U.S. and Chinese companies deepen ties on energy policies

WASHINGTON - U.S. and Chinese leaders recently sought to reinforce the idea that the nations' energy and climate policies are traveling in the same direction ahead of President Hu Jintao's recent visit to the White House.

With government officials looking on, U.S. and Chinese companies signed cooperation agreements meant to speed the development and use of clean energy technology. General Electric Co., Duke Energy Corp., American Electric Power, Alcoa and Westinghouse Electric Co., among others, signed on for projects with China's largest energy producers, including the development of massive wind farms in China and tighter ties among the countries' largest utilities.

"Increasingly, we need to demonstrate the tangible benefits of this relationship," said Jon Huntsman Jr., the U.S. ambassador to China. "We need to highlight how this relationship helps improve lives here in America."

During Hu's four-day trip to Washington and Chicago, U.S. and Chinese officials will be working on a bilateral relationship that frayed over the past year. The governments have struggled for common ground on how to remove economic imbalances resulting from China's exchange rate and U.S. fiscal and monetary policies. The superpowers face challenges in North Korea, disagreements about Taiwan and a fragile military alliance.

In the underbrush of that thicket of issues are festering disputes about national policies meant to protect U.S. and Chinese clean energy jobs and shield nascent industries from tough foreign competitors. The Obama administration has challenged Chinese government subsidies for wind-power companies, and China has expressed concern about "buy American" provisions tucked in a defense authorization bill. It requires the Pentagon to purchase only American-made solar panels.

Still, much of that is being hashed out through bilateral working groups and a formal process at the World Trade Organization. Ahead of Hu's visit, some of those issues are being put aside.

Intellectual property concerns remain

Instead of focusing on the trade disputes, and potential issues such as cyber security, U.S. and Chinese officials are framing the U.S.-China relations on energy and global warming as strong, and getting stronger. It is also a critical relationship, according to utility executives expanding their ties with China, even as both nations balance the need for cooperation, open markets and the protection of intellectual property.

"We focus a lot on the intellectual property of technology, but we underestimate the ability to scale these technologies, which the Chinese are doing at a very fast pace," said Duke Energy CEO Jim Rogers.

"People often forget that by 2050, virtually all of our power plants except for hydro will be retired or replaced," Rogers said. "Collaborating with the Chinese makes great sense given our challenge and given the fact that they are building today to provide electricity for the first time."

Recently, Duke and China's ENN Group signed a memorandum of understanding for joint demonstration of technology -- including clean coal plants, electric vehicles and energy efficient buildings -- in China's "eco-city" development in Langfang, China.

Company heads and government officials say collaboration is for the purpose of bringing researchers and engineers together, but also so that the United States and China, the two largest sources of carbon dioxide emissions, remain on the same page as technology to clean up power plants develops.

Focus on transmission and carbon capture

American Electric Power signed agreements with China Huaneng, China's largest power generator, and State Grid Corporation of China, the nation's largest electric utility. The companies will collaborate on electric transmission and distribution and on overcoming obstacles that could hold up technology that captures carbon emissions from coal-burning power stations.

Under one agreement, China Huaneng, AEP, the U.S. Department of Energy and the National Energy Administration of China will "perform the initial evaluation" of a post-combustion carbon capture technology developed by Huaneng. AEP and Huaneng will share data about plant operations developed by both companies.

In the United States, AEP Chairman and CEO Michael Morris said his company hopes to integrate the Chinese into AEP's signature clean energy project, a demonstration of carbon capture technology at its 1,300-megawatt Mountaineer coal plant in New Haven, West Virginia. AEP has been capturing and injecting about 2 percent of its carbon emissions underground since 2009, and it plans to scale up to 20 percent by 2015.

U.S. and Chinese utilities are keeping an eye on Mountaineer, the largest carbon capture and storage CCS demonstration project at an existing coal station. AEP has the largest fleet of coal-burning power plants in the country.

The latest U.S. coal-fired power plants are about as efficient as they're going to get, Morris said. "So we're moving toward a carbon capture regime," he said. He also acknowledged the regulatory hurdles.

"Without a clearer path about which way the world is going to go on carbon," he said, "it's very difficult for [a state] to say, 'Yeah, go ahead and spend $300 or $400 million to capture carbon at the station when there's no world agreement on how to go about doing this, nor is there any U.S. requirement to go forward and do it.'"

China, through its massive utilities, could scale up the development of technology developed in both countries.

"We have to humanize these accomplishments," said Huntsman, the U.S. ambassador in Beijing. "We have to make them real in ways that citizens on both sides better see the benefits of supporting a strong U.S.-China relationship."

Partnering on Seattle company's nuclear reactor

As an example, Huntsman cited a new nuclear reactor technology being developed by a TerraPower LLC, a Seattle-based company backed by Microsoft founder Bill Gates. The technology is intended to run for decades without refueling using a slow-moving, self-sustaining wave of nuclear fission reactions.

"Right now the regulatory environment here in the U.S. means that it would take decades just to certify the design," he said. "By partnering with the Chinese they can move ahead and commercialize the technology around the world when it is proven."

Carla Hills, an international consultant and former U.S. Trade Representative, said cooperation on clean energy could build confidence between the United States and China on other priority economic and security issues.

"If we could make progress on clean energy we might be able to talk in a more constructive way about the things that worry us -- 'indigenous innovation,' industrial policy, protection of intellectual property," she said. "If we're going to work together it should be a fair kind of a partnership, but if you're my partner and you're going to steal my intellectual property, it's obviously going to create frictions."

Speaking on a panel organized by the Brookings Institution, John Holdren, director of the White House Office of Science and Technology Policy, noted that China, South Korea and Japan will invest a total of $509 billion in clean technologies by 2013 -- including solar, wind, and nuclear power energy efficiency advanced vehicles high-speed rail, and carbon capture and sequestration.

U.S. investment would total only $172 billion during the same period, assuming that Congress keeps in place existing funding for energy research and development, according to a study by the National Academy of Sciences and other partners.

China's dependence on coal for electricity will grow at least through 2020, but it hopes to stanch that growth through investments in electric vehicles, energy efficiency and renewable energy. "The implementation of the strategy is dependent upon the mutual cooperation of our two energy partners," said Chai Songyue, president of the China Energy Research Society, at the same Brookings panel.

Zheng Bijian, chairman of the China Sciences and Humanities Forum, said the global economic crisis has fanned anxieties in U.S. government and private circles about the direction of China's economic development, and skepticism about China's intention to "stick to the path of peaceful development."

A warning about skepticism

"As your friend, if this skepticism and speculation became the mainstream of public opinion," he said, "it would do great harm to the interest of the U.S. itself as well as the common interests of China and the U.S.

"I believe none of us would like to see that happen." China has succeeded in transforming its economy in quantitative terms, but not so well qualitatively, he said. The results include imbalances in social and economic development, city and rural progress, investment and consumption and equitable distribution of incomes.

Recently, GE and China Shenhua Group formed a joint venture to license coal gasification technology. A U.S. DOE release estimated the joint venture is expected to generate more than $100 million in U.S. exports of technology and engineering. GE and China Huadian Corp. also signed a joint deal to work together on distributed combined heat and power projects in China, which DOE expects will generate $350 million in U.S. exports.

U.S. and Chinese government officials also signed an agreement to jointly support electric vehicle demonstrations in Los Angeles and Shanghai.

For its part, AEP's Morris said the Columbus, Ohio-based company brings an understanding of "smart grid" technology, an area where China's utilities say they need to gain greater knowledge.

Can China learn from AEP? "I don't think there's any chance that they won't," Morris said. "But, in the same sense, and this is important, I am not the classic Ugly American. I think we can learn a great deal from them as well."

AEP, which has the largest U.S. fleet of coal-fired power plants, started collaborating with utilities in China and India soon after the Asia-Pacific Partnership on Clean Development and Climate met for the first time in Sydney, Australia, in 2006.

At the start, Morris said, Chinese engineers visiting Columbus wanted to learn about how AEP controls heat rates at older power plants. In turn, in recent years AEP has gone to China to learn about developing high-voltage transmission lines and China's latest high-efficiency power plants.

"They're doing 1,100-kV transmission and we do 765 kV," Morris said. "We thought there was a lot we could learn, and they thought there were things they could learn from us."