How China’s troubles are affecting greentech

The second quarter brought a slew of greentech developments: We saw near-record investment in utility-scale clean energy projects but falling valuations for clean-energy stocks; big investments in solar thermal projects but struggling markets for solar photovoltaic systems; and rising private equity green investment while green VC took a slide. What should we make of the schizophrenic nature of this activity?

There’s a common thread running through all of this conflicting information: China. The country that has provided the world’s key growth engine for clean energy and green technology over the past few years has begun to see some economic cracks, with signs of bubbles emerging in everything from real estate markets to public company valuations. That, in turn, could have ramifications for every other economy in the world, both in the greentech sector and writ large.

Last week, Bloomberg New Energy Finance reported that global investment in clean energy reached $41.7 billion in the second quarter, up 27 percent from the previous quarter and up 22 percent from the same quarter last year. In particular, the figure was boosted by solar thermal projects such as startup BrightSource Energy’s 392-megawatt Ivanpah project in California.

But while solar thermal stole the show, the bigger solar photovoltaic industry’s second quarter saw falling prices and faltering markets. That’s driven down shares of solar PV companies that make up a key portion of publicly traded cleantech companies, such as the WilderHill New Energy Global Innovation index, which reported a 13-percent decline in the second quarter as compared to a flat S&P 500 index.

China leads the world in solar panel manufacturing, but lately they’ve begun to feel some pressure themselves. The weakening of key European solar markets in the second quarter has seen Chinese solar companies’ share prices drop, and concerns about potential financial irregularities among Chinese companies have also spread to its solar industry in recent weeks, with a number of solar companies under scrutiny as they replace key financial executives. Overall, China’s economy is showing alarming signs of overheating, with power shortages predicted over the summer. This makes China’s dropoff in clean-energy investment that much more noteworthy.

China remained the single-largest country for green-energy investment in the second quarter, but its $12 billion figure represents an 11-percent drop from the first quarter. This troubled investment climate is also the likely driver for the reduction in greentech public equity investments, which fell 7 percent to $3.4 billion in the second quarter. This fall is largely because of a dropoff in initial public offerings. China has been the fount of the biggest cleantech IPOs of the past 12 months or so (big wind power IPOs from Goldwind and Sinovel stand out), but that roster of gigantic public offerings slowed substantially in the second quarter.

If China is losing steam as a greentech powerhouse, where does that leave the rest of the world? Well, while Europe’s solar-power market may be in a slump, we can expect falling solar power equipment prices from China to help make up the difference, up to a point. Then there’s the United States, which saw green-power investment nearly double, to $10.5 billion in the second quarter, up from a slack first quarter. But at the same time, U.S. wind power growth has been sliding and solar PV projects aren’t growing as fast as expected, and the country is flirting with a double-dip recession.

China, on the other hand, was supposed to be growing reliably. One quarter does not a year make, and China’s government is doubtless going to continue its massive support for its domestic clean-energy, smart-grid, green-transportation and energy-efficiency industries, both for export and for internal development. But if the country’s green economy continues to suffer, it could have an enormous impact on the rest of the world. After all, China will someday be the biggest greentech market in the world, not just the world’s workshop for green manufactures.

Question of the week

How will China’s economic uncertainty impact its green-technology dominance?
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