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Home » Opinion » China Knowledge
Biomass power can fuel the countryside
March 11, 2010, Thursday
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EDITOR'S note: How did a former Volvo executive turn a start-up into the largest biomass power business in China? The following are extracts from an conversation between China Knowledge@Wharton and Kai Johan Jiang, now chairman of Dragon Power that supplies 60 percent of China's biomass electricity.
Q: How did you switch from the car industry to the biomass business?
A: Before entering biomass energy in 2002, I was a senior adviser for Volvo. I made the switch after consulting with my colleague, Karl Erling Trogen - who is now a director on our board - about which industry had a bright future. We agreed that environmental sustainability was a key to a robust future for the planet.
In China, most farmers burn straw as unwanted waste, but the caloric value of the amount of straw burned each year is the equivalent of 500 million tons of standard coal. We founded Dragon Power in 2004. By 2006, we had a straw biomass-powered plant up and running in Shandong Province.
We have a 75 percent stake in the National Bio Energy Co (with State Grid Xin Yuan Co Ltd owning the remainder), which is the world's largest biomass power generation group. By the end of 2009, it provided 5.2 billion kWh of green power and reduced CO2 emissions by 4.36 million tons. I plan to establish 100 biomass power plants with a capacity of three million KW by 2013.
Q: Have you made profits?
A: Even now, the purchase price of biomass energy doesn't cover the generation costs and only a handful of our plants are in the black.
Given the initial unprofitability, the majority of biomass energy speculators have withdrawn from the market. Although we are not profitable, I am optimistic about the future, and believe this business, which is aligned with social and national interests, will continue to develop. Our business helps supplement farmers' incomes in particular, which is one of the government's priorities.
Q: How does your business supplement farmers' incomes?
A: Sixty percent of the operating costs of our biomass power plants go toward procuring farmers' leftover straw.
On average, one mu (0.06 hectare) of land produces between 300 kg and 500 kg of straw, and the current purchase price is roughly 300 yuan (US$44).
Overall, Dragon Power has paid 1.9 billion yuan in cash to procure straw.
One 30 MW plant creates 1,000 jobs. The plants directly employ around 130 people, and each plant needs 10 straw logistics bases, which each needs 50 people and a large number of brokers. We have created about 50,000 jobs in rural areas so far.
Q: Given Dragon Power's poor financial performance, how do you fund expansion?
A: Some financial institutions are optimistic about our future. In June 2007, we received US$150 million in equity investments from Citigroup. In February of this year, China Construction Bank's head office offered us 28 billion yuan of credit to support our construction plans over the next five years.
Additionally, National Bio Energy will introduce some large enterprises as strategic partners and start preparing for an initial public offering (IPO) in the domestic A share market. Dragon Power is planning an IPO overseas.
Q: Wind and solar power seem to be more popular in China. What are the advantages of biomass energy?
A: Biomass energy has the most potential among all energy sources. There is a rich supply of this fuel, including leftover straw, cotton stalks, shrubs, bark and peanut shells.
If you take out the cost paid to the farmers in direct agricultural subsidies, the net cost of biomass energy is lower than any other energy source.
Q: Dragon Power's business is rooted in rural China, but you have an international management team. Why?
A: Our managing director, Simon Parker, worked in Citigroup's investment bank, and Karl Erling Trogen was a senior vice president at Volvo Group.
The international management team is a result of the group's entrepreneurial environment - our technology was imported from abroad and our investors are mainly from overseas. The team plays a central role in overseas marketing and strategic mergers and acquisitions. In 2009, we took advantage of the financial crisis to acquire Bioener, Denmark's technology licensing body.
Foreign executives share my same sense of mission. I once joked to Simon Parker that it's easier for him to learn Chinese than to teach China's 800 million farmers English. After that, he started coming to the office at 6:30 every morning to study Chinese.
(Reproduced with permission from China Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. Shanghai Daily edited the article.)
Q: How did you switch from the car industry to the biomass business?
A: Before entering biomass energy in 2002, I was a senior adviser for Volvo. I made the switch after consulting with my colleague, Karl Erling Trogen - who is now a director on our board - about which industry had a bright future. We agreed that environmental sustainability was a key to a robust future for the planet.
In China, most farmers burn straw as unwanted waste, but the caloric value of the amount of straw burned each year is the equivalent of 500 million tons of standard coal. We founded Dragon Power in 2004. By 2006, we had a straw biomass-powered plant up and running in Shandong Province.
We have a 75 percent stake in the National Bio Energy Co (with State Grid Xin Yuan Co Ltd owning the remainder), which is the world's largest biomass power generation group. By the end of 2009, it provided 5.2 billion kWh of green power and reduced CO2 emissions by 4.36 million tons. I plan to establish 100 biomass power plants with a capacity of three million KW by 2013.
Q: Have you made profits?
A: Even now, the purchase price of biomass energy doesn't cover the generation costs and only a handful of our plants are in the black.
Given the initial unprofitability, the majority of biomass energy speculators have withdrawn from the market. Although we are not profitable, I am optimistic about the future, and believe this business, which is aligned with social and national interests, will continue to develop. Our business helps supplement farmers' incomes in particular, which is one of the government's priorities.
Q: How does your business supplement farmers' incomes?
A: Sixty percent of the operating costs of our biomass power plants go toward procuring farmers' leftover straw.
On average, one mu (0.06 hectare) of land produces between 300 kg and 500 kg of straw, and the current purchase price is roughly 300 yuan (US$44).
Overall, Dragon Power has paid 1.9 billion yuan in cash to procure straw.
One 30 MW plant creates 1,000 jobs. The plants directly employ around 130 people, and each plant needs 10 straw logistics bases, which each needs 50 people and a large number of brokers. We have created about 50,000 jobs in rural areas so far.
Q: Given Dragon Power's poor financial performance, how do you fund expansion?
A: Some financial institutions are optimistic about our future. In June 2007, we received US$150 million in equity investments from Citigroup. In February of this year, China Construction Bank's head office offered us 28 billion yuan of credit to support our construction plans over the next five years.
Additionally, National Bio Energy will introduce some large enterprises as strategic partners and start preparing for an initial public offering (IPO) in the domestic A share market. Dragon Power is planning an IPO overseas.
Q: Wind and solar power seem to be more popular in China. What are the advantages of biomass energy?
A: Biomass energy has the most potential among all energy sources. There is a rich supply of this fuel, including leftover straw, cotton stalks, shrubs, bark and peanut shells.
If you take out the cost paid to the farmers in direct agricultural subsidies, the net cost of biomass energy is lower than any other energy source.
Q: Dragon Power's business is rooted in rural China, but you have an international management team. Why?
A: Our managing director, Simon Parker, worked in Citigroup's investment bank, and Karl Erling Trogen was a senior vice president at Volvo Group.
The international management team is a result of the group's entrepreneurial environment - our technology was imported from abroad and our investors are mainly from overseas. The team plays a central role in overseas marketing and strategic mergers and acquisitions. In 2009, we took advantage of the financial crisis to acquire Bioener, Denmark's technology licensing body.
Foreign executives share my same sense of mission. I once joked to Simon Parker that it's easier for him to learn Chinese than to teach China's 800 million farmers English. After that, he started coming to the office at 6:30 every morning to study Chinese.
(Reproduced with permission from China Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. Shanghai Daily edited the article.)
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