A growing energy crisis and increasing environmental concern over coal-fired power stations mean China's potential for renewable energy is unrivalled anywhere in the world.

But with the inevitably high costs of introducing the new technologies, can the clean generators break through?

Veteran optical products manufacturer Schott AG is testing the water of China's emerging solar energy market with a poverty alleviation project in Northwest China.

"China's rapid economic development has given rise to the problem of energy shortages, (and with that taken into consideration,) China is and will be a market with great potential for us," says Udo Ungeheuer, chairman of the Management Board of Schott AG.

Ungeheuer says that the Mainz, Germany-headquartered company has already contacted central and provincial governments about the promotion of solar energy in China, which has an overwhelming dependency on fossil fuels.

The company is now engaged in a poverty-alleviation project in Northwest China's Gansu Province. Underwritten by the World Bank and with the support of the Reconstruction Loan Corporation, the project is part of the Chinese Government's Brightness Programme.

Twenty-five remote villages in the province which have never had an electricity supply are to be equipped with their own independent power grids called "minigrids."

These local grids will be supplied by on-site hybrid diesel-solar electrical generators, and it is envisioned that solar power will account for 90 per cent of the total electricity generated. The second phase of the project will be to bring electricity to 70 villages in Gansu Province.

"Schott has done a lot to win this project," says Ungeheuer. Sources with the company's PR department say Schott Solar has been in business with Chinese partners for several years. The company is also building up a dealer network in the country.

Schott's production of solar energy devices gained new momentum recently as the company, with more than 120 years of expertise in making specialty glass, announced it would acquire the 50 per cent share that RWE Solutions AG held in RWE Schott Solar GmbH.

"By completing the acquisition of RWE Schott Solar GmbH, we will be able to intensify our company's activities in the field of solar energy," Ungeheuer said in a press release in October. "As a global technology leader, we are looking forward to participating in the growth of this exciting market and we'll work to set international benchmarks."

The company sold 280 million euros (US$336 million) of solar energy equipment worldwide in the fiscal year between 2004 and 2005. That figure is expected to increase to 420 million euros (US$504 million) next year.

Solar energy is one of five pillar sectors, the others being Home Tech, optics, opto-electronics and pharmaceutical packaging, that will help Schott expand its Asian sales.

Sales on the continent currently account for 16 per cent of the company's total, and they aim to raise that proportion to more than 20 per cent in the next three years.

That aim puts China among the company's most important target markets outside Europe alongside the United States, Japan and South Korea.

The company's timing to enter the Chinese market coincides with the country's move toward encouraging the use of alternative energy, including solar and wind power.

A 33-clause Law on Renewable Energy Resources, in which the government affirms its support for non-fossil fuel powered energy, will take effect at the beginning of next year.

Some local governments have also introduced measures to encourage the use of solar energy. In power-thirsty commercial centre Shanghai, the municipal government has pledged to make the photovoltaic (PV) industry (the scientific term for solar power) a showcase for the city's modern manufacturing sectors. A demonstration solar generator churning out at least 5 megawatts should be up and running by 2007.

However, before the market potentials can be realized, Schott still has some obstacles to clear.

"Currently the solar modules we sell to China are all made outside the country, but depending on the market, we would not rule out the possibility of setting up manufacturing bases in China in the future," says Ungeheuer. "But before that we need to, first of all, find a reliable source for quality silicon."

Silicon is an essential raw material for the production of solar modules, and the quality of the silicon largely decides the quality of the final products. Though the resource itself is abundant in nature, the processing procedure is crucial.

Even in Germany, the world's pioneer in solar energy, the industry relies much on government financial support. The Chinese renewable energy law, although a step in the right direction, is not yet enough to convince Schott they will get all the help they need.

"We do not yet know the details of the law," says Ungeheuer. "Once we have them, we will decide on corresponding steps that fit the Chinese market."

Though upbeat about opportunities in China, the company admits the market size and development of solar energy in China depends on the new law and its regulations.

The company's PR department tells China Business Weekly that, for them to have any chance of success, solar energy will have to get some further financial support.

In China, solar energy generation costs around 3 yuan (US$37 cents) per kilowatt hour, much more than the 0.2 yuan (US$2 cents) it costs a coal fired power station to generate the same amount.

Decreasing government subsidies in Germany have put pressure on Schott to improve its technology and reduce prices.

Ungeheuer says there is a chance the company's R&D department will team up with China's own researchers to see how far they can push the envelope together.

Over the past 30 years, while the worldwide production volume of solar modules has doubled, production costs have fallen by 20 per cent. Experts say this trend will continue for the next 30 years, which translates into a halving of costs at least every decade.

And Schott is not the only company with an eye on the Chinese market. ErSol Solar Energy AG, another leading German solar energy producer, started co-operating with Shanghai Electric Group earlier this year to form the Shanghai Electric Solar Energy Co Ltd. The joint venture, designed to produce solar modules for the Chinese market, is expected to start operation early next year.

Schott has a factory in Suzhou, East China's Jiangsu Province, which has four production lines turning out the company's Home Tech line of products - providing special glasses for household appliances such as refrigerators and ovens, and further production lines for backlighting products and micro-diode sleeves.

"We have already put a large sum of investment into the project in Suzhou, and we are ready to expand our business in China," says Ungeheuer.

In the latest development, the company announced the launch of a new factory in Suzhou, producing ampoules and vials for use in the industry of China. Production is expected to begin in July 2006.

By opening the new site, Schott Pharmaceutical Packaging has become the first international manufacturer of primary pharmaceutical glass packaging to establish a production site in China.

(China Daily 12/19/2005 page2)