MANAGING TECHNOLOGY AND INNOVATION FOR RENEWABLE ENERGY IN CHINA

1. MANAGING TECHNOLOGY AND INNOVATION FOR RENEWABLE ENERGY IN CHINA EVIDENCE FROM THE SOLAR PHOTOVOLTAIC INDUSTRY Nicoletta Marigo Centre for Environmental Policy - Imperial College, London nicoletta.marigo02@imperial.ac.uk Globelics Academy 2007

2. OUTLINE • Objectives: what is this study about? • Gaps and relevance: why is this study potentially interesting? • Practical implications/challenges • Methodology and analytical framework • Preliminary results

3. WHAT IS THIS STUDY ABOUT? (Objectives and questions) An empirical investigation of if, to what extent and how Chinese firms involved in one renewable energy (RE) technology: solar photovoltaic (PV), build up technological capabilities (TC): only TC necessary to adopt and assimilate externally developed technology or something more? CAN THEY INNOVATE? How advanced are the TC the Chinese PV industry is building up? Have these TC been evolving through time and how? What is driving the industry to develop and improve its TC?  What potential does China have to compete at the forefront of innovation with the main internationalplayers?

4. WHY IS THIS POTENTIALLY INTERESTING?(gaps in the literature + overall relevance) • Developing countries (Dcs) as end-user rather than producers of technology: do we know enough about “indigenous technological effort”? • TC literature tend to focus on traditional industries (REF): opportunity to study TC in a high-tech new wave technology (Mytelka 2004) non traditional industry • RE specific IS literature exists but applied to EU only (Jacobsson et al., 2002; Jacobsson and Johnson, 2000; Foxon et al. 2005): anything different in DCs? • Indicators: do trade data + input/output measures offer a robust enough view of innovation in firms? • Conventional wisdom: China’s high-tech production is not very high-tech nor very Chinese! (Rosen, 2003; Steinfeld 2004) • PV needs innovation to drive down costs: what contribution from China? Market diffusion, cheaper technology thanks to cheap labour, more?

5. SOME PRACTICAL IMPLICATIONS • Technology specific study: PV technology knowledge • Measurement/study of: (a) the TC complexity (b) determinants of TC both with reference to PV • Development of a customised questionnaire • Collection of data at the firm + national level • Identification of firms and actors + mapping of the IS for PV

6. Feedstock Wafers Technology intensive Cells Labour intensive Modules PV systems PV products SOLAR PV PRODUCTION CHAIN PV is an high-tech industry with labour intensive steps along the production line Focus of the analysis

7. Market penetration (indicative) Conventional Mono-Si and poly-Si Thin-film amorphous Thin-film CIS Thin-film CdTe High efficiency cells under concentration Organic PV R&D Demonstration Pre-commercial Supported commercial Fully commercial Technology maturity by “stage” COMMERCIAL MATURITY OF PV TECHNOLOGIES RELATIVE TO MARKET PENETRATION 93% of market share

8. METHODOLOGY • Literature review • IS for RES (Jacobsson and Johnson 2000; Foxon, et al. 2005; Christiansen and Buen, 2002) • TC in firms in DCs (Lall, 1992; Romijn, 1999; Bell and Pavitt, 1995; Forbes and Wield, 2002) • In-depth interviews with key PV experts in Europe Analytical framework • Questionnaire survey (firm) • Fieldwork in China to interview a sample of PV wafer, cells & module producers • Semi-structured interviews(national) • Chinese PV R&D representatives, policy makers, NGOs, international organisations promoting PV in China (GEF, UNDP, WB, IT power, GTZ5; Forbes and Wield, 2002) Empirical analysis

9. PRELIMINARY RESULTS TECHNOLOGICAL CAPABILITIES • The whole PV production chain, from the most technological-intensive activities (i.e. wafer production) to the least (i.e. module assembly and system installation) is present in China • Manufacturers are planning to expand their business to the most high-tech activities of the value chain • All firms have progressed well beyond basic operational capabilities • All firms perform in-house R&D, ~ 5-10% of total annual turnover is for R&D • Some firms have design capabilities & have patented their innovations

10. PRELIMINARY RESULTS (2) KNOWLEDGE BASE • Well consolidated domestic tradition of experimenting with (early ‘60) and producing (early ‘70s), even on a small scale, silicon solar cells and modules. • New entrepreneurs (early ‘00s): strong R&D background + higher education abroad (in some cases) + can count on existing local expertise. • Knowledge is created primarily through in-house activities by companies at all levels on the production line. In-house R&D plays a strategic role in enhancing firms’ TC and competitiveness. • R&D in several universities and national research institutes but mainly in conventional silicon technologies.

11. PRELIMINARY RESULTS (3) Domestic off-grid rural market NDRC PV process equipment (predominantly international) Provincial institutions International on-grid markets (80% of Chinese production is exported) Wafer/Cell/module developers GTZ Municipalities Project developers & installers Universities Other countries’ governments Niche application markets Research institutes/Chinese academy of science CREIA local agencies to develop and implement a training programs REDP (GEF/World Bank/NDRC) Innovators Demand Influence Policy support Funding Facilitation Knowledge ACTORS, IS AND INTERACTIONS Adapted from: ICEPT and E4Tech, 2003

13. ANALYTICAL FRAMEWORK TC complexity Internal External PV specific • Educational/professional background of manager • Nature of ownership • Firm size • Skill of workforce • Technological effort • • R&D expenditure • • Acquired licences • • Learning by operating • • Staff training • • Acquisition of external expertise • • Search for new tech. knowledge outside firm • Interactions with other agents • • Customers • • Suppliers • • Training institutions • • R&D institutions • • Industry associations • • Intern. Org. for TC building • Proximity advantage • Institutional support (innovation specific) • Institutional support (PV specific policies for mkt development) • Strategies for cost reduction • • Increase efficiency • • Material saving innovation • • New non-Si PV tech. Determinants - General economic climate - Degree of competition - Market structure - Government policies for foreign trade, fiscal and monetary measures - Government investment in R&D - Government expenditure on technical education Romijn and Albaladejo, 2000

14. STUDY OF TECHNOLOGICAL COMPLEXITY Lall, 1992 Made specific for PV COLUMNS: represent firm-level TC by functions ROWS: represent firm-level TC by level of difficulty

15. QUESTIONNAIRE’S STRUCTURE Obstacles and view for future development General Info about the company Entrepreneurial history Government support Inputs to technological development Relations with suppliers Relations with customers Relations with universities (Cooperative R&D) Process Product manufacturing R&D Competition Manpower skill Export and prices

16. “ The ability to make substantial improvements and modification to existing technologies and even to generate completely new production process and products “ (Romijn and Albaladejo 2000; Mani 2003) INNOVATION CAPABILITIES: A DEFINITION AND NOTIONS Two notions of innovation (Romijn 2002): (a) Effort to advance the technological frontier (b) Efforts to catch up or crawl along at some considerable distance Implications for the study of TC Skills required for (b) are generally less demanding then those required for (a)

17. AN INNOVATION SYSTEM APPROACH Innovation as both an individual (at the firm level) and a collective act. Its success depends on the quality and correct functioning of the whole system system failures that constrain the RE sources' path can be identified and policies to allow the correct functioning of the system can hopefully be identified.

19. Population surveyed relative to total firms operating in that specific productive process and their significance in terms of production capacity

21. FIELDWORK LOCATIONS

22. Operation of a basic PV cell PHOTOVOLTAIC: WHAT IS IT? • Solar cell, or photovoltaic (PV) cell, is a semiconductor device, which, in the presence of sunlight is capable of generating usable electrical energy • Solar cells have many applications. Well suited to power remote areas where there is no electricity grid. Used also in Earth orbiting satellites, handheld calculators, remote radiotelephones, water pumping applications, etc. Solar cells (in the form of modules or solar panels) are appearing on building roofs where they are connected through an inverter to the electricity grid Source: http://en.wikipedia.org/wiki/Photovoltaic#Manufacture_and_devices http://science.nasa.gov/headlines/y2002/solarcells.htm

23. RATIO OF SCIENCE AND ENGINEERING DEGREES IN SELECTED COUNTRIES, 2002 Source:National Science Board (2002) In China S&E degrees represent 73% of total first university degrees

24. DOCTORAL S&E DEGREES EARNED BY CHINESE STUDENTS AT HOME AND USA UNIVERSITIES, 1987-1999 Growing capacity for advanced S&E education: more students prefer to take PhD in China Source: National Science Board (2002) Decline of foreign scientists in the United States might well accelerate: "… applications from foreign graduate students to research universities [in the USA] are down by a quarter […] partly because of the federal government's tightening of visas after the 2001 terrorist attacks" (New York Time, 2004).

25. R&D EXPENDITURE AND INTENSITY (R&D EXPENDITURE AS % OF GDP) Worrying trends in R&D investment and innovation in Europe: growth rate of R&D intensity has been declining since 2000 and is now close to zero. Europe is on track to miss the objective it set itself to boost spending on R&D from 1,9 to 3% by 2010. China’s R&D intensity (1.31% of GDP in 2003), grew at about 10% per year between 1997 and 2002. If these trends in the EU and China continue, China will be spending the same amount of GDP on research as the EU in 2010 – about 2.2%. Europe is becoming a less attractive place to carry out research: US investment has been growing at a much greater rate in areas outside the EU – about 8% per year in the EU and 25% per year in China. http://europa.eu.int/rapid/pressReleasesAction.do?reference=IP/05/968&format=HTML&aged=0&language=EN&guiLanguage=en

26. HYPOTHESIS AND EXPECTATIONS [1] If China’s high-tech exports is dominated by parts and accessories for finished PV products  China will be present in module assembly and solar PV installation only [2] If Chinese companies remain incapable of serious high-tech production without a foreigner partner  There probably will be a number of joint venture to allow Chinese companies to acquire the necessary technology [3] If China is strong in parts and accessories for finished products  There will be mainly basic capability to do limited product and process modification, [4] If China comparative advantage is on cheap labour activities  Competition will be on the basis of heavy discounting

27. FINDINGS FROM INTERVIEWS WITH CHINESE PV FIRMS (May-July 2005) (1) • The whole PV production chain, from the most technological-intensive activities (i.e. wafer production) to the least (i.e. module assembly and system installation) is present in China. However the industry is currently un-balanced and production capacity is mainly concentrated in module production.

28. FINDINGS FROM INTERVIEWS WITH CHINESE PV FIRMS (May-July 2005) (2) • However, if you ask to the companies producing modules and cells what is the importance they attach to the other activities along the production chain in terms of future investment, the answer is: cells, wafers and, in two cases, feedstock production(i.e. to the most technology intensive activities of the solar industry supply chain

29. FINDINGS FROM INTERVIEWS WITH CHINESE PV FIRMS (May-July 2005) (3) • All the sampled firms have progressed well beyond basic operational capabilities and are strengthening their in-house R&D effort. • Some are able to design key equipment in the production line to meet their own production and product requirements. • All are able to customise products to meet the particular needs of export markets (on average 70-80% of domestic production is exported) and are successfully improving product quality by increasing solar cell efficiency and obtaining international manufacturing and product performance certifications. • There are no joint venture. There used to be 2, but since 2003 the companies are entirely domestic. • All are planning to expand their business to the most technology intensive activities of the solar industry supply chain (i.e. wafer and cell production).

30. FINDINGS FROM INTERVIEWS WITH CHINESE PV FIRMS (May-July 2005) (4) • These findings seem not to confirm prevailing widely-held assumptions that firms in China are concentrated primarily in low-end commodity manufacturing and tend to compete on the basis of heavy discounts because they are advantaged by an immense pool of cheap labour. Furthermore the evidence seems not to confirm the common view that developing countries are not associated with the dynamic use of technology because of the high risks involved or because they continue to employ and reproduce technologies that are generated elsewhere.

31. China Europe/America Silk 1300 B.C. 582 A.D. Paper 105 1150 Porcelain 851 1709 Printed book 868 (Gutenberg's Bible) 1456 Compass 1050 1190 Explosive 1151 16th century WHAT CHINA ALREADY DID FOR US China’s technological contribution to the West

32. Chinese Yuan were converted at the official Bank of China exchange rate, 8.28 Yuan per US dollar Source: Ministry of science and technology, People’s Republic of China http://www.reed-electronics.com/eb-mag/article/CA610433?pubdate=7%2F1%2F2005#It's%20the%20incentives CHINA’S R&D SPENDING

33. THE UNDP’S TECHNOLOGICAL ACHIEVEMNT INDEX The technology achievement index introduced by the UN aims to capture how well a country is creating and diffusing technology and building a human skill base Source: UN Human Development Report 2001 Developing countries, like China, India, Thailand and Brazil are considered dynamic adopters of technology

34. R&D INTENSITY IN THE EU, CHINA, JAPAN AND USA IN 2003 http://epp.eurostat.cec.eu.int/cache/ITY_OFFPUB/KS-NS-05-002/EN/KS-NS-05-002-EN.PDF