may not be able to lower the price."

Selling to this once-closed society requires a very different business model.

"You must find some old China hands, people who understand the government," advised Xiong Sihao, a vice minister who oversees network coordination and information security. "You just can't come here and say, `I have the greatest technology.' Who cares?"

Plenty of patience must be built into any China business plan, said Andrew Hu, who has headed up China operations for Oracle, and is now president of China operations for San Jose's Wyse Technologies. Wyse makes "thin client" devices, desktop monitors that resemble a personal computer but operate on a network and provide significant energy savings.

Wyse, which had trouble getting traction in China, now has a more receptive audience because of the new focus on saving energy. A Wyse device uses about 10 watts per hour, vs. 300 watts for a regular desktop.

"The pollution is killing the environment," Hu said. "The government is trying to do everything to make even the slightest improvements."

While companies trying to crack the clean-tech market in China face many challenges, some can take advantage of its authoritarian government structure.

"You can do things on a scale in China that you can't in the United States," said Charles Freeman, managing director of the China Alliance, an association of law firms. "And the government can demand things on fiat: If you've got a better catalytic converter, the government will actually mandate it."

But there are downsides, added Freeman, who served as the United States' chief China trade negotiator from 2002 to 2005. "Your intellectual property will be pirated. It's not a matter of if, it's a matter of when. The key is to be constantly innovating."

Intematix, a maker of materials for next-generation street lights that are energy-efficient, longer-lasting and non-fluorescent, counters the piracy threat by manufacturing its products in Fremont, then selling them in China.

"Everyone tries to copy," said Chief Executive Peter Larsson. But he added that China is changing and that copycats are increasingly concerned about getting sued.

Cautious optimism: China remains focused on economic growth

Whether China can sustain economic growth while improving its environment remains to be seen. Likewise, Silicon Valley's ability to succeed as a clean-tech partner in China is far from guaranteed.

"All this hype, all these people running around - it reminds me of the bubble," said Shanghai-based venture capitalist Andy Tang, managing director of Draper Fisher Jurvetson's Dragon Fund in China.

Still, Tang said he is "cautiously optimistic" about the new business environment in China, particularly for companies with clean-tech pitches. Many of the start-ups he has investigated actually have made money.

Rob McCormack, co-founder of Mustang Ventures and husband of Peggy Liu, isn't optimistic that the government has the will to strike a balance between economic growth and environmental protection.

"I go to cities of 400,000, 500,000 and they are just disgusting," he said. "China doesn't care about pollution. They are still going for growth, because growth is stability."

But his wife looks at the country's exploding economy and draws an opposite conclusion.
Driving through Shanghai's Pudong district, a forest of skyscrapers that 15 years ago was farmland, she pointed to yet another nearly completed high-rise. "This building didn't exist a few months go." She sees the same get-it-done drive in the government's campaign to save the environment.

"I think the government is absolutely serious about what they call green GDP," Liu said.

Solarpowergetics Becomes Distributor of Solar Modules for Wuxi Shangpin Solar

Press Release from Solarpowergetics, Inc.
June 19, 2007 - La Jolla, California

Solarpowergetics Inc. (SPG) announced today that it has reached an agreement to distribute crystalline silicon solar cells, modules and dual glass solar modules on behalf of Wuxi Shangpin Solar Energy & Technology Company (China). The agreement is expected to advance SPG into the largest solar markets in the United States, including New Jersey, New York and California.

"We are pleased to offer world-class solar modules at radically reduced prices. Future growth in solar depends on much lower prices, which will stimulate growth for mass consumption. Acceptance of solar power for practical use requires design and integration into simple "plug and play" systems to justify the expense. The agreement with Wuxi Shangpin Solar, along with competitive pricing strategies, will permit us to quickly demonstrate the extreme benefits of solar, wind and thermal power systems in the United States," said Miguel Hidalgo, CEO and President of Solarpowergetics Inc. "We must promote clean energy now to save the planet. Let us reduce the level of carbon emissions, kick our addiction to oil and break away from the toxic Industrial Revolution and move forward into the next century together."

Top 10 Solar Cell Manufacturers in 2005 and 2006

These lists show the market share leaders for manufacturers of photovoltaic cells in 2005 and 2006.

2005
1. Sharp
2. Q-Cells
3. Kyocera
4. Sanyo
5. Mitsubishi
6. Schott Solar
7. BP Solar
8. Suntech
9. Motech
10. Shell Solar

2006
1. Sharp
2. Q-Cells
3. Kyocera
4. Suntech
5. Sanyo
6. Mitsubishi
7. Motech
8. Schott Solar
9. Deutsche Cell
10. BP Solar

Source: Photo International

Chinese challenger aims for top spot in solar tech

By Michael Kanellos Staff Writer, CNET News.com
Published: June 18, 2007, 4:00 AM PDT

Bucking the automation trend, Suntech Power Holdings credits its rise in the solar industry to people, and lots of them.

Rather than use expensive robots, Suntech employs roughly 2,500 workers to assemble solar cells into panels and perform other tasks ordinarily handled by machines. The workers give Suntech a lower operating cost than Western competitors, and there are fewer broken cells, said Steve Chan, vice president of business development at the company.

The factory workers make, on average, about $200 a month, not including housing subsidies, free food and an on-site medical clinic. (It's about half of what a new college graduate earns in China).

Low-tech as it sounds, the approach has led to a Moore's Law-like growth rate for the Shanghai-based company. Suntech, which makes both solar cells and completed panels, was an asterisk in overall market share in 2002. By 2005, it was the eighth largest solar cell maker in the world, according to statistics from Photon International. In 2006, it jumped to fourth and this year passed No. 3 Kyocera in solar cell manufacturing capacity.

Suntech's revenue and profits are following a similar path. Sales in 2006 rose to $598.6 million, more than doubling 2005 revenue, while net income rose by from 30.6 million in 2005 to 106 million last year. Revenue this year will likely hit $1 billion. In 2002, revenue was $3 million.

"We came from nowhere," Chan said. "We were able to grow in the face of an industry shortage of silicon."

Many believe the company now has its eye on toppling Sharp as No. 1 in the industry. Sharp has factory capacity to produce enough solar cells to put out 600 megawatts of power in a year, compared with Suntech's 360 megawatts. By 2010, Suntech expects to have the factory capacity to produce 1 gigawatt of solar cells a year.

"Suntech, longer term, is going to be the Honda Civic of the industry," said Jeff Osborne, an analyst at CIBC World Markets. "My fundamental belief is that 80 to 90 percent of the market, long term, will be a commodity product and the Chinese and Taiwanese are going to dominate that (commodity) sector."

Alternative energy is becoming big business in China. In the past two years, several Chinese solar companies--such as Nanjing's Sunergy, JA Solar Holdings and Solarfun Power Holdings--have held initial public offerings in the U.S. Suntech did it first, in late 2005; because of the IPO, founder Zhengrong Shi is one of the richest men in the country.

Chinese manufacturers have also begun to expand into the market for solar water heaters. Meanwhile, The Jiangsu province has linked up with the Cleantech Network and Tsinghua University to create a clean-tech industrial park.

Not the usual storyBut just when you think this might be another story about how low-cost labor in China will bowl over established Westerners, guess again. Product quality, solar cell efficiency and access to large amounts of silicon remain key considerations and will hinder many of the new entrants from China, said Paula Mints, an associate director for Navigant Consulting. Most of the other Chinese companies have barely made a dent in the market, and price cutting is already trimming their margins.

Then there is the problem of shipping. Solar panels weigh a lot. Shipping them from China virtually eliminates any of the costs saved through cheaper labor, Mints said.

"The shipping costs are significant. You've got to get the stuff across the ocean and then you've got to land it," she said. "Unless the domestic market takes off, the other manufacturers will be challenged."

To address these problems, Suntech is preparing its second act. While trying to beat competitors with lower costs, Suntech will go high-tech in another area. It is building a conveyor belt and robotic system for cell manufacturing that will allow it to shoot for gigawatt-scale output, said Chan. Managing manual laborers "will probably become cumbersome at some point," he said.

Two of the five robotic systems Suntech hopes to one day deploy are already being beta tested.
It is also building its own industrial park near its factories, which will house equipment providers (assembling the robots designed by Suntech) as well as component suppliers, to cut down costs and increase efficiency. The strategy neatly mimics what Dell has done in PCs.

To top it off, the company is wedging its way into thin-film solar cells, roofing tiles with integrated solar cells through the acquisition of a Japanese company, and higher-margin solar cells that can convert more sunlight into electricity than average cells.

"We feel we are going to hit 20 percent efficiency in a few years, but we will do it with a low-cost structure," Chan said.

If the company succeeds, other Chinese companies will follow suit, so what happens over the next few years for Suntech is a big deal in solar.

"The Chinese companies are where we will have to keep our eyes open," said Ron Kenedi, vice president of the Solar Energy Solutions Group at Sharp.