12 September 2012

China Chokes on Its Green Dysfunction

China's massive investment bubble has taken many forms over the past few years. One of the most damaging aspects of China's overproduction bubble is the great green dysfunction -- massive overproduction of wind and solar hardware and infrastructure.
President Barack Obama has held up China’s investments in green energy and high-speed rail as examples of the kind of state-led industrial policy that America should be emulating. The real lesson is precisely the opposite. State subsidies have spawned dozens of Chinese Solyndras that are now on the verge of collapse.

Unveiled in 2010, Beijing’s 12th Five-Year Plan identified solar and wind power and electric automobiles as “strategic emerging industries” that would receive substantial state support. Investors piled into the favored sectors, confident the government’s backing would guarantee success. Barely two years later, all three industries are in dire straits.

This summer, the NYSE-listed LDK Solar, the world’s second largest polysilicon solar wafer producer, defaulted on $95 billion owed to over 20 suppliers. The company lost $589 million in the fourth quarter of 2011 and another $185 million in the first quarter of 2012, and has shed nearly 10,000 jobs. The government in LDK’s home province of Jiangxi scrambled to pledge $315 million in public bailout funds, terrified that any further defaults could pull down hundreds of local companies.

...Wind power is seeing similar overcapacity. China’s top wind turbine manufacturers, Goldwind and Sinovel, saw their earnings plummet by 83% and 96% respectively in the first half of 2012, year-on-year. Domestic wind farm operators Huaneng and Datang saw profits plunge 63% and 76%, respectively, due to low capacity utilization. China’s national electricity regulator, SERC, reported that 53% of the wind power generated in Inner Mongolia province in the first half of this year was wasted. One analyst told China Securities Journal that “40-50% of wind power projects are left idle,” with many not even connected to the grid.

A few years ago, Shenzhen-based BYD (short for “Build Your Dreams”) was a media darling that brought in Warren Buffett as an investor. It was going to make China the dominant player in electric automobiles. Despite gorging on green energy subsidies, BYD sold barely 8,000 hybrids and 400 fully electric cars last year, while hemorrhaging cash on an ill-fated solar venture. Company profits for the first half of 2012 plunged 94% year-on-year.

...Many in Washington have developed a serious case of China-envy, seeing it as an exemplar of how to run an economy. In fact, Beijing’s mandarins are no better at picking winners, and just as prone to blow money on boondoggles, as their Beltway counterparts.

In his State of the Union address earlier this year, President Obama declared, “I will not cede the wind or solar or battery industry to China . . . because we refuse to make the same commitment here.” _Patrick Chovanec
China's huge overinvestment in wind and solar is becoming a serious problem for the middle kingdom, as bad investment and bad debt threaten the destroy all the economic gains previously made in the 1990s and 2000s up to 2008. But despite all that, Obama -- and several leaders in the EU -- have still not learned their lesson.

If the great global green dysfunction has made a monkey out of Warren Buffett and T. Boone Pickens, US President Obama should not feel too badly about being hoodwinked.

But Obama has already done untold damage to the current and future US economies, but the US cannot afford to let the "empty stool" continue to spew his purulent green policies all over the landscape.

Perhaps China is "in too deep" to cut its losses and move on, but if the US can throw off its own green dysfunction -- as embodied by the Obama regime from top to bottom -- it can still step through the doorway into an abundant energy future.

More -- China: Getting three times the GDP bump when a bridge collapses

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Blogger Bruce Hall said...

Good post. I used the link at the end for this:


Wednesday, 12 September, 2012  
Blogger horos22 said...


Lord knows I'm no zealot when it comes to supporting renewable power, but I think that demonizing renewables simply because of some economic failures is just as unfair as mindless praise.

Truth is that failures of companies and individual technology approaches is about the worst predictor that you could possibly make about the success or failure of that technology. Witness:

* the 90% of companies that went bust in the early years of the automobile
* the scores of personal computer companies that went bust in the 70s and 80s
* the railroad boom and bust at the end of the 19th century
* the heyday of radio stocks and the absolute carnage of them at the end of the 20s
* internet companies in the early 21st century

You could say the same about pretty much every technology throughout history, indeed pretty much any human (and natural) domain throughout history - countries, technologies, languages, species, social organization, pretty much everything out there follows a variant of zipf's law, where the first place takes the lion's share of whatever metric is being measured, the second takes a fraction of that, etc. etc. etc.

So even though there is a shakeout in renewable companies, I think its very short sighted to rule them out. It may be that zipf's law is simply rearing its ugly head and that there will be a dieoff of the less competent renewable companies. Same thing with electric cars - what will REALLY matter to the renewable industry is if they can get the price/watt down to the point where capacity factor isn't an issue.

If people can do that, then the renewable companies will take off like a rocket. If not, they won't.

In any case, I'm personally GLAD that china is performing this experiment, and DOUBLY (exponentially) glad that they are doing the same with nuclear power and especially SMR and NGNP technologies. Putting a big bet into a high risk/high reward affair doesn't sound like bad policy to me, it sounds PRUDENT, realizing that even with the new techniques in natgas production, we are living on borrowed time when it comes to carbon-based fuels, and that there are reasons even outside their depletion for switching. (health and environmental costs)

Also, I wouldn't be too loud in your praise for natgas, alfin. It may just be a chimera that we are chasing - I've been listening to both coal and oil company quarterly reports - and they categorically state that the production cost for natgas by fracking is about 4 dollars/thousand cu. feet, and if you haven't noticed, the price for natgas is 2.89 dollars/thousand cu. feet.

Hence, well producers are actually producing nat gas at a LOSS in price - but they are doing so as a loss leader; analysts at chevron and exxon mobil are unanimous in believing that there is going to be a huge spike in natural gas costs, a spike to MORE than accomodate their production cost. We may thus looking at vastly higher energy prices for electricity, prices that MAY just make renewables more attractive even without subsidy.

So, only time will tell. I think you should have a more open mind though.


Wednesday, 12 September, 2012  
Blogger neil craig said...

They do seem to be letting these green subsidy dependent "industries" fail which is exactly what they should do. Losing $95 billion is going to hurt but losing far more, spread out over decades, would do far more damage.

The Chinese seem to be coming to increasingly understand free enterprise. Wish we did.

Thursday, 13 September, 2012  
Blogger al fin said...

Neil: You may have overlooked the passage where Jiangxi province was forced to bail out LDK Solar to prevent hundreds of local enterprises from failing along with the drowning solar supplier.

h22: Before I began looking into all this, I may have thought along much the same lines as you appear to. If you intend to comment on this topic widely and extensively, I recommend a much more intense and rigorous study of the topic.

Thursday, 13 September, 2012  

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