China's Clean Energy Investment Puts America to Shame

In the U.S., when the topic of clean energy comes up, we like to debate concepts like climate change or global warming, turning it into a political debate more than a strategic one. Subsidies to industries such as wind or solar, no matter how small, take criticism from politicians and the media while the government continues to subsidizes oil, gas, coal, and nuclear production to the tune of billions of dollars each year. We neglect to account for externalities such as the cost of war ships keeping the Suez Canal open when Iran threatens to close it, oil spills inland and offshore, the wars in Iraq, and the limited liability given to the operators' nuclear plants. If Fukishima happened here, it would be no problem for U.S. companies -- Uncle Sam would pick up the tab.

In China, the energy debate is very different. When China sees its imports of coal rising and dependence on foreign oil growing, it springs into action. Not by screaming, "Drill, baby, drill," but by investing billions of dollars in home-grown energy sources. Yes, I'm talking about clean, renewable energy, and China's investment in these energy sources make U.S. subsidies look like the half-hearted effort they are.

Building a homegrown industry
China has put tens (maybe hundreds) of billions of dollars into building a renewable manufacturing industry, and it started long before the U.S. even noticed the emergence of wind and solar power. Sinovel Wind Group was founded in 2005 and quickly became the third largest wind turbine manufacturer behind Vestas and General Electric (NYSE: GE  ) . It has plans to surpass these companies within the next two years and is fueled by funding from Chinese state-owned banks. Goldwind, Guodian, and Ming Yang have also sprouted up in China, pushing European and American companies out of the wind market.  

In solar, Chinese dominance is even more alarming. In 2008, Q.Cells, Sharp Electronics, and First Solar (NASDAQ: FSLR  ) were the top three solar manufacturers, followed by China's Suntech Power in fourth place. Today, Q.Cells has been through bankruptcy and is owned by South Korean conglomerate Hanwha Group, Sharp is in financial trouble, and China is home to the top nine solar producers, according to the Renewables 2012 Global Status Report. Again, top producers Suntech, Yingli Green Energy (NYSE: YGE  ) , Trina Solar (NYSE: TSL  ) , LDK Solar (NYSE: LDK  ) , and dozens of others have used cheap, easy money from Chinese state-run banks to bankrupt the rest of the world's solar industry and claim it as its own.  

Where the U.S. saw risk in clean energy manufacturing (see Solyndra), China saw opportunity.

Putting their money where the future is
Unlike the U.S., China also has a national goal when it comes to solar power, the fastest-growing renewable energy source. It plans to install 40 GW of solar by 2015, 30% more than what was installed globally in 2012. To put that number into some context, solar installations in the U.S. grew 76% last year and still reached only 3.3 GW. We would have to nearly double solar installations annually to reach 40 GW in installations over the next three years.

When you put these figures into dollars, China's green energy dominance is even more staggering. Keep in mind that the U.S. economy is more than twice as big as China's  when you read the following data from a report released by Pew Charitable Trusts and Bloomberg New Energy Finance earlier this week.

China invested $65 billion into wind, solar, and other renewable energy sources in 2012, 20% growth from 2011. The U.S. invested $35.6 billion, down 37% from a year earlier. As a percentage of the economy, China's investment in clean energy is nearly four times as large as that of the United States.   Worldwide, clean energy investments fell by 11% in 2012 to $269 billion while investments in Asia grew 16% to $101 billion.   China accounted for 30% of all clean energy investment by G-20 countries in 2012.

There are a few reasons China is so gung-ho about green energy right now. Chinese officials see wind and solar as emerging industries they can dominate with a large investment early in the business cycle. Considering the number of bankruptcies in solar over the past two years and the almost unanimous blame management puts on China, the strategy is working.

There's also an environmental aspect to China's pursuit of clean energy. This view of Shanghai covered in smog is an increasingly common occurrence over large parts of China:

Source: Wikimedia. 

Earlier this year, Beijing residents were told to stay inside as smog covered the city, and the U.S. Embassy said pollution monitors had air quality at hazardous levels in 19 of 25 days. China has fueled much of its economic growth with coal, and the rapid growth of the middle class has congested the country with gas-burning vehicles. Clean energy can offset some of those pollutants.  

Dominating the future of energy
There are a fleeting few U.S. companies that can now stake claim to a significant piece of the clean energy future. First Solar (NASDAQ: FSLR  ) and SunPower (NASDAQ: SPWR  ) appear to be winners in the solar industry, and they've even turned to China as a potential customer for their products. But they still have to fight off fierce competition from China. General Electric is using its sheer size to stay afloat in wind power and is still investing in solar. The sad truth is that most of the other large manufacturers in wind and solar have fallen by the wayside.

China has made a concerted effort to dominate the future of clean energy, and by the look of it, China is winning. Until the U.S. decides that renewable energy is a necessary part of our economic future and creates the policy and infrastructure necessary for it to thrive, China will continue to outspend us. To me, that's a shame.

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