China's shining light in the energy challenge

Entrepreneur believes 60 percent of the world's power will come from the sun 100 years from now

XINYU: Peng Xiaofeng is not one to be deterred from his personal mission by the heavy rain pouring down outside his office.

It might be a dreary day in Xinyu but the 34-year-old insists solar energy will provide 60 percent of the world's energy supply in 100 years.

Peng Xiaofeng (left) inspects the production line at the LDK silicon factory located in Xinyu city, Jiangxi province. [File photo]

The modest and quietly spoken chairman and chief executive officer of LDK Solar, one of China's leading solar energy companies, insists sun power will eclipse coal, gas and oil in the 22nd century.

One of China's leading young entrepreneurs and listed by Forbes magazine as one of the 500 richest men in the world, he believes people consistently underrate this natural form of new energy.

China's solar power usage currently barely registers above zero as a percentage of total energy sources.

"In 100 years, my view is that 60 percent of the world's energy will come from solar power," he said.

"This is not an optimistic prediction. The European PhotoVoltaic Industry Association (one of the solar energy industry's main trade bodies) puts the figure at 80 percent."

Because of their current marginal status, it is all too easy to dismiss new energy sources as something of a sideshow to ease climate change fears.

Renewable energy target

The Chinese government, however, wants 20 percent of the country's power to be from renewable energy (of which hydro will be a major part) by 2020.

Peng insists people fail to realize existing energy sources, oil in particular, are going to run out.

"Oil, maybe, has 50 years, I don't know. That is because it is not very renewable. It is also going to get more expensive. Even with the background of a financial crisis like now, its price has gone back up to $81 a barrel," he said.

LDK has had something of a torrid time itself recently. Its shares on the New York Stock Exchange initially soared to nearly $70 from their initial flotation price of $27 in 2007 but have since slumped to just a tenth of their peak value at around $7.

With Peng owning around 70 percent of the equity of the company, this has put a considerable dent in his personal fortune, although he still retains major private interests.

In December, the company went back to the NYSE and has raised a further $122 million, using around $90 million of the proceeds to pay back short-term debt as well as develop other aspects of the business.

"The economic crisis has affected everybody and, in particular, solar energy. Many projects have been delayed, mainly because of the problems in getting bank finance," he said.

"The main reason we were impacted was that the decreased price of raw materials brought down the price of silicon products. So, although our sales volume was still increasing, revenues were lower because of the lower unit price."He points out, however, despite stock market nerves the company is still the world's largest maker of solar wafers and has increased its global market share from 11 percent in 2008 to 18 percent now.

"The company's market share is increasing, our cost leadership is getting stronger and we are placing a great deal of emphasis on technological innovation this year," he said.

You have only got to drive around Xinyu to see how much depends on Peng's efforts.

The city in Jiangxi province is now known as 'Solar Power City'.

Around 80 percent of LDK's 14,000 employees are from the city itself. The presence of LDK has also generated a cluster of other companies from processing raw materials to all other aspects of solar power engineering.

LDK has also established schools to train people to work in the solar power industry and it has also contributed towards the city's infrastructure, including helping fund the main Saiwei Road.

Peng is aware of the important role LDK plays in both local society and the economy. Like many of China's entrepreneurs he sees himself as part philanthropist.

"This is a very small city and we bring a lot of jobs to it. It is my home province and the local government is also very supportive of the solar energy industry," he said.

Peng, who likes to be referred to by his nickname "Light", comes from a rural area of Jiangxi province and is the son of a local doctor.

Peng Xiaofeng, chairman and CEO of LDK Solar.

"When I was at school I was always reading books about light, which is where I got the nickname from," he said.

"My dream was to study physics in the United States. At the time the role model for a lot of young people in China was (Thomas) Edison (the American inventor of the light bulb)."

To achieve his dream, however, he needed to learn English and the only place he could study was at Jiangxi College of Foreign Studies in Nanchang, where he read for for a diploma in international trade.

"There were not many places to learn English and I chose to do this diploma," he said.

While many students often seek such courses as a means to an end, Peng took the qualification literally and on graduating decided to set up his own international trading company with just 20,000 yuan ($2,928) of savings.

In 1997, with China products now in demand throughout the world his timing to start a business couldn't have been better.

His company, Suzhou Liouxin Industrial Group, began to locally manufacture and sell protective products such as safety gloves, jackets and shoes.

"I set up the company by renting an office and buying a fax machine and just learning about international business and how to sell China products overseas. At the time it was very profitable to sell China products."

The business was a spectacular success, soon hitting sales of $7 million and within a few years $200 million.

Instead of having a rented office and a fax machine, he now had a staggering 10,000 employees. He was wealthy.

For many people this would have been enough but Peng felt low-tech manufacturing was somewhat limiting.

He had completed an MBA at the Guanghua School of Management at Peking University on an entrepreneurs program, which had widened his ideas about business.

"It helped me see the bigger picture. It gave me more knowledge about finance, about marketing and about strategy. You also get to know more people from fellow students to professors and so you can bounce ideas off people," he said.

Then came the idea to move into solar power, which was inspired by a trip to Europe.

"I used to travel a lot in Europe at the time and there was a lot of interest in green energy, particularly in Germany. I realized this was a business for the future and a big opportunity to start a business in China," he said.

He spotted there was a shortage in China of companies producing multi-crystalline wafers, the light sensitive tiles which capture light and turn it into usable energy.

"There was a big shortage in the wafer market and at that time wafers were about 70 percent of the cost of producing solar energy," he said.

Private equity investment

He decided to invest $30 million of his own money to launch the business in 2005.

He then had three rounds of private equity investment injecting a further $100 million. The business also had support from the local government.

"It was doing the MBA which taught me about raising capital, whereas my previous business very much generated its own capital," he said.

Two years after starting the business it was floated on the New York Stock Exchange.

"We first targeted a listing on NASDAQ but the NYSE came to us and we were qualified to list on the exchange. We thought strict US company governance would give investors confidence in the business and would be good for long term growth," he said.

"A lot of our investors are now from around the world, from the UK, Frankfurt, Switzerland and Japan."

Having a listing overseas has given Peng a high profile and he is regularly written up as one of China's young billionaires.

Apart from the Forbes listing last year which recorded him as the 462nd richest person on the planet, estimating his personal fortune at $2.5 billion, he has also come to the attention of Fortune magazine.

It listed him as 23rd of 40 of the "hottest business stars" under the age of 40 in the world.

In the same list, Facebook founder Mark Zuckerberg was second, News Corporation's James Murdoch was third and golfer Tiger Woods, before recent tribulations in his life, was placed sixth.

Peng does not think he is part of some new homegrown Chinese business talent that is going to take over the world any time soon.

"If you look at the young entrepreneurs on that list, only two are from China. Most of them are from Russia, the United States and elsewhere. I think people of the younger generation have a similar chance from anywhere," he said.

He acknowledges, however, that the opportunities for young entrepreneurs in China have never been greater.

"We are very lucky in this generation, especially, say, compared with the opportunities my parents had. We have greater access to education, the chance to meet people in Europe, the US and internationally. You also have the benefits of globalization, access to foreign capital and to buy equipment and bring in expertise from such countries as the US, Germany and Japan," he said.

China is now one of the major world centers for solar power.

Apart from LDK, Suntech, based in Wuxi city in Jiangsu province, is a leading player, as is GLC-Poly, which is also based in Jiangsu province.

The future of solar power is still dogged by questions about its cost. Oil, depending on its current price, costs around 5 cents to produce a kilowatt hour (KWh) of energy, coal between 4.8 and 5.5 cents and gas between 3.9 and 4.4 cents, whereas solar power can cost as much as 30 cents per kilowatt hour.

Peng says the cost is being driven down all the time as the technology improves.

"If you go back 50 years it used to cost about $500 per KWh. In China now it is already down to 20 cents," he said.

Still only in his mid-30s, Peng has every intention of being around when the age of solar power finally dawns.

"I want to focus on the solar power industry continuously into the future since the industry is large and emerging. I am sure the sorlar power will be one of the leading future technologies," he said.