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U.S. Clean-Energy Tech Firms Face Difficult Choices between Collaboration and Competition

Many firms seek financial help from China, which is pushing hard on green energy technology and offering bigger subsidies than the U.S. government



Chauncey Davis, courtesy Flickr

Executives of ECOtality Inc. believed in 2009 that their battery charging technology would be a winner when plug-in electric vehicles began to hit the market this year. But with debts running far ahead of revenue, the San Francisco firm needed immediate financial support to stay in the game.

The help came from China, through a $2 million investment that year by a Chinese company. In return, the Chinese company received the rights to make and sell ECOtality's chargers in its country and in other Asian markets. The relationship is one example of the complex linkage between American clean energy technology and Chinese capital and markets that will be a subject in this week's U.S.-China summit in Washington led by President Obama and Chinese President Hu Jintao.

The relationship is contentious and collaborative at the same time, commented Georgetown University's Joanna Lewis, writing in the latest assessment of China's environmental activities for the Woodrow Wilson International Center for Scholars.

The United States contends China is illegally subsidizing its wind power equipment manufacturers, effectively locking U.S. and other foreign suppliers out of key parts of its booming market. The Obama administration has taken the dispute to the World Trade Organization for adjudication. U.S. officials and American commentators noted progress, however, on the dispute over wind turbine technology during the December meeting of the Joint Commission on Commerce and Trade.

A key emphasis at this week's meetings will be on clean energy collaboration, says David Sandalow, assistant secretary of Energy for policy and international affairs. "The United States and China are the two biggest energy producers and consumers in the world. We have many shared interests in finding climate solutions," he said.

Robert Kapp, former president of the U.S.-China Business Council, said he assumes that U.S. companies have saved up announcements of new clean energy projects for this week.

Cooperative research to get another push
At the government level, in the past year, the two nations have been implementing a $150 million joint program of Cooperative Energy Research Centers, which includes research on carbon capture and storage at West Virginia University, on electric vehicles at the University of Michigan, and on building efficiency at Lawrence Berkeley National Laboratory. This program will get another push forward this week, Sandalow said.

"We are focused on protecting U.S. interests, but in the course of that, there are ways we can learn from each other," he said.

Other high-level technology partnerships under way include a U.S.-China Steering Committee on Clean Energy Science and Technology Cooperation, a U.S.-China Electric Vehicle Initiative, and a U.S.-China Renewable Energy Partnership, Lewis noted.

But, she added, "Despite the long list of official bilateral agreements signed between the United States and China in the area of clean energy and climate change, there have been many challenges to following through on the successful implementation of agreed upon activities," beginning with inconsistent funding. "Cooperation is also hampered by the increasingly competitive relationship between the United States and China in the global economic marketplace," Lewis said in the recently published Issue 11 of the Wilson Center's China Environment Series.

"Clearly there is a long way to go to build the trust that will be crucial to scaling up clean energy cooperation between the United States and China that the world needs," she said.

As the fastest-growing market for wind and nuclear power and the leader in solar power modules, and with a commitment to expand electric vehicles and carbon capture from coal plants, China is the place to be for American clean energy companies with global aspirations.

"Certainly we should find something in between to make it win-win," said Zou Ji, China country director for the World Resources Institute in Beijing. "Some people believe now Chinese [clean] technology has been advanced, but that depends.

"In manufacturing, China has made great progress, but for R&D and design, China is still very weak." The United States and China can collaborate on joint research and development and scale the technology up in China, where costs are lower, he said.

Concerns about China's 'very tough game'
But if access to China is tied to a drain of leading-edge U.S. technology, the hopes for future American leadership in clean energy development -- a top priority for Energy Secretary Steven Chu -- could be erased.

"China is America's fastest-growing export market but it still maintains significant barriers to U.S. goods and services," said Nina Hachigian in an overview of U.S.-China issues on the Center for American Progress' website.

While the trade frictions between the two countries over clean energy are improving, in Kapp's view, serious issues remain, he said.

"In many commercial negotiations, the Chinese play a very hard game of trying to trade market access for technology, and American companies are always faced with the question of how much they're willing to part with, in terms of crown jewels or other advanced technologies ... in return for opportunities to make money in China," Kapp said. "The Chinese are not saints, and they play ... a very tough game," he told reporters last week.

A report last year by a U.S. National Research Council panel criticized China's recent anti-monopoly law that prohibits "abuses" of intellectual property rights by foreign multinationals in China, an element of the country's "indigenous innovation" strategy.

The policy pressures foreign companies to transfer their technologies in return for market access to state-directed markets, the report said. "China is also likely to use the standards-setting process to compel multinationals to transfer the technology that is implicated in the standards or face the legal consequences of noncompliance," the report added.

"While still clouded with suspicions and disrupted by setbacks, the broader trends in the U.S.-China relationship today are fundamentally positive," concluded the report by the council team, led by C.D. "Dan" Mote Jr., former president of the University of Maryland, and John Gannon, an executive with BAE Systems Information Technology and former chairman of the National Intelligence Council.

The challenge -- and solution -- to the issue of technology transfer lies with the protection of intellectual property, Kapp said. "And on that," he said, "the jury is still out."

Case studies suggest caution
Every U.S.-Chinese clean technology venture seems to have its own story and unique issues. For example, First Solar, the leading U.S. solar power company, made headlines in September 2009 with its agreement with Chinese officials to build a 2,000-megawatt photovoltaic energy project in Inner Mongolia.

More than a year later, the project has not gotten off the ground. Under pressure from Chinese energy companies, Chinese officials have not yet approved a feed-in-tariff that would subsidize the cost of the solar farm's electricity.

"Until that happens, it is not economical to make the commitments and take the risks of undertaking a project like this," said First Solar spokesman Alan Bernheimer.

When the project was announced, a local Chinese official expressed the hope of having a local factory make the First Energy solar cells, which are based on an advanced -- and closely guarded -- technology employing thin films of cadmium telluride as the photovoltaic material.

"No question the Chinese would love to have us site manufacturing facilities there, to work with our technology and gain experience using it," Bernheimer said.

"There has been no commitment to putting manufacturing facilities in China," said Bernheimer. "We've only discussed the construction ... of solar generation plants. We've left open whether that could eventually involve manufacturing ... it's an open question."

First Solar's research and testing occur at its factory in Ohio. The solar cells for the Mongolian project would most likely to produced at First Solar factories in Malaysia or Vietnam, he added, but that would not entail technology transfer to those countries. "We have not done that to date with anybody. Our manufacturing processes are the crown jewels of our technological advantage."

Protecting the 'crown jewels'
ECOtality also has traced a careful line in its relationship with its Chinese partner, according to company officials and its public statements.

The company had invested in research on hydrogen-power vehicles during the George W. Bush administration, and when that initiative was cut short by the Obama administration, ECOtality turned its efforts toward electric vehicle charging, where it has a base in equipment it produces for airline use.

The $2 million investment by Shenzhen Goch Investment Ltd. came at a crucial time. A month after it was announced in July 2009, ECOtality won a $99.8 million stimulus grant from the Energy Department -- later raised to $114 million -- to supply 15,000 of its Blink chargers for the Nissan Leaf and Chevrolet Volt plug-in vehicles that form the vanguard of the U.S. electric vehicle industry.

The company got a validating $10 million investment this month from ABB, the Swiss energy technology giant, and will use ABB electronics in its charger products.

The chargers for the DOE project will be made in the United States by a leading auto parts supplier, said ECOtality Vice President Chip Read. "We're spending a lot of money to get manufacturing up to speed in the U.S. That's not something we want to abandon."

But ECOtality sees its chargers as contenders in a worldwide market that is just beginning to take shape. Shenzhen Goch Investment is the majority partner in two joint ventures to build and market the chargers in China, and to export them to Asian markets. ECOtality has the minority position in the venture, which includes technology transfer under license agreements that the U.S. company controls, Read said.

Read said that ECOtality's strongest intellectual property position -- its crown jewels -- lies not in manufacturing, but in the back-end software and electronics that will control the customer charging operations, vehicle interfaces, billing and possibly linkages to the grid. These are likely to vary to some degree country by country, he said.

"We have to take into account that we have a high-quality product, not just low-cost one. That will play a big role on where we source components."

Reprinted from Climatewire with permission from Environment & Energy Publishing, LLC. www.eenews.net, 202-628-6500

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