[The Vector] Are China’s Green Energy Ambitions a Threat to the US?

China invested US$34.6 billion in clean energy projects during 2009 – almost double US investments in the same period. China has more installed wind power capacity than any other country in the world. And the Asian power is now tied with America as the most attractive location in which to invest in renewable energy projects, according to the Renewable Energy Country Attractiveness Indices, published by project finance advisors Ernst & Young in June.

According to Ben Warren, Ernst & Young’s Environment and Energy Infrastructure Advisory Leader, China’s performance results from its determination to “build a dominant position in the global market for technology manufacture and supply.”

The Ernst & Young investment attractiveness score is calculated from assessments of each country’s renewables infrastructure (electricity market regulatory risk, planning and grid connection issues, and access to finance) and its renewables resources (onshore and offshore wind, solar PV and CSP, geothermal and biomass).

While China strengthened on the indices, the US has dropped back due to the increasing likelihood that the much-awaited climate and clean energy bill will not be passed before the November mid-term elections.

The federal government had a direct effect on the performance of renewables sector industries in the US last year, according to the analysis. The stimulus package that allowed operators to convert production tax credit or investment tax credit into Treasury grants was vital in allowing pipeline projects to be completed during 2009. However, E&Y believes the stimulus has been less effective in maintaining momentum into 2010. The rate of installation of wind capacity dropped in the first quarter of 2010 to its lowest since 2007.

The Ernst & Young analysis cites a number of points that strengthen the position for the US renewables sector. The need for hedges against unstable oil and gas prices, the need for energy security of supply, and an expectation that deepwater oil exploration will be slower, more regulated, more costly and less profitable, all promote the wisdom of investment in renewables.

But how should potential US investors in solar, for instance, react to the rise of the Chinese with their plan for “a dominant position in the global market?” (punctuation inside quotation marks)

The US media commentators on this subject can be split into two camps, according to China energy consultant Chris Brown. One camp views China as a global solar powerhouse that will eventually beat the US into submission. The other camp believes the Chinese are not serious about developing a domestic solar market because of the difference in price between coal-based and solar electricity generation.

The answer when viewed from ground level in China is  lot more complicated, says Brown.  There are some impressive solar policies in place in China, but there is a lot of regional variation. “The most interesting solar policies are happening at the provincial level,” he writes.

There are also some major implementation problems. China faces many of the same challenges as the United States. The infrastructure for electricity transmission between Chinese provinces is very limited. It has not managed to create a nationwide comprehensive feed-in tariff. And there are also energy storage issues that restrict the country’s impressive ambitions.

“When the China kicking our ass crowd points to the money Beijing is putting into clean tech, we need to closely watch how the money and policy trickles down to the local level.”