China is the coal capital of the world. With few of its own oil and gas resources, the nation depends on its vast coal reserves to literally fuel growth. Expanding in recent years at a rate of one new coal-fired power plant a week on average, the country’s coal capacity is expected to triple that of the U.S. by 2015.
China’s dependence on the dirty, sooty mineral, in turn, is a shot in the arm for cleaner, low-carbon coal technologies. As the world’s leading carbon emitter, China has targeted energy and environmental conservation as one of its key growth industries in the 12th Five-year Plan. Such technologies include carbon capture and storage, so that carbon emissions from coal-fired power plants are separated out and buried deep underground.
All this is good news for American companies involved in these technologies. “U.S. companies whose technology has been languishing here [in the U.S.] for decades are commercializing for the first time because of the speed and lower cost of doing business in China,” says John Thompson, director of the Coal Transition Project at the Clean Air Task Force, a Boston-based non-profit that brokers partnerships between U.S. and Chinese clean technology companies.
The potential benefits for global climate change are huge. Since the U.S. and China generate half of the world’s coal-fired power emissions, the two can make a big impact on the reduction of global greenhouse gas by working together.“Cooperation based on trust between [U.S. and Chinese] businesses on the ground isthe only pathway to a grand deal on climate [change],” says S. Julio Friedmann, carbon management program leader at the U.S. Department of Energy’s Lawrence Livermore National Laboratory in California. They couldn't be better suited for such cooperation given their complementary capabilities: While China focuses on technology to separate carbon emissions from coal exhaust, the U.S. is an expert in technology to store that carbon underground.
Terry Cooke,a senior fellow at Penn's T.C. Chan Center for Building Simulation and Energy Studies, calls it “a win-win opportunity to create a 21st-century globalized, accelerated technology development loop where the U.S. supplies what it does best, which is innovation, and the Chinese bring advantages of speed and scale of deployment.”
Speed to market is the biggest attraction for Western companies flocking to China, experts say. “China can deploy technology roughly twice as fast” as the U.S., says Frank Alix, CEO of PowerSpan, a New Hampshire-based company working with state-owned China Huaneng Group on a new coal gasification solution.
“The U.S. may have innovation and new ideas, but it takes five to 10 years to get to full commercialization with lots of cost in between. China can do it in a much shorter time and much cheaper,” adds Ming Sung, chief representative of the Asia-Pacific region at the Clean Air Task Force in Shanghai.
Part of the speed comes from having access to state-backed capital in China. The cost of capital in the U.S. — at roughly three to five times that in China — factors in longer lead times right from the start, according to experts. To justify a hefty US$1 billion investment in a new U.S. coal plant, for example, preliminary engineering studies are lengthier and therefore more costly than those in China, comments Robert Rigdon, CEO of Texas-based Synthesis Energy Systems (SES). One upshot of this difference? “In China, almost every project you enter gets built,” he says. “In the U.S., it’s almost the opposite.”
In addition, the red tape can be more streamlined in China. “The approval process in the U.S. takes a long time because it’s sequential — one regulatory body after another,” says Sung of the Clean Air Task Force. “In China, the agencies are willing to say, ‘Why not approve it together?’"
And whether foreign or Chinese, one invaluable benefit gained from the on-the-ground experience in China is that companies are getting a better grip on management, forecasting and efficiency both in their plants and up and down supply chains. “There are a massive number of players in the industry [in China] experimenting and improving themselves on a daily basis to create a level of know-how to accurately project cost and to let them figure how much steel and concrete to use,” saysJason Crew, general manager of General Electric Gasification in Shanghai.
For all these reasons, Rigdon found China a hospitable market for technology developed in the 1970s by the Gas Technology Institute in Illinois. SES is the exclusive licensor of that coal gasification technology called U-GAS and saw big opportunities in China because of the country's “large amounts of coal converted to energy and chemicals,” says Rigdon.U-GAS can turn very low-quality coal into gas, including younger coal that lays closer to the surface and can be mined more easily and safely. About half the world’s coal is low quality, including about 40% in the U.S. and a similar level in China.
In late 2007, SES launched a joint venture in Zaozhuang in Shandong province with Shandong Hai Hua Coal & Chemical Company to convert low-quality coal into clean synthetic gas before it is deployed for industrial uses. The U.S. firm is also now engaged in a much larger, US$4 billion project in Henan province, which will be completed this summer. In a partnership with Yima Coal Industry Group, the project aims to convert low-quality coal into clean synthetic gas for conversion to methanol or glycol for industrial uses. Longer term, U-GAS can be used to extract CO2 from coal-generated power plants, which can be stored underground.
PowerSpan is also getting a lift from China. The small clean energy company developed an advanced solvent to remove CO2 from the exhaust of coal-fired power plants. The solvent binds with the CO2, which is then separated for capture and storage. With the help of China Huaneng Group, PowerSpan won a contract last year with Norway’s Technology Qualification Program to build out a post-combustion capture system. Now, the two firms are exploring other projects together in China. The idea is to leverage the strengths of each — Huaneng has experience integrating complex plants at scale, having built and now operating one of the world’s largest post-combustion capture plants near Shanghai, whereas PowerSpan has the contacts with customers in Western markets.
Meanwhile, U.S.-educated Chinese scientists, who started low-carbon coal and related research projects in the U.S., are taking these ventures to China. Jane Chuan — a China-born scientist with a PhD in bioenergetics from State University of New York at Buffalo — and her husband, Youqi Wang — a China-born scientist PhD in chemistry from Cal Tech — helped launch a Silicon Valley firm in 1996, which applied a method developed for the biopharmaceuticals market to energy efficiency solutions. When the company’s board grew too concerned about intellectual property (IP) issue to begin their operations into China, Chuan and Wang set up Accelergy, a company focused on accelerated energy technology, in Palo Alto in 2003. And they subsequently established the R&D center in Shanghai, naming their venture Yashentech Corporation.
In China, “energy and environmental protection will become huge issues,” says Chuan. “We could have chosen to go to Russia, India, Cambodia or some other place where labor costs are even lower, like Vietnam, but here, we are closer to the market.” A top-quality labor pool in Shanghai helps Yashen build and operate high throughput systems. “To develop a new application or technology may take about 15 to 20 years in the U.S. With the high throughput platforms we build, we spend about five years.”
Yashentech is now commercializing two products. First it is collaborating with China’s largest state-owned/private energy companies for the commercialization of sootless diesel production technology. Yashentech's technology uses CO2 plus methanol to produce a biodegradable, non-toxic diesel blending material to eliminate the particulates in diesel. Second, Yashentech is working with large Chinese engineering and chemical companies to develop alternative petroleum production technology, which turns coking gas, one of China’s major CO2 pollutants, into a synthetic gas to produce high value petrochemicals such as sulfur-free lubricant, wax, etc.
Transferring the Tech
Penn's Cooke notes that a key to making these U.S.-China partnerships work is that “U.S. companies have to be sure of their intellectual property protection and commercialization benefits.” Yet as opposed to other clean tech industries in China, such as wind energy, low-carbon coal technology companies seem relatively relaxed about IP theft by Chinese customers and competitors. Some experts say one reason is that upholding the standard 20-year U.S. patents is less of a concern in large-scale energy technologies, such as carbon capture, because plants operate on multi-decade timetables.
Unlike in, say, software, music or fashion, “there’s less copying in this industry, because the projects are large,” says Albert Lin, CEO of Calgary, Canada-based EmberClear Corporation, which is the exclusive licensor of Huaneng’s technology in North America and other regions.“People are more worried whether you have the R&D efforts to sustain and improve plants that will run for 40 years," he says. "Only a handful of companies can do it.”
China doesn’t present special worries in this respect, adds GE's Crew. “Everywhere globally, you have to be vigilant about your IP portfolio,” he says. “It’s not unique to China. We work hard to protect and differentiate ourselves and continue to invest in the technology.”
From Yashen to GE, companies of all sizes see China as a vast and unique testing ground for their technology, and those prospects may trump any IP concerns. “China has invested the most, built the most and operated the most of these technologies,” says EmberClear's Lin.
What's more, large Chinese companies are gaining ground by exporting some of their technologies to other emerging countries. Huaneng, for instance, is starting to sell a technology, known as circulating fluidized bed (CFB), to convert coal to cleaner energy. “Many Chinese plants built in the last five years have used proven CFB technology,” says Lin. “Now, there is a lot of interest from developing countries where cost is important.”
The question now is whether this knowledge can transfer to plants in the U.S. and elsewhere. Friedmann at Lawrence Livermore National Laboratory is currently studying whether the cost savings at Huaneng’s post-combustion capture coal plant in Shidongkou near Shanghai can be replicated at Duke Energy’s Gibson plant in Indiana. If so, the commercialization of the technology would get a big boost around the world.
“The real China is much broader and more interesting” than the story of low-cost labor, adds Thompson of the Clean Air Task Force. “The level of innovation occurring within a factory is just huge.”