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Chinese companies have taken the Lead in Renewable Energy

How European companies can benefit from China’s rise in renewable energy

“Europe is very important to us. As a technology innovator, as a supplier and as a blueprint for  the energy transition,” says Felix Zhang, CEO and co-founder of Envision, in an interview with German newspaper Das Handelsbaltt in 2018. Envision is currently the second largest wind energy company in China and it is now looking towards the West. Felix Zhang is looking for promising investment opportunities – especially in Europe. Over the next three years, Envision plans to invest one billion euros in investments and acquisitions.

That hundreds of millions of Chinese people suffer from extreme air pollution is only one of several reasons for the Chinese government to push ahead with the development of low-emission technologies. Above all, China has seen the business incentive renewable energy brings in the global energy transition.

Global Expansion Strategy

To become the world’s leader in renewable energy, China spends more money on developing renewable technologies than any other nation. According to the McKinsey Global Institute, China spends more than USD 100 billion annually – that’s more than the US and Europe combined.

While the energy transition is stalling in Europe, Chinese eco-corporations are no longer only dominating the domestic market, but are expanding at a rapid pace on a global scale.

In order to secure technology and know-how for the strategically important industry, Chinese companies are pursuing an ambitious expansion strategy. According to the Institute for Energy Economics and Financial Analysis (IEEFA), in 2017 China invested USD 44 billion in renewable investments outside of China, in a total of 18 projects on the Belt and Road.

In 2016, a year earlier, it had been just eleven billion dollar deals. Tim Buckley, Director of the IEEFA, is confident that China is getting ready to take the lead in renewable energy, “China understands that renewable energy offers a huge economic opportunity.”

China’s rise in Photovoltaic

In 2015 China entered the European market with low-cost modules. Where previously German module manufacturers such as Solarworld, QCells or Phoenix Solar dominated the market, Chinese manufacturers such as Jinko Solar and Suntech have now taken the lead.

Today, not a single European company is among the top ten largest solar companies. According to figures from the International Energy Agency (IEA), 60 percent of all solar cells came from Chinese producers in 2017.

China’s wind energy industry is also becoming growingly competitive. Goldwin, a Chinese company, is currently the third largest wind energy company. Envision has already advanced to sixth place according to the current ranking of the largest turbine manufacturer by market research company FTI Intelligence.

For Envision CEO Felix Zhang, however, it is less about Chinese market domination, but rather about achieving a common goal: “We want 100% renewable energy supply. You cannot achieve this goal by thinking only within your country, but only through cross-border cooperation.

“Europe created renewable technology, but China industrialised it,” says Felix Zhang, adding that China has never been seen as a technology pioneer but that will change in the next few years.

This trend is also being observed by European solar companies such as the module manufacturer Solarwatt. “Chinese companies are no longer imitators,” says Solarwatt CEO Detlef Neuhaus: “In the future the standards of renewable energy won’t be set by Europe, but China.”

Electricity network as the key to success

Creating a renewable electricity network could be achieved with a technology in which China has already assumed a pioneering role: power lines with ultra-high voltage technology (UHV). These lose significantly less power than conventional high-voltage power lines during long-distance power transmission and could thus solve a fundamental problem of the energy transition: the transport of wind and solar power from climatically favourable locations to consumers. “In Europe, for example, UHV could be used to connect power grids across borders,” says IEEFA Director Tim Buckley.

The basics for the technology comes from Europe. Siemens and ABB pioneered the UHV development. However, as China was the only country interested in the construction of UHV power lines, European companies cooperated with the Chinese company State Grid. The State Grid Corporation of China, commonly known as State Grid, is the largest utility company in the world and has been ranked 2nd in the Fortune Global 500 List since 2016.

Meanwhile China has industrialised the technology and has been operating it successfully in her own country since 2009. Former US Secretary of Energy Steven Chu once called the breakthrough in UHV technology China’s “sputnik moment”, comparing it to 1957 when Russian astronauts took the lead in the US-Russian space race.

State Grid is now considered an expert in the field. With a billion customers, it is the largest network operator in the world. By 2050, State Grid wants to use its technology to realise its big vision: a power grid that connects countries around the globe. According to IEEFA, deals have already been made in Chile, Brazil, Russia, Portugal, Nigeria, South Africa, Pakistan and Australia.

According to XU Yin-Chong, author of the book “Sinews of Power: The Policy of the State Grid Group” State Grid’s investments can be divided into two categories. On the one hand, direct investment where the Group builds and operates the national grid, for example in Pakistan. On the other hand, in cases such as Australia’s NSW Transgrid and Germany’s 50Hertz, in which the company from Xu’s point of view focuses on obtaining a profitable minority share.

But IEEFA Director Tim Buckley, who has been observing the Chinese energy sector for more than a decade, sees another difference. According to him, State Grids’ acquisitions are “puzzle pieces that form a long-term picture”. However, so far, the purchases have not been systematic.

“The company is starting to strategically approach acquisitions to spread its standards in network technology,” says Tim Buckley. With offers to buy companies such as the German network operator 50Hertz, State Grid was met with political resistance. “After all, this is critical infrastructure. Many countries treat this as a national security issue.”

State Grid plans billion dollar deal in Portugal

Other countries are more open-minded. In Brazil, for example, State Grid is already the largest network operator. In Europe, the Group has already made the entry and is Portugal’s largest shareholder of REN, Portugal’s state-owned network operator.

China Three Gorges (CTG) also wants to enter the Portuguese market. It was not until May that the energy company offered more than $ 9 billion for almost 77 percent of one of Europe’s largest energy companies, Energias de Portugal (EDP), which is heavily involved in renewable energy.

If the deal is successful, the Portuguese company would be entirely owned by Chinese shareholders – the remaining shares are already held by CTG. The case will show whether the European Union is willing to give a Chinese company sole control of a large company in one of the EU Member States.

For the Chinese entrepreneur and Envision CEO Felix Zhang, the concerns of Europeans are incomprehensible. “If one of the world’s leading energy companies wants to work with European companies, I’d view that as good news. After all, Europe could profit from the knowledge of the other countries. Perhaps Europe could also benefit from the determination of Chinese companies in the energy transition. Europe’s industry once had the dream of cross-border electricity grids.”

The name of the European cross-border electricity grid was Desertec. The brilliantly designed large-scale project would supply Europe with Saharan power via the Mediterranean Sea and make coal-fired power stations superfluous in Europe. Yet, it appears that the desert dreams have failed. Most European technology and construction companies such as Siemens, Bosch, Eon or Bilfinger have already turned their backs on the project. In the end, the companies lacked the stamina to complete such a momentous program. Among the last remaining shareholders of the project is still a Chinese network operator: State Grid.

China’s renewable energy sector has undergone drastic changes in the past years. Chinese companies are now increasingly becoming global players in the renewable energy sector and are taking the lead in research and development of new technologies. Having become such a key player in the sector, European companies must take China into consideration when planning their own growth and expansion. If you are interested in exploring the opportunities China presents for your company in the renewable energy, please contact us.

The influence of Chinese banks in Europe is increasing

The Agricultural Bank of China has celebrated the opening of their London branch this Tuesday. This is the latest step in the expansion of European business operations of the ‘Big Four’ – Industrial and Commercial Bank of China (ICBC), Bank of China (BOC), China Construction Bank (CCB) and Agricultural Bank of China (ABC).

Earlier this year ICBC received their banking license in Switzerland. ICBC – the largest bank in the world by total assets and the most valuable bank in the world by market capitalization – has been licensed by the Swiss Financial Market Supervisory Authority Finma as a bank. Starting their European operations in the UK in 1995, it was formally established in 2013 in the City of London and has since expanded its operations from London to all major European cities, opening their latest branch in downtown Zurich.

ICBC, headquartered in Beijing, is one of the largest credit institutions in China, with more than 460,000 employees and just under 20,000 branches. The financial group was founded in 1984 and completely restructured in 2005, whereby the transformation into a private company took place. In addition to serving business and private customers with all industry-standard banking services, its core business also includes other credit card and e-banking services. The company reported revenue of £115.7 billion for the fiscal year 2016, with a profit of £32.1 billion.

The dominance of Chinese financial institutions has been growing for years. As the data service SNL Financial announced in 2015, four of the world’s five largest banks alone now come from China. Due to currency effects, European and Japanese banks fell behind. The top five also include the Agricultural Bank of China and the Bank of China.

The influence of Chinese banks in Europe, which has become increasingly noticeable and increasing for some time now, is an extension of the growing role they already play on other continents. According to Merrill Lynch, Chinese banks in Australia, for example, have already spent a considerable share of the new syndicated loans together with Japanese competitors in the recent past. In this way, they are chasing away significant market shares from down turning European banks in Australia.

The arrival of powerful Chinese banks is relatively new to the European market. The weakness of European financial services gives Chinese banks the best chance of gaining a foothold in financial markets, which are among the most competitive in the world.