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Insights into China and India's Water and Renewable Energy Market

Insights into China and India's Water and Renewable Energy Market

Depletion of Natural Resources and Energy Demands Show Increasing Need for Renewables and Water Filtration

By Fei Wang and January 2006

China and India's aggressive economic growth over the past two decades have provided significant increases in the standard of living for hundreds of millions of residents. This increase has also produced environmental disasters: deforestation, flooding, water pollution and land degradation continue to worsen. There has been a dramatic increase in the demand for natural resources of all kinds, especially water and energy in both these countries, which creates opportunities for foreign investors involved in the water and renewable energy sectors. However, due to the differences in the composition of natural resources, population structure, and political environment, opportunities and challenges vary between countries. How do these differences affect doing business in those two countries? Which country has bigger potential for growth in these two industries?

Water Treatment

- Background

High density population in both countries, along with a move toward urbanization and industrialization, has placed significant pressure on their infrastructure and its natural resources. According to the report from World Water Forum, in China 60 million people are having difficulty getting access to water, almost three times that number drink contaminated water daily. 400 out of a total of 668 Chinese cities are having water shortage problems, only 30% of which have had some wastewater treatment. India's water quality is the second worst in the world. According to India Asia News Portal, only 40% to 50% of the Indian population has enough supply of water. The publics have to get their own water from wells (see picture 1).

- Water Industry Opportunities

Many experts believe, after the oil and natural gas market exploded that water will be the next oil for the following 20 to 30 years representing a considerable opportunity for growth in this arena. China is planning to build 200 to 400 more power plants, but there is not enough water to fuel these plants. Opportunities clearly exist. According to a recent economic survey, nations in the Middle East will need to invest an estimated $73 billion in water desalination plants during the next three decades in order to meet rising demand for domestic, industrial and agricultural water.

This trend has already appeared in the US stock market. Many water sector stocks are showing a very strong growth trend. The American Stock Exchange(R) (Amex(R)) announced on Aug 11th that it has begun publishing the Palisades Water Index (Ticker Symbol: ZWI); a new index comprised of publicly traded companies engaged in the global water industry. The index was created by a venture between Hydrogen Ventures, LLC and WaterTech Capital.

When it comes to the China and India water market, Steve Hoffmann, President of WaterTech Capital said: "Between India and China, China has, at least at this point in time, better natural water resources than India because water systems in China are fairly extensive. India on the other hand, does have a variety of surface water to draw upon, but a lot of their surface water availability comes in the form of monsoons, and many of them are lost during flooding. Therefore, relatively speaking, between China and India, at this point, India is more water stressed than China. Current situation with China is they are spending an enormous amount of money on water infrastructure, creating visibility from Olympics and other publicity. I think also their economic situation puts them in a better position right now than India. Fairly, the water industry around the world thinks China is an enormous market. "

Renewable Energy in High Demand

- Background

Continued inflow of foreign investment and the improved standard of living of both Chinese and Indian people have inadvertently pushed up demand for energy. During the first half this year, China produced 1.128 trillion KW electricity, while consumption equaled 1.148 trillion KW, a shortage of 0.02 trillion KW. According to a recent report by Jean Ku and Debra Lew from the National Renewable Energy Laboratory (NREL), Shi Pengfei of the China Hydropower Planning General Institute and William Wallace of United Nations Development Programme (UNDP), more than two-thirds of its provinces suffered blackouts last year due to a shortage of generators, problematic coal and transport links, and water shortages.

- Opportunities in Renewable Energy

Renewable energies, especially wind and solar, represent viable solutions to the power shortage problems. "Strengthening the development and use of renewable energies is a must for us to address the increasingly serious energy and environmental issues," China president Hu Jingtao said in a statement, "China attaches great importance to...renewable energy and takes it as one of the most important instruments for promoting social and economic development," (quoted from The Wall Street Journal

- Solar Energy

China's production and application of solar energy heaters is leading the world. A total of 52 mln square meters have been applied in 2003, representing 40 percent of the total amount of the world. Debra Lew, Senior Project Leader at NREL explains, "China is the largest solar water heating market in the world. The technology is already used extensively, but there is great potential for them to expand use in the residential, commercial and industrial sectors. Solar photovoltaics (PV) used to produce electricity is also already widely used in China, especially in rural areas to provide electricity. The government recently installed nearly 20 MW to electrify all townships that were previously unelectrified. Megawatt-scale projects in urban areas are also being installed.." Lew also stated "Solar is also doing well in India. India also has a large rural population that is remote and difficult to electrify with conventional grid extension. Solar has been used in India as well to provide electricity to those remote areas."

China is Shell's (NYSE: RDS-A) largest solar market in the Asia Pacific region today. In the last 10 years they have installed more than 7 MWp of solar power in more than 50 projects. According to Shell Solar Media Relations Officer Alexandra Wright, "Shell Solar looks at a variety of matters when deciding to pursue renewable projects (in China and India market), including of course traditional business drivers such as critical mass and regulatory regimes. Solar opportunities are encouraging in both countries as we are looking to bring energy to individual households, and investigating the potential for a system that would power entire villages. Shell is now in the second phase of the Xinjiang project which will power around 75 villages in China."

XsunX, Inc., (OTCBB: XSNX), a company focused on Building Integrated Photovoltaics, anticipates a significant need for alternative energy generation technology in developing countries such as China and India. Tom Djokovich, CEO of XsunX, Inc stated, "For XsunX, China with about 20% of the worlds population and India with about 17% represent one of the more compelling opportunities for sustained growth in the utilization of solar energy production. Additionally these two developing countries are experiencing a significant increase in the demand for electrical power. At the same time the developed and developing parts of the world are competing for a finite amount of fossil fuels to power growing demands. This has not gone unnoticed by the governments of China and India. India's government is preparing to embark on the development of major national programs to promote the development of solar energy systems in centralized and decentralized applications. While China has enacted a renewable energy law designed to promote, among other things, the wide scale use of PV technologies in the design of buildings."

"In these developing nations the practicality and cost benefits of deploying solar technologies in lieu of building mass centralized fossil fuel powered generation plants, transmission, and distribution systems can and should be viewed as an investment in long term national energy security. At XsunX we are working to complete the development of semi-transparent PV thin films for use in glass building facades. The use of our Power Glass' films as a building integrated PV technology could find opportunities in China and India as these developing nations work to leverage a myriad of technologies in building energy security and independence," concluded Mr. Djokovich.

Suntech power Co. Ltd, a Chinese based solar power company has also Identified opportunities for renewable energy in Asia. The Company went public on December 14th this year through an IPO becoming a shining light of solar energy stocks. Suntech Power rose 34 percent to $21.10 in their U.S. market debut on Wednesday, a day after pricing at the top of a recently raised forecast (forecast range raised from $11-$13 to $13 '$15 on Tuesday).

- Wind Energy

"Wind power has huge potential to address some of those (power shortage) problems", said Lew, "India currently is out- competing China in terms of wind power because of their aggressive policies. With an estimated potential wind power capacity of 250 gigawatts onshore and 750 gigawatts offshore, China has world-class wind resource. But their installed capacity of wind power was only 764 MW (see table 1) at the end of 2004, far less than India, which actually has a much more moderate wind resource. India leads the Asia market with an installed wind capacity of 4200 MW. "

The critical factor that has led to this difference, according to Lew, is the government policy. "Driving the development has been the policy not the renewable energy resource. India's wind resources are not as strong, but the government has been developing its wind market much more aggressively, with aggressive policies and financial incentives. However, China is catching up; especially with the new renewable energy law that comes effective January 2006. They (Chinese) have set very aggressive targets for renewable energy to meet as a certain percentage of power supply (10% of its power, with 20 GW of wind, and 1 GW of solar by 2020. And in the recent Beijing International Renewable Energy Conference the government announced a new target of 15% RE by 2020 with no announcement of specific breakdown). In the new law, China is going to institute a 0.25RMB/kWh subsidy for wind energy which should help drive development," described.

Table 1 Quoted from: Fuelling China's Development through Wind Power

GE Energy is very optimistic about both China and India's markets. Beijing Guotou Energy Conservation Company has selected GE Energy as the turbine supplier for two new wind farms in Hebei and Xinjiang provinces of China, announced GE at Power-Gen Asia 2005. "China has a vast wind resource and an increasing need for electricity," stated Robert Gleitz, General Manager of GE Energy's wind segment in their news release. GE Energy has also supplied steam turbine generators to all major power utilities in India, which accounts for 10% of India's installed thermal power generation capacity. "India offers very exciting opportunities for the wind industry. With an untapped wind power potential estimated at 45,000 megawatts, and strong interest in adding renewable energy capacity, the country can be a cornerstone for wind energy development across Asia," states Gleitz.

Water and Renewable Energy Market's Future

Hoffmann believes that China's water industry potentially has a brighter future than India's. He explains:" I definitely think China has greater opportunities to mitigate their situation for a number of reasons: as developing countries, both India and China are very rural, although China I think they have a greater urbanization rate than India at this point. In China, a lot of income potentials are in the major cities and more people move into cities. This is creating a fair amount of necessity on the part of China at least to really evoke some large centralized treatment and I think given that the Olympics will be there in 2008, they are certainly more visible and they will be quicker dealing with their water situation than India may. Also, you can see a fair amount of capital flow into China. A lot of global water players (such as GE) are actively courting China to partner in large centralized water treatment facilities. So I think they are getting a flow of funds that you can say will help them develop faster. Most importantly, from table 2, you can see, based upon the United Nation's Population growth statistic, over the period 1990 to 2025, India will surpass China relative to water stress. This is primarily depends on current population growth, because India right now has higher population growth rate than China. The future of both countries will be primarily dependent upon their future population growth. If both countries can moderate their population growth, they will certainly be in a better position from a water stress point of view. "

Table 2: Quoted from WaterTech Capital

When it comes to which market will have brighter future in renewable energy sector, Lew said, " (In terms of natural resources), China definitely has better wind resources, and very excellent solar resources in the north and west, but there isn't a lot of demand out there, so it is hard to say how useful it is." However, in terms of government policy, "India really got a jump on the policy side, and this has attracted international wind companies who manufacture turbines and blades there. India's wind market is one of the top in the world now. On the other hand, China's new law and new subsidy in 2006 will be a huge boon to wind to China, "explained Lew.

Fei Wang

Fei Wang holds an Honors Bachelor of Commerce from University of British Columbia Sauder Business School, with double major in Finance and Marketing. She has experience in investment banking and advertising in Canada, China and Korea, with a firm academic background. Full article: r.asp Disclaimer: - Copyright InvestorIdeas 2006

About the author:

Fei Wang holds an Honors Bachelor of Commerce from University of British Columbia Sauder Business School, with double major in Finance and Marketing. She has experience in investment banking and advertising in Canada, China and Korea, with a firm academic background.


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