Washington’s energy rift with China unpopular

When the US government picked the clean energy industry as the latest battleground in its cold war with China over currencies and trade, it did not find the domestic industry rushing to offer support.

The Obama administration announced last Friday that it would proceed with an investigation into China’s support for its renewable energy industry, which could lead to litigation at the World Trade Organisation. The move followed a complaint of unfair practices by the United Steelworkers Union.

With the midterm elections only two weeks away, the administration was under political pressure that proved impossible to resist. The allegations that stimulus funding for energy projects had created jobs in China have been a theme of Republican campaigning.

Among US energy equipment companies and industry groups, however, support for the government’s move has been muted.

In part this reflects commercial diplomacy: US companies do not want to jeopardise relations with the world’s biggest power generation market.

Some say they have done very well in China. All are aware that parts of the US market have so far been even harder for the Chinese to penetrate than China has been for the Americans.

Many, too, are angered by what they see as the administration’s belated recognition that the US industry’s competitive position has been eroded, after years of relative neglect.

Mike Eckhart, president of the American Council on Renewable Energy, an industry group, points out that, less than a year ago, the administration launched a series of collaborations with China on energy technology.

“The Chinese did what they said they were going to do, and the US didn’t,” he says. “The fact that the US didn’t support its renewables industry in the same way that other countries did is no grounds for complaining now.”

Rob Gramlich of the American Wind Energy Association, which represents developers, generators and manufacturers, backs the US investigation into possible unfair practices, but says the most important policy move would be for Washington to set a legally binding national target for renewable energy.

“China has a very strong standard for renewable energy, while the US does not, so that’s the main tool that companies are competing with,” he said.

Off the record, western companies operating in China say they are concerned by Beijing’s support for domestic companies, particularly its local content requirements.

Many have made less progress in China than they had hoped. During 2005-09, foreign companies’ share of the fast-growing Chinese wind power market, now the world’s largest, fell from 71 per cent to 14 per cent, according to Bloomberg New Energy Finance.

However, western companies also concede that there are legitimate competitive advantages enjoyed by Chinese companies, including low costs, rapidly improving technology and a huge home market.

Jeffrey Immelt, chief executive of General Electric, reflected US frustration over the summer when he said of the Chinese government: “I am not sure that in the end they want any of us to win.” Nevertheless, GE is continuing to invest in China and last month announced a wind turbine joint venture.

Steve Bolze, GE’s chief executive for power generation equipment, told the Financial Times recently: “China is the largest single market for new power generation added to their grid on an annual basis anywhere in the world. It’s a big market, and it is a market that GE has to be in.”

In the US, meanwhile, Chinese companies have made almost no headway. Just three Chinese turbines have been sold in the US, and the towers and blades for those were US-made.

In practice, domestic content requirements have also turned out to be powerful in the US; when plans were announced last year to build a stimulus-backed wind farm in Texas with Chinese turbines, there was outrage and the developers quickly promised that the turbines would be built in the US.

Aspiring entrants to the US market find other barriers, too. Mitsubishi Heavy Industries of Japan, for example, has been embroiled in a fierce dispute over patents with GE.