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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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China Wind Power - Good Time to Invest?

With the ongoing financial turmoil in western markets nervous investors are looking more and more to overseas opportunities in order to protect their capital and few markets are more alluring than China.

A potential consumer base of 1.4 billion consumers, all of whom would like their lights to be on 24/7, what's not to like, as the economy booms along despite the global recessional that began in 2008.

Accordingly, investors look to the Celestial Empire as a potential safe haven.

Given the turmoil in international markets, there are a number of problems involved in investing in China, not the least of which are government policies not only keeping the national currency artificially low to boost exports but the fact that Beijing prefers indigenous investment for sure-fire projects, relegating foreigners to the riskier realms of seeking a slice of the Chinese pie.

The good news?

Investors with good digestive systems have the option of considering China's voracious energy market.

Case in point - China's renewable energy market, in particular wind power, which currently provides less than one percent of the PRC's current needs.

One of the Chinese government's highest priorities is to diversify its energy utilization matrix, so as to safeguard the country's prosperity from potential unforeseen and unavoidable shocks such as conflict in the Middle East interfering with oil shipments from the Persian Gulf or regime change in Africa or Central Asia leading at best to rewriting of existing contracts, or in a worst case scenario, their abrogation.

Accordingly, developing the country's indigenous energy resources is a high priority for the government in Beijing, but as the country is critically short of easily exploitable hydrocarbons, renewable energy is increasingly being considered.

Acknowledging this reality, a report issued on 19 October by China's National Development and Reform Commission Energy Research Institute and the International Energy Agency noted that China's installed wind power capacity will reach 200 million, 400 million and 1 billion kilowatts respectively, by 2020, 2030, and 2050.

If that is the good news, the bad news is the projected costs of reaching these goals are north of $200 billion.

Not to use a bad metaphor, but the sunny side of this equation is that with astute government policies and sufficient investment wind power could increase from 1 percent of the energy mix in China to 17 percent by 2050, according to the joint study, reducing China's carbon dioxide emissions by 1.5 gigatons per year, an amount roughly comparable to Germany, France and Italy's combined CO2 emissions in 2009. China's National Development and Reform Commissions Energy Research Institute deputy director general Wang Zhongying noted modestly, "It (wind power) will play a vital role in China's energy supply and in our efforts to address climate change."

The picture is hardly unreservedly upbeat - at the same time that Wang was making his optimistic pronouncements, China's Xinjiang Goldwind Science & Technology Co., the country's second-biggest wind-turbine maker, announced on 21 October that its profit declined 75 percent in the third quarter of 2011 and warned of a further 50 to 100 percent slump in full-year net income as selling prices continue to fall. The Urumqi-based company Xinjiang province attributed its decline in profit to slower growth in the wind energy industry, increasing market competition and falling selling prices of wind turbines.

Gee, sounds like capitalism no? As "slower growth" and "increasing market competition" use the "invisible hand" of the market to knock out the less fit of competitors, expect to see a further shakedown of the Chinese renewable energy market producers.

But, expect the firms left standing to give their foreign and global competition a run for their money.

So, at the end of the day, we must mention the guiding principle of all investment advice - "caveat emptor." That said, China's energy requirements are not going to decrease in either the near or long term, and Beijing is assiduously seeking to diversify its energy portfolio. As China's nascent renewable energy wind power firms compete for a share of both the indigenous and international markets there will be winners and losers, but the firms left standing will undoubtedly be able to compete.

The last word should be left to the International Energy Agency's Director of the Sustainable Energy Policy and Technology Director Bo Diczfalusy, who said of the joint project, "This roadmap provides solid ground for the wind deployment effort, with detailed technical, economic and policy milestones that will help wind deliver on its potential." China's National Development and Reform Commission Energy Research Institute co-author Wang Zhongying added, "By 2050, wind power could be one of the five largest power sources, alongside coal, hydro, solar and nuclear power. It will play a vital role in China's energy supply and in our efforts to address climate change."

Unlike Middle East oil, blowing wind is most unlikely to disappear, and developing its potential underpins China's policy of energy diversity. That said, as China moves into the global capitalist market, not all energy companies will succeed, leaving foreign investors seeking to mount the Chinese energy gravy train responsible for their homework. Given China's projected energy needs, a number of companies will be cashing in, more than big time, and canny investors who have carefully analyzed the landscape can not only participate, but prosper.

Place your bets - as the China Wind Energy Roadmap is the first national plan that has been developed by a country using the IEA roadmap tool, success seems more likely than not.

By. Dr. John C.K. Daly of Oilprice.com

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