Block’s Indicator of Sustainable Growth

by Ray Block

In was not until 1982, before the first motor vehicle was assembled in China. And it took a further 10 years before one million vehicles were sold in any one year. But over the last 18 years, an astonishingly giant industry has been created to become in 2009 the largest auto market in the world.

And having come this far, it is inevitable that like the steel industry, where the Chinese produce about 50 per cent of global supply, the same trends are emerging in motor vehicles.

In hybrids and fully electric cars, China with its still current 200 auto manufacturers will dominate this space, with the government goal for 2011 of 500,000 electric vehicles seen as a modest beginning.

All the major international auto companies, with hopes of marketing success in the hybrid and electric vehicle space, with affiliates in China are extremely busy right now.

Indeed, all of the majors, whether joint ventures with foreign auto companies, state owned, municipal owned, or private owned are currently working two and three shifts throughout the week, with an almost endless supply of customers.

Passenger car sales rose 63 per cent to 1.26 million vehicles in March 2010, and commercial vehicles rose even more strongly to 470,000 units over the same month, according to the China Association of Automobile Manufacturers (CAAM).

In 2009, vehicle sales totalled 13.6 million units, a gain over the previous year of 45 per cent. CAAM expects the domestic auto market to grow 15 per cent this year suggesting a total market of 15-16 million. Another auto trade association, Shanghai based China Passenger Car Association is even more confident, suggesting that China’s vehicle sales will surpass 17 million units in 2010.

In 2008, the Ministry of Science and Technology mandated that 10 per cent of Chinese cars will run on alternative fuels by 2012 and called for research subsidies. The Ministry of Finance announced a new commitment to promote new energy vehicles in the country’s 13 largest cities- Beijing, Shanghai, Chongqing, Zhangchun, Dalian, Hangzhou, Jinan, Wuhan, Shenzhen, Hefei, Kunming and Nanchang.

The mandate called for public services to begin buying alternative fuel vehicles in these cities and provide subsidies for their production and purchasing. The subsidies included 50,000 yuan for hybrids and 60,000 yuan for pure electric cars.

A revised subsidy scheme is eagerly expected for new energy vehicles. China Daily (April 9 2010) reported that electric cars qualifying for subsidies are those that have received the government’s production license and are assembled in China, regardless whether they come from domestic or joint venture firms.

Zero emission pure electric cars is now the preferred technology path for new energy cars in China, which will be reflected in the new stimulus plan. Where hybrids and hydrogen fuel cell vehicles fit in is not clear, as they were targeted as the priority for new energy vehicle development in China’s 11th Five Year Plan (2005-2010).

Zhang Jinhua, vice secretary general of the Chinese Society of Automotive Engineers, who is also an official for the national 863 research program on energy saving and new energy vehicles says that China’s roadmap for new energy cars has shifted in “giving priority to pure electric cars and taking hybrid cars as complement.”

As part of China’s new12th Five Year Plan, the National Development and Reform Commission (NDRC), China’s major planning body has highlighted nuclear energy, wind energy and new energy vehicles as priorities.

Frank Liao, chief engineer of Chery, now China’s fifth largest automaker, says that the first round of competition for the electric car market share would mainly be between medium and small sized domestic private automakers, and the large state owned domestic automakers ,which had acted “sluggishly” in electric car research and development.

There has since been an element of change, with even the highly profitable state and municipal owned SAIC, the No 1 auto company in China, too content in its cosy joint ventures, finally getting the message that the government wants the industry to accelerate change. SAIC is releasing a hybrid model this year, and a pure electric car in 2012.

A number of pure electric cars are about to enter the market. BYD, the 7.5 per cent affiliate of Warren Buffett’s Berkshire Hathaway was first in with its own hybrid F3DM introduced in 2009. BYD for “Build Your Dreams” started in 1995 in auto batteries, and it is only in recent years that it entered the vehicle market.

For many years, a notorious reverse engineering outfit, which never paid for foreign technology,was openly exposed as such in a prominent online piece by Caexon Online. BYD sold 430,000 vehicles in 2009, and is building a new plant to double that output. It now wants to do its own research and development, and is prominent in the export market.

Chery started in 1997, and became the fifth Chinese automaker to reach a production goal of two million vehicles, the first one million was in 2007, and the second in 2009. At the beginning of 2010, Chery began a $350 million R&D program to develop traditional automotive technologies and new energy technologies at the same time.

The aim is to continue a strong program of technical improvements spending around 4.6 per cent of yearly sales on R&D. Chery, which launched its S18 electric car in March 2009, the first of its S series of fully electric cars, has been concentrating on “high efficiency, energy saving, easy operation, continuous variable transmission and quietness.”

The largest of the private auto companies Geely, which nreleased its EK-1 fully electric car, has just concluded a deal with Ford to buy Volvo, the Swedish motor firm for $1.8 billlion. Whether the Chinese company can meet the full purchase price at this stage is up in the air, but they retain first right of refusal advantage to purchase the prestige marque.

To make the 500,000 electric car target by 2011, there are generous production subsidies, and there is a scramble among large state owned enterprises to set up charging stations to enable the new car revolution to take place.

by Ray Block

Preliminary figures of PV growth in calendar year 2009 by the European Photovoltaic Industry Association (EPIA) suggest that about 6.4 GW was installed worldwide last year reaching a total capacity of over 20GW (20,000 MW).

The growth, says EPIA, is particularly impressive given the weak level of demand at the height of the recession in the March quarter. A sizzling increase in global cumulative installed PV capacity is expected in 2010 by at least 40 per cent, with an annual growth expected to increase by more than 15 per cent.

The PV market survey firm Solarbuzz expects the first quarter 2010 to show global module production rising by 7 per cent, with a further 19 per cent in the second quarter. Thin film production is expected to account for 17 per cent of global shipments in the first half of 2010.

One word of caution is introduced with Germany, the largest PV market, which increased installations by about 3 GW in 2009 to a cumulative installed capacity of almost 9 GW will at some stage reduce the size of its gross-feed-in-tariff.

Italy is the second largest European market, with an expected 700 MW in 2009. Czech Republic also showed strong growth with 411 MW installed in 2009. Belgium, France, Portugal and UK showed positive growth. The 2008 leader Spain languished, as a result of the cap imposed by the government in 2008.

In other regions, USA achieved around 475 MW in installations in 2009, while Japan did even better with new installations of 485 MW. Promising markets in Canada, Australia, Brazil, Mexico, Morocco and South Africa are expected in future years.

The most exciting solar PV producer continues to be First Solar, now the largest PV module producer in the world, with Shyam Metha of Greentech Media (March 29 2009) demonstrating the profit potential of the solar market. First Solar is the dominant player in the thin film market specialising in (CdT) cadmium telluride.

Add these ingredients – high throughput (1,011 MW in 2009), competitive efficiency of 11 per cent, and industry leading cost. This is currently a sensational 83 cents per watt. A lot of the applied genius is due to investor/ entrepreneur Harold McMaster, who concluded in the early 1980s, that the “essential cost element of large area solar arrays was glass, and (he) could treat the actual solar cell as simply a different kind of coating on glass.”

Metha explains: “In other word, thin film PV represented a technology that could be manufactured using glass’ high throughput coating process instead of the slow, cumbersome batch process of traditional crystalline silicon wafer-based PV – an approach that had one hundredth the feedstock requirement.”

by Ray Block

I have written on algae three times before. It is back in the news.

This time, the emphasis is not on Sapphire Energy, but on Solzayme, the South San Francisco start up. With an additional $ 22 million from the US Department of Energy for financing demonstration scale facilities preparatory to scaling up to a commercial plant. The company now has a capital base of $100 million. This should be sufficient for it make a faster breakout than its peers to become a real supplier of diesel and aviation fuel. And not just in token amounts.

The problem so far has been the great  difficulties biofuel companies, outside the highly subsidised corn ethanol producers, are having in getting costs down to a point, where they can ever compete with conventional hydrocarbons.

I must confess that there is something appealing to me in algae, the humble pond scum, turning into a highly valuable commodity. And for good measure, you can make very tasty goodies out of it as well. Solazyme is gaining valuable cash flow in a sideline, which is quickly taking off.

Bryan Walsh writing in Time magazine (March 17 2010) says “the vanilla drink is the colour of butter and tastes almost as good- creamy and sweet, like a liquid pudding. Next I try a pair of golden cookies, lightly touched with sugar- they’re soft, chewy and filling. Last is a mustard dipping sauce, tangy, that coats a handful of pretzels with a pleasant honeyed zing.”

And to top it off for the health conscious, “the vanilla drink has 20 per cent fewer calories and 75 per cent less saturated fat than regular milk, while the dipping sauce has 74 per cent less calories and 85 less overall fat than average honey mustard dip.”

Unlike, Sapphire Energy, which grows algae by feeding it on carbon dioxide in sunlight in ponds, this is the process of photosynthesis to make the fuel, Solazyme feeds algae sugar fermenting it in a dark kind of beer brewing kettle.

The economics of production in the two systems are very different.

The open ponds and photo-bioreactor (PBR) techniques are infinitely more expensive. Says Joshua Kagan, who has researched algae in detail, Greentech Media(April 3 2010 “an algae strain must be identified and optimised for maximum growth. The correct location must be found, and as the algae grows, they need a constant supply of nutrients, C02, heat and light, which requires the consistent movement of water.

“Once the algae grows to a sufficient mass, it must be harvested, dewatered and dried before extracts of the oil can commence. These steps are energy and capital intensive. Once the oil is extracted, it is relatively simple to upgrade the fuel into jet fuel or diesel using traditional refinery techniques, but still costs an additional $0.25-0.40/gal. Taken together, algae grown in open ponds or PBRs are estimated to cost $8-$30/gal.”

The comparison to Solazyme’s methods of production could not be any greater, and it is also far more cost effective. By growing the algae in the dark, the energy costs of artificial light is avoided, and the fermentation process requires a fraction of the water usage. Another positive is that the strains of algae don’t require CO2, which depending on the location can be a big cost. Finally, removing the water isn’t an issue when grown in dark vessels.

Although Solazyme uses a lot of sugar to feed the algae, the company has a supply agreement with second generation sugar producer, BlueFire Energy to obtain sugars derived from non food sources.

The big advantage algae has is that it can double in size daily and account for approximately 60 per cent of the oxygen production on earth. By comparison with corn ethanol, harvesting yields the equivalence of 270 gallons per acre per year, compared with algae’s 1500-1800 gallons per acre per year.

Let’s hope that Solazyme’s dark vessel production method is as cost effective as they say, and commercial production is only around the corner.

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by Ray Block

I have often said that clean energy technologies will be among the very top investment drivers in the 21st century, just as the electrical, electronic  and telecommunications technologies have been to the 20th century.

The countries leading the new revolution in energy will dominate economic activity in coming decades. Evidence is mounting that United States is losing its economic leadership in clean energy, and the inheritor of this mantle is China.

And that worries me, because as the Stern Hu bribery and industrial espionage case demonstrates only too plainly how despotic the Chinese authorities are in treating industrial espionage, as theft of state secrets over an issue as low level, as bargaining over iron ore pricing.

Let me spell out three warning signs of the coming Chinese hegemony.

Keith Brasher, a long time New York Times correspondent in China (January 20 2010) said that China has vaulted past competitors in Denmark, Germany, Spain and United States to become world’s largest manufacturer of wind turbines, and in 2010 is poised to expand that lead.

Brasher also said that China has leapfrogged its competitors to become world largest manufacturer of solar panels.

The second warning sign comes from the Obama Administration energy secretary, Steven Chu, nobel prize laureate for physics, who in March 2010 told Stanford University students, a college where he had taught physics for 20 years, (E&ETV newsletter group March 9 2010), that other countries, mostly China, were outstripping US investments by a factor of 10.

“Our market share is 10 per cent on clean technology,” he said ticking off fuel efficiency, general auto technology, energy transmission equipment, energy transmission equipment and nuclear reactors as specific sectors, where the United States is severely lacking.”

“What’s China doing?” he asked. “Spending over $9 billion a month cleaning up and improving their energy efficiency. The (Chinese) state grid is spending $44 billion by 2012 and $88 billion by 2020 on transmission.”

The third warning sign comes from the report Who’s winning the clean energy race? by the Pew Charitable Trusts, with their partner Bloomberg New Energy Finance March 2010. 

The report  said that “for the first time in 2009, China took the top spot for overall clean energy finance and investment, pushing the US into second place. Having built a strong manufacturing base and export markets, China is working now to meet domestic demand by installing substantial new clean energy-generating capacity to meet ambitious renewable energy targets.”

In 2009, $162 billion was invested in clean energy globally. Of this, China invested $34.6 billion, almost double that of the US $18.6 billion, and more than four times the combined total of UK $11.2 billion, Spain $10.4 billion, Brazil $ 7.4 billion and Germany $4.3 billion.

The top 10 in investment intensity shows up United States in a less attractive light. Spain emerges as No1 on 0.74 % ; UK O.51%; China 0. 39%; Brail 0.37%; Canada 0.25%; Germany 0.15 %; Italy O.14 ; US O.13%.

“Relative to the size of its economy, the United States clean energy finance and investments lag behind many of its G-20 partners. For example, in relative terms, Spain invested five times more than the US last year, and China, Brazil and UK more than three times.”

by Ray Block

There is a political campaign in California to begin the unwinding of the far reaching reforms, which liberal Republican governor Arnold Schwarzenegger inspired and campaigned for to transform the state to a low carbon economy.

In the process of starting the transformation under Schwarzenegger, the state legislature passed trailblazing measures, never attempted before in the US. These included the Global Warming Solutions Act of 2006 to achieve a reduction of greenhouse gas emissions in the state by 20 per cent from 1990 levels by 2020. This act has not yet come into force.

Another positive step was the Governor’s executive order in 2007 to create the world’s first Low Carbon Fuel Standard (LCFS). This requires fuel producers reduce the carbon intensity of transportation fuels sold in the state by 10 per cent to 2020. The effect of this is to reduce greenhouse gas emissions by more than 13 million metric tons a year, equivalent to taking three million cars off the road.

The third positive was establishing California’s Renewable Portfolio Standard (RPS) by executive order to provide clear and permanent direction for the creation, delivery and servicing of the state’s renewable energy programs, while increasing the renewable energy use. The California Air Resources Board (CARB) will adopt regulations to increase the state’s RPS to 33 per cent by 2020.

The state’s leadership on energy conservation and the environment led to the first step to national Green Building Standards, which will serve as a foundation for commercial buildings worldwide. Another initiative was California’s encouragement to other western states in launching the Western Climate Initiative in February 2007. The other states taking part were the governors of Arizona, New Mexico, Oregon and Washington to develop a regional strategy aiming for a uniform approach to cutting greenhouse gas.

The states of Montana and Utah, and the Canadian provinces of British Columbia, Manitoba, Ontario and Quebec also saw the advantages of joining. The partners resolved to reduce greenhouse gas by 15 per cent below 2005 levels by 2020, and to build compatible systems to ensure that programs could be linked for maximum environmental benefits and at the lowest cost.

All these advantages are now at threat. Schwarzenegger retires as Californian governor in January 2010, having been elected in the November 2003 state wide Recall election, after the Democrat Grey Davis was removed from office of governor by a vote of 55.4 per cent. In a second ballot, Schwarzenegger was elected by 48.6 per cent of the vote.

The most likely successor as governor is expected to be conservative Republican Meg Whitman, the one time very successful chief executive of eBay. At immediate threat is to the Global Warming Solutions Act (this is AB 32, which mandates the reduction of about 30 per cent in the state’s greenhouse gas in 2020 from 1990 levels).

Although AB 32 is unlikely to come into force before 2012, conservative Republicans want to see a 12 month moratorium on its implementation. A separate call for a legislated stay on AB32 is a movement led by two ethanol producers based in Texas, who are spending freely to get sufficient signatures to require a special state election. This bar would remain in place, until the state unemployment fell to 5 per cent. They need to get 433,000 signatures for this special election, and hopefully they may miss out.

The fact that the not so “golden state”, with a jobless rate of 12.5 per cent in January 2010, compared to the national average of 9.7 per cent makes it a daunting task for any governor to deal with, however well experienced to restore balance to the economy.

Coupled with a potential state budget deficit of $20 billion, largely due to an undue reliance on state income taxes, with property tax reserved mainly for local government, it becomes a herculean task.

In May 2009, Schwarzenegger tried to get a raft of ballot measures carried by the state’s special election process to restore some balance to the budget process. The key proposition was to place a spending cap on the budget forcing the state to more than double the amount of funds it puts away in reserves for spending during times of economic difficulties. These ballot measures failed.

California’s chief justice, Ronald George (San Francisco Chronicle Feb 20 2010) trenchantly criticise the state’s legislative process saying “unrestrained ballot lawmaking is paralysing government.”

The state and its lawmakers “have been placed in a virtual straitjacket” by a requirement of a two thirds legislative vote to raise taxes, imposed by Proposition 13 in 1978. Ronald George said other ballot measures further tied legislators’ hands by reserving specified portions of state funding for public transportation and education.

This is where the threat to unravel Schwarzenegger’s renewable energy program comes in. If AB 32 is cancelled or rescinded, who is to prevent the unravelling of the rest of Schwarzenegger’s dream of a low carbon economy.