Managing director Chris Raczkowski’s speech from the Merrill Lynch Asia Rising Stars Conference 2007 is posted here. Mr. Raczkowski, after introducing EcofysAzure’s goal of commercializing clean, sustainable energy technologies, provides analysis of China’s future energy structure. This focuses on drivers of China’s exceptional growth in power generation capacity and factors shaping China’s energy choices, ending with a discussion of advantages for both local and international developers and investors.

Research director Sebastian Meyer presents at the Renewable Energy Finance Forum Asia, focusing on wind project finance in China. Key trends in debt financing, a history of domestic lending for wind projects, and analysis of opportunities for international capital entry are major themes.

Wind farm is part of the attempt by the Chinese government to change the country's carbon prognosis. The Renewable Energy Law, which came into effect on 1 January 2006, set out a development plan for promoting green energy that encourages the construction of renewable power facilities across the country. The central government's official target is that 16 percent of primary energy should come from renewable sources by 2020 up from 6 percent today.

Most of the electricity produced by renewable sources will come from hydro, biomass and wind. The fastest growing renewable energy source is wind power. By 2020, China plans to increase capacity to 30GW, which might rank it the first in the world. China's wind energy potential is huge. The problem for wind power in China is that its price----RMB 0.5-0.6 per kWh----is roughly twice that of electricity produced by a conventional coal-fired power plant. So the pace of wind power deployment depends fundamentally on political commitment.

The latest policy, initiated by the National Development and Reform Commission (NDRC) in 2004, is the ‘'Wind Power Concession Project". The aim of the concession system is to reduce wind power tariffs by building large capacity wind farms and achieve economies of scale.

Under the concession system, all projects with a capacity of 100MW must be proposed and approved by the NDRC. The NDRC sets up a tendering process in which potential developers bid to sell electricity from the wind project to consumers at a fixed price.

The rub of the system, however, is that competitive bidding may be encouraging developers to price electricity unrealistically low. Since competitive bidding was introduced, the average accepted tariff has fallen from RMB 0.73 per kWh to RMB 0.46 per kWh, which drives the internal rates of return on wind power projects below the financial requirements by foreign investors. The upshot is that experienced foreign wind developers do not bother to submit bids. Stephen Terry, the CFO of Azure International, mentioned, "There is no foreign investment here; these are trophy projects sewn up for state-owned enterprises."

"There is a huge amount of potential for foreign investment in renewable energy in China, but there is also a lot of hype, especially in London. Some investors are going to get fleeced." said Mr. Terry.

He reminds potential investors of the debacle over the utility industry in the late 1980s and early 1990s, when over-investment in electric power plants resulted in the government declaring many power purchasing agreements (PPAs) illegal, and foreign investors leaving China with empty wallets. "Looking what happened in the traditional thermal industry, and ask whether it will happen again with renewables". Mr. Terry says. "This doesn't mean it's not a great industry, but look who made the money the last time: it is much easier for local players. For foreign investors the home run is to invest in Chinese exporters." he advises. He cites the success of Suntech Power, a Wuxi based solar PV manufacturer.

In theory, large concession projects requiring lots of big turbines should be a boon for foreign turbine makers. Mr. Terry predicts that growing competition in the industry will become destructive:" There's going to be a race to the bottom: a lot of people will lose money making turbines in China."

Chris Raczkowski, Managing Director of Azure International, presents on REFF, which illustrates renewable energy project development in China from three perspectives----market research, business planning and project execution.

Mr. Raczkowski provides an analysis of renewable energy resources (like biomass, solar PV, and wind) in addition to addressing Chinese government policies and renewable energy technology targets. He concludes with a reminder to potential investors to remember the lessons of the mid 90s.

Particularly considering the 2008 Olympic Games to be held in China’s capital of Beijing, the Chinese government has made great effort to attend to environmental issues. This opens business opportunities for foreign and primarily medium-sized companies, but Ms. Han and Mr. Meyer remind investors that for profitability, knowing the market and having a good network is essential.

Azure International, a specialized company in renewable energy projects, says "the government wants to have established an production capacity of 30 gigawatts of wind energy by 2020. This represents an investment of 24 million US dollars. This is great potential for all suppliers of wind turbines."

After starting as a consulting company, Azure now is working on its own wind farm project. In the dynamics of China nowadays small and focused companies such as Azure benefit from their lean structures. "When others are still thinking about China, we are already in business," Azure said.

The demand for oil is skyrocketing, rising even faster than the price. And here's the eye-opening stat: In the absence of new regulations, pollution-related illness will suck up as much as 15 percent of the country's gross domestic product by 2030.

China's central planners are throwing everything at the problems of fuel and pollution-hybrids, electric cars, propane taxis ---- meanwhile building conventional cars and infrastructure at a furious pace. "There's a controversy about "green GDP" and how to grow," says He Dongquan, a transportation expert at the Energy Foundation in Beijing. "China's in a transition where everyone's mind is changing." Amid the hurly-burly, the only thing that's clear is the future, where hydrogen beckons.

China is already taking bold steps toward an alternative fuel future. In late 2003, Beijing mandated some of the world's toughest fuel-efficiency standards. China is even now one of the largest markets for alternative fuel vehicles, with 200,000 in service.

Last October, GM chair Rick Wagoner shook hands with the vice mayor of Shanghai. They agreed to co-develop a fuel demonstration vehicle and help write the standards and policies for hydrogen power and infrastructure. Meanwhile, Volkswagen endowed a chair at Shanghai's Tongji University and agreed to jointly research fuel cell technology. "It's strategic positioning at this point," says Chris, "but some companies may get a captive market for their products, and that's really the only way to get a market jump started."

These growing factories end up buying their own diesel generators. Summer and winter are the seasons of power shortages in China. As the fastest growing economy in the world, China has become the world's second largest consumer of oil.

Despite that, power needs are primarily met by coal-fired power plants. The government is pushing for cleaner renewable energy and adopting a serious policy to increase the use of clean energy. "We require power companies to use certain amount of electricity generated by wind for example," said a government official.

The cost of building wind power plant in coast province Zhejiang is higher than building coal fired plants. But the Chinese government is providing incentive to building more of these wind farms, and even just more. It helps to build in even grander scale. They plan to build a 400MW wind farm near Beijing, a huge project, particularly considering the country's current wind power capacity of 600MW. Chris Raczkowski of Azure International said, "China has onshore at least 256GW of economically exploitable wind power. There is a huge opportunity for development there".

Right now, renewable energy accounts for less than 1% of Chinese total power sources. The government plans to increase this to 10% by the year 2010. With all traditional and renewable power plants coming on line next couples of years, China is expected to find some relief, but analysts say that will not blow away demand for cleaner source of energy.

At a renewable energy conference in Bonn, a group of energy officials led by National Development and Reform Commission (NDRC) Vice Chairman Zhang Guobao outlined plans to generate 60 gigawatts (GW) of renewable energy by 2010, which would equal 10 percent of total projected supply.