chinese cleantech market opportunities - pwc · 2017-05-31 · china has emerged as both the...
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Chinese CleantechMarket Opportunities
www.pwccn.com
May 2017
Cleantech in China —the time is now
Now is the right time for many foreign companies with
specialist cleantech solutions to invest in China. Driven by
strong government and regulatory support, China’s
investment in clean technology and renewable energy has
made cleantech a major government priority. Under the
country’s recent thirteenth Five Year Plan, targets for
ecological conservation, clean energy production, energy
consumption, energy use, renewable energy share,
and carbon intensity targets have all been tightened. And to
meet these and other targets, China is looking to cleantech
for the solutions.
Investment in cleantech and renewable technology in China
has already grown substantially during the last decade,
making the country the world’s largest producer and
consumer of cleantech. Investment now exceeds the
combined total invested by Europe and the US. Additionally,
the number of Chinese cleantech companies has risen from
just under 3,000 in 2005 to more than 50,000 in 2015.
Given robust government support for cleantech to help
resolve some of the country’s pressing environmental issues,
the investment case for cleantech solutions in China is
compelling. But foreign companies first need to identify the
right opportunities and understand the challenges they may
face. Waste management and recycling, water, and air
pollution controls, for instance, represent more than 70% of
the total investment, according to our analysis. These sectors
will likely continue to maintain a dominant market size
during the next five years.
But foreign companies should also take into account China’s
nuanced business environment, complex bidding processes,
language barrier, and the level of technology required. They
should understand that the industry is highly policy driven
and that regulations, increasingly stringently enforced, can
have an immediate impact on an investment. All these
considerations should be made before making any financial
commitments.
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In this market study, we aim to shed light on these and
other issues. We analyze the environmental issues
driving the sector, the opportunities, and the
challenges, scoring thirteen specific cleantech
subsectors against market, policy, technology, and
foreign trade categories. Of these, we identify six
subsectors with the greatest potential for investors.
This does not mean that there are no investment
opportunities to be found elsewhere on the list,
however. Far from it. But it does shed light on a
complex sector in a complex business environment, and
give investors insights into where they might find the
most suitable opportunities.
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Overview
Policy targets tightened in the 13th FYP
The Chinese government’s 13th FYP prioritises green growth,
setting goals and plans to encourage clean energy production
and consumption. Additionally, targets for energy intensity,
renewable energy share, and carbon intensity have been
further tightened. See Charts 1, 2 and 3.
Chart 1: Energy consumption per unit of GDP
Chart 2: Share of non-fossil in primary energy consumption
Chart 3: Carbon emissions per unit of GDP
12th FYP Period Target in 13th
FYP Period
20152010 20202015
12th FYP Period Target in 13th
FYP Period12.00%
15.00%
12th FYP Period Target in 13th
FYP Period
20152010 20202015
Of note, ecological conservation and environmental
protection also stand out as priorities, including targets to
tackle air, water, and soil problems. Specific details include:
Cities of prefecture level and above are required to improve
three key areas:
Air quality
• Meet “good” or “excellent” standards 80% of the time —
i.e. score below 100 (out of 500) on China’s Air Quality
Index.
• Reduce the number of polluted days by 25%, and reduce
by 18% the number of days when PM2.5 exceeds
allowable limits.
Water and soil quality
• Improve overall waterway quality so that 80% of major
waterways meet a tier-three standard, up from the
reported current requirement of 76.7%.
• Release and implement a soil pollution action plan.
• Specify a second nationwide pollution census.
Control and reduce pollutants
China has made progress on reducing pollutants such as
chemical oxygen demand (COD), ammonia nitrogen, SO2
and NOx. Limits on Volatile Organic Compounds (VOC) have
been set for the first time as a five year national target:
• Total VOC emissions to fall by 10%
• “Regulation on VOCs Discharge Fee” has been
implemented since Oct 2015: petrochemical and printing
industries have been initially targeted for pollution
discharge fee.
During the 13th FYP, the targets will continue to be tightened
based on the level of 2015. See Chart 4.
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-18.20% -15.00%
-20.00%-18.00%
12th FYP target (vs.2010)
12th FYP achievements 13th FYP target(vs. 2015)
Chemical oxygen demand (COD)Ammonia nitrogen Sulfur dioxide (SO2)Nitrogen oxide (NOx)
-10%-10%-8%-8%
-12.9%-13%-18%
-18.6%
-10%-10%-10%-10%
New regulations on environmental
protection
Aside from national targets, the State Council has published
detailed action plans breaking down the targets and timelines
which will further boost investment in environmental sectors.
The three action plans are:
• Air Pollution Prevention and Control Action Plan, Sept
2013
“By 2017, PM10 in cities at prefecture level and above
must fall by 10% from 2012 levels; PM 2.5 in Beijing-
Tianjin-Hebei, Yangtze River delta, and Pearl River delta
must fall by 25%, 20%, and 15% respectively”
Chart 4: Pollutant reduction targets
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• Water Pollution Prevention and Control Action Plan,
April 2015
“By 2020, water quality in seven key areas must reach
national standard Level III; black and odorous water to be
reduced to less than 10%; and drinking water should
reach Level III ”
• Soil Pollution Prevention and Control Action Plan, June
2016
“By 2020, the safe utilisation rate of contaminated arable
land should reach about 90%, while the safe utilization
rate of the polluted plots should exceed 90%. By 2030, the
safe utilization rates of contaminated arable land and
polluted plots should both exceed 95% respectively”
Green investment gap
China has emerged as both the world’s largest producer and
consumer of cleantech, while the country’s investment in
clean technology and renewable energy has exceeded the
combined total invested by Europe and the US. By 2016,
China’s green investment had reached RMB 1.85 trillion
(approx. USD 269 billion), which constitutes 2.5% of the
GDP.
However, with the phase-out of government subsidies and
the increasing need for industrial clean-up, the investment
gap is significant. It is estimated that the cleantech sector will
reach RMB17 trillion (approx. USD 2.47 trillion) by 2020,
with an increase of RMB2 trillion (approx. USD 290 billion)
each year.
Market trends
Thanks to this investment, the market value of the cleantech
sector is growing rapidly, as is the number of Chinese
cleantech companies, from 2,762 in 2005 to 50,734 in 2015.
We see four major market trends in this rapidly growing sector:
• Increased M&A activities
More companies began to expand their business across
the value chain of the sector and subsectors, in order to
provide clients with a one-stop solution.
• Public Private Partnership (PPP) model
With government support, the PPP model can mitigate
investment risks and bring in private capital to address
financing difficulties.
• Third party operation
This method stimulates the growth of specialised
companies, adding room for projects with sustainable
income.
• Digitalisation
The plan to build an ecological environment monitor
network highlights that big data and ‘Internet +’ have
become an important tools for environmental protection.
• Companies with financing options such as
financial leasing have a market advantage
• Third party operation opens the service market to
private and foreign companies
• Both hardware and software for online monitoring
are in high demand for building the system
PwC’s view
Chart 5: Government investment and total investment in environmental prevention (including renewable energ y)
Source: Ministry of Finance, Xinhua Net, CCID Consulting
0
5
10
15
20
25
30
35
40
45
50
0.0
0.6
0.4
0.2
1.0
2.0
1.8
0.8
1.4
1.2
1.6
2013
0.91
2012
0.83
2011
0.72
2010
0.77
2009
0.53
2008
0.50
2007
1.85
1.08
tn. RMB
2015
%
0.35
20162014
0.97
Total investment trillion
Percentage of government investment
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Subsector Opportunities
NOTES:
1) Including waste water treatment, water solutions, fresh water supply
2) Including sewage treatment plant gas and biogases, recycling, landfill gas
3) Including biogas, biofuel technologies
4) Including cogeneration technologies
What we did
We selected then examined 13 subsectors. Other subsectors,
e.g. wind and solar, were not selected in this study because
these subsectors are relatively mature.
• Air pollution control
• Water 1）
• Soil treatment
• Waste management 2）
• Boise protection
• Geothermal
• Hydrothermal and ocean energy
• Hydropower
• Biomass 3）
• CCS and carbon services
• Energy efficiency and energy conservation 4
• Electric vehicles
• Aero thermal
We selected four indicators (market, policy, technology and
trade) to evaluate the business opportunities for foreign
companies in China’s cleantech sectors. We ranked each
subsector from 1 to 5 based on analysis of these indicators.
The more opportunities, the higher the score will be. Analysis
of each indictor is shown in the next section.
• Policy or regulatory support for specific
subsectors
- The clean technology industry is highly policy
driven. A newly announced law or regulation
can have an immediate impact on investment.
- We analysed the relative impact of such
policies in terms of enforcement
• Technology gap between Chinese and
foreign markets
- More opportunities can be found in areas
where technology in China has not developed
yet.
- This column evaluates the subsectors that are
hungry for solutions.
• Foreign trade policy to support or limit
certain technologies
- We use the Encouraged Import Catalogue
issued by the Ministry of Commerce as a basis
for our analysis.
- It not only shows in which industries China
encourages foreign technology and
equipment, but also specifies technologies
needed in such areas.
• Market potential based on investment data
- Investment data in clean technology from
financial investors in the past three years.
- We used historical data to show market
activity and to predict investment trends and
demand in the next five years.
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5,336
2,645
1,5121,256 1,233
712 584 554 548 516190 101 72 0
60
94
18
58
27
5 210
1 1 8 130
-50
0
50
100
150
0
1,000
2,000
3,000
4,000
5,000
6,000
Market potential
We collected investment past data from financial investors in
cleantech sectors to demonstrate the vitality and size of
subsectors. According to Pedata database, there have been
312 disclosed investment deals relating to cleantech in the
past three years, with a total value of RMB 12 billion (USD 1.8
billion).
Our analysis shows that waste management and recycling,
water, and air pollution controls are the three sectors with the
largest number and value of deals, representing over 70% of
the total investment identified. In all likelihood, these sectors
will continue to attract investment and maintain large market
size in the coming five years.
Environmental monitoring and energy efficiency sectors are
included in a second tier and account for about 20% of the
investment.
Even though the size of the soil remediation sector was
relatively small during the data collection period, demand for
this technology is rapidly increasing. The investment has
been been triggered by the recent publication of the Soil
Pollution Prevention and Control Action Plan.
NOTES:
1. Investment data from 2013.1-2016.7
2. Only deals with disclosed company names are taken into account.
3. Investee companies involved in several subsectors are calculated multiple times in different categories
Chart 6: Investment from financial investors in Chi na’s clean technology, million RMB
Value of deals Number of deals
MonitorAir pollution control
Water Waste mgt and recycling
103
Aero thermal
CCSHydro-power
Geo-thermal
Biomass Energy efficiency
Hydro thermal
and ocean energy
SoilTreat-ment
NEV
Value of dealsNumber of deals
5 4 3 3 3 2 2 2 4 2 1 1 1 1Score
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Noise production
Subsector Regulation, policy and plan Enforcement Score
Air pollution control “The Air Pollution Prevention and Control Action Plan”
“Fee collection regulation for VOC emissions”
“Ultra-low Emission Transformation For Coal Fired Power Plant Plan”
5
Water “The Water Pollution Prevention and Control Action Plan”
“Sponge city”
“Opinions on the reformation of pricing mechanism “
5
Soil treatment “The Soil Pollution Prevention and Control Action Plan” 5
Waste management “Mid-long Term Plan for resources recycling system (2015-2020)”
“Guidelines for promoting countryside waste management”
5
Noise protection Not Specified N/A 1
Geothermal “Guidelines for Energy Industry 2016” 2
Hydrothermal and ocean energy
“Marine Renewable Energy Development Program (2013-2016)”“Transparent Ocean Project”
2
Hydropower “Guidelines for Energy Industry 2016” 2
Biomass “Guidelines for Energy Industry 2016” 3
CSS technologies and carbon services
“Notice of carrying out key work for the opening of country-wise carbon emission rights trading market”
3
Energy efficiency and energy conservation
“Industrial energy efficiency supervision plan” 2
Electric vehicles “Electric vehicles charging facilities development guideline (2015-2020)” 4
Aero thermal Not specified N/A 1
Policy drivers
The cleantech sector has been fueled by preferential policies
and regulations. This section reviews those related to each
subsector in detail. We scored the subsectors by the number,
the level of policies and enforcement.
These policies and regulations have largely been
implemented by the Ministry of Environment Protection and
the National Development and Reform Commission.
Regional government offices are responsible for
implementing, monitoring, and reporting the progress.
Table 1 shows some examples of government regulations
promoting various cleantech subsectors.
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Table 1: Regulation, policy and plan
Category Subsector Rational Score
1. Hungry for technology solution
Soil treatment
• Soil pollution from industry, agriculture, and waste in China is extremely severe
• Soil treatment is preliminary, hence technology and experience are in high demand
5
Hydrothermal and ocean energy• Technology mainly in R&D stage, onshore
renewable energy sources dominate. Emerging technologies can be introduced.
4
2. Advanced technology needed
Aero thermal • Technology gap exists, but only low potential of large scale application in the next five years due to high cost and little demand.
3CCS and carbon services
Waste management
• Government is promoting the development of these technologies, but not as advanced compared to developed countries. 3
Biomass
Electric vehicles
Geothermal
3. High performance/ low cost /differentiated technology needed
Water treatment
• Technology in these areas has already matured during recent years.
• Differentiated and customised high performance or low cost technologies are needed.
2Air pollution control
Energy efficiency and conservation
Hydro power • Technology in these areas has matured during recent years.
• Not very much demand in these areas.1
Noise reduction
Technology penetration
Foreign companies will only be competitive if their offers or
solutions are more cost efficient and there is a real
technology gap in the current Chinese market.
We categorised the technology need into three levels.
1. Similar technology is largely unavailable and is hence in
high demand.
2. There is technology gap, but only advanced technology is
needed as China already developed basic solutions.
3. Technology is relatively mature; 0nly lower cost and
higher performing technologies are needed.
We conducted interviews with Chinese industry experts, and
categorised the subsectors into these three types.
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Subsectors Number of items related to the subsector Score
Technology Equipment Industry
Air pollution control 7 0 5 4
Water 7 2 3 4
Soil treatment 1 0 1 2
Waste management 11 0 9 5
Noise protection 0 0 0 1
Geothermal
2 0 1 2
Hydrothermal and ocean energy
Hydropower
Biomass
CSS technologies and carbon services
1 1 2
Energy efficiency and energy conservation
4 0 2 3
Electric vehicles 3 0 2 3
Aero thermal 1 0 0 1
Foreign trade policy
China is moving towards more market driven development
and encouraging innovation in the cleantech sector, a
positive sign for all market players.
The government is now encouraging foreign companies to
address domestic technology gaps, while also promoting
outbound investment by Chinese companies.
The technology, equipment, and industries listed in the
Encouraged Import Catalogue (EIC) released by the Ministry
of Commerce enjoy fiscal interest discounts.
We listed the number of items covered in the EIC and scored
the subsectors accordingly.
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• We identified waste, soil,
water, air, electric
vehicles and biomass as
having greater potential
particularly for foreign
companies.
• Despite the growing market
size, China’s cleantech sector
is not an easy playing field as
technology quickly
penetrates, leaving little room
for foreign competitors for
example in the wind and solar
sectors. In addition,
opportunities may vary across
different regions and depend
on local circumstances.
Indicators
Subsectors Market Size
Policy driven
Technology Foreigntrade
Score
Waste management 5 5 3 5 18
Soil treatment 4 5 5 2 16
Water 4 5 2 4 15
Air pollution control 3 5 2 4 14
Electric vehicles 2 4 2 3 11
Biomass 2 3 3 2 10
Energy efficiency and energy conservation
3 2 1 3 9
Geothermal 2 2 3 2 9
Hydrothermal and ocean energy
1 2 4 2 9
CSS technologies and carbon services
1 3 3 2 9
Hydropower 1 2 1 2 6
Aero thermal 1 1 3 1 6
Noise protection 1 1 1 1 4
Prioritisation Results
We added the scores of all four aspects (market, policy,
technology and foreign trade) to show the overall potential of
subsectors in China. The scores show the relative market
potential of each sector rather than the absolute potential.
The top 6 — waste management, soil treatment, water, air
pollution control, electronic vehicles, biomass and energy
efficiency — are selected as priority sectors.
The markets for energy efficiency, geothermal, hydro and low
carbon are also sizable, and the opportunities vary from
sector to sector.
PwC’s view
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Implications
Opportunities
Significant opportunities exist for multinational and
domestic companies to collaborate in the cleantech sector
and support the Chinese government in achieving their
climate change and environmental goals.
Firstly, opportunities may be found with Chinese companies
lack either technical capability or management experience in
environment projects. The scale and urgency of the pollution
problems require mature market solutions and rapid
responses.
Secondly, developed economies are growing relatively slowly.
As such, the requirement for waste management and air
pollution treatment has also stabilised as urban and
industrial development has slowed. By contrast, Chinese
market growth has left technology gaps in many subsectors,
including water, air monitor and control, new energy
vehicles, and waste management.
Some specific technologies identified include:
Waste management:
Regarding municipal waste management, higher recycling
rates and cleaner treatment technologies are needed. Because
of the high proportion of landfills, non-membrane treatment
technologies and landfill leachate concentration technologies
are required.
For kitchen waste, pretreatment technologies, large
anaerobic systems, biogas slurry, residue technology, and
distributed treatment systems are needed.
In sludge treatment, higher efficiency dehydration
equipment, sterilisation deodorant technology, and heavy
metal stabilisation technology are needed. Safe disposal of
sludge and utilisation technologies, waste incineration
technology, and VOC monitoring equipment are also in
demand.
Water:
Requirements include advanced oxidation technology
including high performance low cost catalysts, high
performance reactors, hydroxyl improved generation
efficiency, lake water pollution control, ecological restoration
technology, deep treatment on urban wastewater, and
resource utilisation technology.
Air:
Market demands include flue gas, dust, PM2.5 detection
technologies under low concentrations, low temperature and
high humidity environments, online monitoring and instant
distinction technology of VOCs, consistent monitoring
technologies for poisonous and hazardous substances,
monitoring technology for soil and underground water,
pollution remote monitoring technology, as well as
monitoring technology based on the internet and big data.
New energy vehicles:
Components with core technologies still heavily rely on
imports, such as anodes, separator materials in the battery,
basic components including chips, high speed CAN gateway,
signal processing, and amplifying units.
Soil treatment:
Soil treatment is another growth area in China with
technology gaps. Since 2010, there have been a series of
serious pollution accidents caused by heavy metal pollution,
including arsenic, and cadmium. Defining pollutants is the
key to soil restoration. Currently, monitoring systems still lag
behind global standards, especially equipment to determines
new types of pollutants such as phthalates and
phytohormones.
However, there are very few European companies
specialising in this sector. Europe started the process of
remediation 30 years ago. Unlike China, Europe’s focus has
moved to pollution prevention through law and regulations
rather than remediation.
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Challenges
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As this report shows, the time is right for many
multinational companies with advanced solutions in
cleantech to come to China. However, barriers exist.
Inconsistent standards and lack of local distribution
networks or financing to build demonstration projects
can all prevent foreign and Chinese companies from
cooperating.
Overshooting:
Some technologies such as biomass and waste to energy
have not proved to be as attractive in China as expected
because they are too advanced and do not solve China’s
real environmental problems. Waste incineration
technology, although somewhat basic, might be
preferred because it can deal with large amounts of
waste quickly.
Inconsistent standards:
Some technology is particularly sensitive to industry
standards, such as energy conservation system design.
Both domestic and foreign companies should conform
to industry-specific regulations and standards.
Regulations are becoming tighter and more stringently
enforced. Local regulations often impact significantly
on the timeline and costs of market entry. Companies
are advised to examine the regulatory implications prior
to committing to the market.
Lack of proven concepts:
For some environmental protection projects, pre-test
and pre-investment is needed for foreign companies.
Some regional regulations might even prefer a local
entity to conduct the project on behalf of the foreign
entity. For example, in the case of an environmental
monitoring project, a back-end centre needs to be set up
locally as data collected cannot be transferred and
analysed abroad, according to Chinese law.
No access to market:
Local distribution networks, bidding processes, and
negotiation strategies can make China a very difficult
market to access. What’s more, most Chinese local
government and companies don’t have an English
profile on their website making it harder for foreign
companies to conduct due diligence or research.
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In order to succeed in the Chinese market,
multinational companies are advised to examine the
market and regulations prior to committing to the
market. Finding business partners for distribution,
licensing, trading, M&A etc., will facilitate the process of
market entry. Registering trademarks in China as early
as possible will help protect your intellectual property
and ensure a fair value assessment for technology
transfer.
For Chinese cleantech companies, domestic market
opportunities are also significant. Having the capacity
to identify and apply suitable advanced technologies
and equipment is key. Building joint ventures or
partnerships with foreign companies can help to
develop solutions and offerings quickly and then scale
up the business.
For foreign companies
For Chinese companies
Contact Us
James Chang
Consulting North China Leader
+86 (10) 6533 2755
Hannah Routh
Sustainability and Climate Change
Director
+852 2289 2968
Qian Wu
Senior Manager
+86 (10) 6533 7987
Lisa Wang
China Power & Utilities Partner
+86 (10) 6533 2729
Huw Andrews
Partner
+852 2289 1820
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
© 2017 PwC All rights reserved. PwC refers to the China member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. CN-20170401-3-C1
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