China has now outpaced the United States as the world’s biggest emitter of greenhouse gases (GHG).  With a power sector that relies heavily on coal and continued aggressive construction of coal-fired power stations, the country currently accounts for almost 50% of global coal consumption.  According to the European Commission’s Joint Research Centre, China’s carbon emissions increased 9% in 2011 to 7.2 tons per person.   This figure is only slightly less than the European average of 7.5 tons – though significantly less than the average American at up to 17.3 tons per person.

Realizing the need to address the country’s serious GHG emissions problem – especially with record smog levels in Beijing – the Chinese government is taking a number of steps.  It plans to add 49 GW of renewable energy capacity this year and develop an energy plan with the goal of gradually transitioning from fossil fuels to cleaner energy sources, such as hydropower and intermittent resources like wind and solar power.  In 2012, about 15 GW of wind and 3 GW of solar energy capacity were added.

New Lows

Most noteworthy is the government’s effort to curb CO2 emissions by initiating a new carbon emissions trading pilot scheme.  It is set to launch seven such pilots in various cities and provinces this year that are expected to eliminate at least 700 million tons of annual emissions.  The first pilot will be kicked off on June 17 in Shenzhen (southern China) to initially include 635 companies that were responsible for 38% of the city’s total GHG emissions in 2010.  This pilot scheme will create the second-largest carbon trading scheme in the world, after the European Union Emissions Trading System (EU ETS).  Beijing and Shanghai may soon follow suit, though neither city has scheduled a launch date yet.

It remains to be seen if the Chinese carbon trading program will be as successful as the EU ETS scheme, which has indeed reduced carbon emissions since it was initiated in 2005.  But will China, like the EU, eventually face the challenge of a growing surplus of allowances?  Recently, the European Parliament proposed to delay the release of 900 million CO2 emission permits in order to stop over-flooding an already saturated market (mainly caused by the economic recession, which has depressed emissions more than anticipated) – a decision that was narrowly defeated soon thereafter in a parliamentary vote because of fear of raising costs for businesses in a sluggish economy.  Earlier this year, permits traded at below €3 ($3.90) a ton – compared to €7 ($9.10) a ton last year and €25 ($32.50) a ton in 2008.  Shortly after the vote, carbon allowances dropped to €1.70 ($2.20).  It is clear that carbon trading can be fraught with problems, and the Chinese market will undoubtedly face its own unique issues in the years ahead.  Still, China should be able to draw upon the EU’s experience and its hard-won lessons.

The imminent bankruptcy of Suntech, based in Wuxi, China and formerly the No. 1 manufacturer of solar PV modules in the world, may please many Western manufacturers that suffered from the company’s below-cost selling strategy.  But schadenfreude offers scant comfort for the dozens of solar PV manufacturers, Chinese and Western, that have been driven into failure in the past few years by China’s 5-year strategic plan to dominate solar PV manufacturing.  Suntech was one of the largest of the army of unprofitable Chinese manufacturers that have topped rankings of annual production for the past 3 years.

Despite ambitious domestic installation targets for solar PV, more failures are yet to come in China as the country becomes a victim of its own success and the Chinese market continues to consolidate.  As with European and American companies, Chinese manufacturers will likely enter into a number of “strategic partnerships” that result in more vertically integrated providers, including some with project development operations.  This is a strategy that has enabled FirstSolar and SunPower to ensure markets for their own modules.

The brutal fact is that no individual solar (or battery, or any other) manufacturer can compete with Chinese state capitalism.   Many policy makers and analysts would love to see an expansion of solar manufacturing in this country.  Yet, we are in this situation today because consumers, as always, have spoken with their dollars.  There is a reason that DVD players, digital cameras, and cell phones are not manufactured in the United States.  Solar PV cells and modules are now also rapidly commoditizing.

Still, even though the below-cost Chinese market flood has contributed to manufacturing job losses in the United States and Europe, the number of solar PV installation jobs has increased considerably.  Ultimately, the result is better value for consumers and a growing overall market.  The Chinese government is effectively subsidizing the cost of solar PV for consumers in the United States and around the world – and that’s not a bad deal, unless you’re a failing solar PV maker.

What is the proper mythological metaphor for A123 Systems? Some might conjure up Icarus for the venture capital highflier whose business model melted in the heat of competition.  Or maybe Sisyphus, for being asked to perform a series of impossible tasks, each ending in failure.

Now, however, the most apt myth would be the phoenix—the bird that regenerates from its own ashes.  A123 is now officially a subsidiary of Wanxiang America, an Illinois-based auto parts supplier and the American arm of the Wanxiang Group of China, and has officially risen from the ashes of bankruptcy.

What will the new A123 look like? The company hasn’t declared any official moves yet, but here are a few of the things I’ve heard from industry participants about the strategic directions that a re-born A123 will likely take:

More cash.  Wanxiang isn’t just giving A123 a lifeline.  It is injecting a significant amount of capital into its new U.S. subsidiary.  That capital will go toward qualifying for new projects (sometimes vendors have to show a certain amount of financial health to be able to bid on large capital-intensive projects).  It will also help to underwrite a new research and development project.

New chemistries.  A123 will work on developing the next generation battery chemistry, though its nano-engineered lithium iron phosphate chemistry will continue to be produced and supported for the applications it is best suited for.

Emphasis on systems integration.  A123 will continue to be a player in the automotive sector, where its batteries are already scheduled to go into several Chinese models and the Chevy Spark EV, as well as developing a technology solution for the microhybrid segment.  On the grid storage side, the company will emphasize its systems integration capabilities.  Rather than just be a manufacturer of cells, the company wants to provide complete systems, including controls, inverters, voltage regulators, fire suppression systems, and transformers.  It’s a smart move considering that cells are quickly becoming a low-margin commodity.

So where does the new A123 Systems fit into the newly transformed energy storage landscape? Actually, it fits pretty well.  During the bubble years of the energy storage  industry (2010 to 2012), many companies crashed and burned— literally.  A spate of fire events spelled doom for a handful of startups that had otherwise promising technologies, and the expected flood of utility orders never arrived.  Batteries are still too expensive to make sense for most applications.  Now the lineup of vendors active in the area has been winnowed while at the same time manufacturing capacity has been dramatically enlarged, leading to cheaper batteries thanks to economies of scale.  A123 is re-entering a market that appears to be opening up, and it is doing so in an environment with fewer competitors.  A123 couldn’t have picked a better time for its mythic rebirth.

Two Chinese automakers, Dongfeng and Geely, appear ready to adopt the beleaguered U.S.  electric vehicle maker Fisker Automotive into their respective electric vehicle (EV) portfolios.  For Fisker, the acquisition cannot come soon enough, as multiple failures with its battery supplier, the destruction of more than 300 Fisker Karmas in hurricane Sandy, and bad press thanks to vehicle fires have left the company’s production lines idle and money tight.  When the dust settles, Fisker will most likely join the ranks of the western EV companies who on the precipice of failure were bought by Chinese companies.  For the Chinese automakers, the acquisition of Fisker may be the country’s best chance to finally sell a full speed EV outside the Asia Pacific region.

China leads the world in terms of total EV production, but most Chinese-produced EVs are bicycles, motorcycles, low- to medium-speed vehicles, or buses.  The vast majority are sold to the country’s massive domestic market. Meanwhile, the Chinese government has announced lofty targets for production and adoption of full-speed EVs – targets that look out of reach, for now.  Chinese automakers have tried to live up to the targets, but sales have been exceedingly more dismal than markets in Europe, North America, and Japan.  Additionally, efforts to develop a robust export market for the country’s EVs outside of Asia Pacific have been disappointing.

One of the problems is that the market for EVs isn’t large enough to provide Chinese firms the opportunity to compete against domestic and Japanese automakers that have led both North America and Europe for the last century.  In addition, China’s EVs have had difficulty meeting safety standards in the United States and aren’t priced competitively with any EV in their respective classes outside of China.

Made in China

CODA is the first and most productive effort to date.  A remake of the Chinese Hafei Saibo, the car has a 31 kWh battery pack, a range of 125 miles, and a price almost $10,000 more than the Nissan LEAF.  The CODA went on sale in mid-2012 and reportedly sold less than 100 vehicles by the end of the year.  A more visible effort has come from BYD, a Chinese company backed by Berkshire Hathaway, Warren Buffett’s investment firm.  The company has long aspired to make a beachhead in the major European and U.S. markets but has only been able to sell its EV, the E6, to taxi fleets in New York City and London.  The E6 has a range of 185 miles on a battery of 60 kWh.  It costs $58,000 in China and would have a hard time competing against the growing class of EVs with shorter ranges and price points below $30,000.

Buying Fisker wouldn’t mean that a competitive Chinese-built EV has finally made it to the United States or Europe (the Karma is produced in Finland).  However, it would give the Chinese owner the unique opportunity to finally enter the PEV markets in the States and Europe with a vehicle that, despite its problems, has made a decent showing at a reasonable price.  The Karma couldalso  make quite a splash in China where the luxury car market is booming.