Alternative Energy Watch: China Plans to Spend Big on Grid; Equipment Maker Gets Big Order (SOLR, AMAT, LDK, CREE, VECO, AMSC)

Alternative energy news today begins with a new order for sapphire crystallization furnaces and ends with a story on development in China’s national electricity grid.

We recently noted that a number of Chinese solar equipment makers were entering a sector dominated by established companies like GT Solar International, Inc. (NASDAQ: SOLR) and Applied Materials, Inc. (NASDAQ: AMAT). Demand for furnaces and wafer cutting machines is going to rise in China as solar cell makers ramp up production.

The old reliables are still kicking though, as GT Solar announced that it has sold $219 million worth of sapphire crystallization furnaces to a Chinese firm that makes LED lighting products.

The Chinese must be bullish on LEDs, given that LDK Solar Co. Ltd. (NYSE: LDK) has already said that it would build a new $40 million plant to make the sapphire substrates used in LEDs. LED lighting leader Cree Inc. (NASDAQ: CREE) has been struggling recently, while competitor Veeco Instruments, Inc. (NASDAQ: VECO) has posted sequential profit growth of more than 200% and revenue growth of nearly 90%. Growth in LEDs seems to be the consensus view, Cree notwithstanding.

China’s largest electricity grid builder and operator is state-owned State Grid Corp. Catchy name aside, this outfit has big plans for expanding across the country and has so far spent nearly $800 million on building an ultra-high voltage, alternating current (UHVAC) transmission line to send 5 million kilowatts of power across about 400 miles newly installed power lines.

This could be some much-needed good news for American Superconductor Corp. (NASDAQ: AMSC), which supplies a good deal of the high-temperature superconducting wire used in China’s expanding electricity transmission grid. The company is clearly in the pole position if State Grid can get its act together.

State Grid is trying to persuade the central government to support a plan to build out a nationwide network that could cost more than $8 billion and to get it built by 2015. Even in China, though, there are critics who pan the plan, saying it costs too much and can’t even live up to its promises in the current version.

The highest transmission level reached on UHVAC line is less than half its rated capacity, and even that only for a few seconds. Critics say it would be cheaper to mine and ship coal to power plants near population centers than to build more high-speed, long-distance transmission.

Critics could have a point. High voltage AC transmission has been tested in many countries, including the US, and with the exception of Russia, no significant build-out of UHVAC has occurred.

The problem dates back to Thomas Edison and Nikola Tesla. Long-distance AC transmission is less efficient than long-distance DC transmission. That’s the basic physics problem that State Grid has run up against, and for some reason the company doesn’t want to change. The most compelling reason for State Grid to stay with its UHVAC plan is that, if approved on a larger scale, State Grid could lock in national power distribution and regain its national monopoly on power transmission.

No matter what happens with State Grid, American Superconductor’s sales of its high-voltage wire should benefit.

Paul Ausick