China’s focus on renewable energy is attracting venture capital and private equity companies looking for investment opportunities all along the value chain.
Wind and solar power have drawn considerable hype due to China’s plan to add 100 gigawatts to its 12 gigawatts of existing wind power capacity within the next decade. Beijing’s assorted subsidy schemes to encourage the construction of large solar farms are another driving factor. However, investors are also looking to energy sources closer to the earth.
"We are probably not interested in solar in the short term because we think you’re going to have overcapacity," said Gary Rieschel, founder and managing director of Qiming Venture Partners. He is interested in a number of other cleantech areas, including "clean coal" technology (See: Clean coal: An imperfect solution to China’s dirty energy problem, p30) and private companies that manufacture water-treatment technology.
"As much we talk about energy, China’s real issue is with water," Rieschel said. "So companies that can take recalcitrant waste water and make that usable again, even if it’s only for industrial purposes, I think have a very long tail to their growth opportunities."
Biofuels, made using non-edible plants, are also seen as having solid investment potential. "The other forms of alternative energy such as solar and wind, they’re for power generation not transportation, so I think biodiesel will play an important role," said an executive from a Xi’an-based biodiesel company who asked not be named. Biofuels and biolubricants could replace crude-oil-based alternatives and allow China to reduce its dependence on oil imports.
Dominic Yin, a Hong Kong-based businessman, had that in mind when he invested in a castor venture with Nankai University. The plants, which can survive in Northern China’s dry climate, will be used to create an oil lubricant replacement that Yin says lasts longer than conventional oil.
"You have to change oil lubricant every 5,000 to 8,000 kilometers, but ours can stand for 10 times more," he said.