May 21, 2012
The Boston Globe
Massachusetts firm in $1.25b deal in China
Start-up to build alternative energy project for partner
A Massachusetts alternative energy start-up will announce Monday that it has finalized a $1.25 billion deal to build a plant in Western China to convert coal into synthetic natural gas, an agreement that underscores China’s growing hunger for power and the state’s position as a global center for energy technology.
The deal, one of the biggest yet for the state’s alternative energy industry, creates a partnership between GreatPoint Energy, a seven-year-old Cambridge company with just 30 employees, and China Wanxiang Holdings, an industrial conglomerate.
Wanxiang will take a $420 million minority stake in GreatPoint, one of the largest investments by a Chinese company in an American firm financed by venture capital, according to Ernst & Young, a Big Four accounting firm that tracks such deals.
The partnership is a coup for GreatPoint Energy, which expects to add about 650 jobs in the United States over the next several years, including several dozen in Massachusetts, where its research and development is centered. It is also another sign of how aggressively China is pursuing new energy technologies - and finding Massachusetts a good place to shop.
Westborough battery maker Boston-Power Inc., for example, last year attracted $155 million in Chinese government and private investment to build a factory outside of Shanghai to make batteries for electric cars.
“I would say [the GreatPoint deal] demonstrates the global reach of the Massachusetts energy industry,’’ said Richard Lester, founding director of MIT’s Industrial Performance Center, which studies technological developments in various industries. “It is also another indication of the growing importance of energy to the US-China relationship, and of the key role played by Massachusetts energy technology companies in that relationship.’’
GreatPoint was founded in 2005 to develop a low-cost way to convert coal, a plentiful but dirty fuel, into cleaner-burning gas. Prior to the Wanxiang deal, the company raised about $155 million in venture capital from investment firms and power companies.
GreatPoint’s technology uses a patented catalyst that reacts with coal and steam to produce gas in a one-step process that separates the fuel from pollutants, including nearly all carbon dioxide, a leading cause of global warming. The carbon dioxide can be stored or used later to help extract crude from oil fields.
GreatPoint estimates it can make the synthetic gas for under $5 per million British thermal units by 2015. That would make it competitive with liquefied natural gas, which, GreatPoint executives say, is expected to trade on international markets at about $10 per million BTUs.
Early on, GreatPoint expected to market its technology in the United States, but a boom in natural gas production and the plunge in prices that followed forced the company to shift focus. US gas prices are at their lowest in a decade, trading at below $3 per million BTUs.
GreatPoint officials believed they could someday compete in US markets, once natural gas prices rebounded, but needed a more immediate plan. “Around the same time,’’ said Daniel P. Goldman, GreatPoint chief financial officer, “we had a tremendous amount of interest from Chinese companies.’’
GreatPoint’s technology is particularly attractive for China, because the technology turns one of the dirtiest fuels, coal - China’s main power source - into cleaner-burning natural gas, and could help solve another of the nation’s problems: choking air pollution. Today, China accounts for about one-fifth of the world’s energy consumption, according to US Energy Department data, and that is only expected to grow.
Under the deal, GreatPoint will build its first commercial-scale plant in Western China’s Xinjiang region, where it will make natural gas from low-grade coal mined from a seam in the Gobi Desert controlled by Wanxiang. Sinopec Corp., China’s largest energy company, has not only agreed to purchase gas from the new plant, but also said it will build a pipeline to transport the fuel to China’s eastern provinces.
The new plant, which will occupy about 85 acres in its first phase, is expected to produce 120 billion cubic feet of gas a year by 2017. Once it is running at full capacity - probably in about a decade - the plant will produce 1 trillion cubic feet of natural gas per year, just under 1 percent of China’s projected energy consumption in 2022.
“It really is a transformative moment for GreatPoint,’’ said Bill Wiberg, a partner at Advanced Technology Ventures and one of GreatPoint’s earliest investors. “The best companies can find a path forward even in a tough environment.’’
The Cambridge company stands out among alternative energy companies because it has eschewed government subsidies and loans. Instead, it relied on money from venture investors to build a demonstration plant in Somerset that helped sell potential partners on its coal-to-gas conversion technology.
Wanxiang was among the companies sold by the demonstrations. Lu Guanqiu, chairman of Wanxiang Group, called Great Point’s technology the “most advanced, lowest cost, and most environmentally friendly technology for transforming coal into natural gas.’’
Andrew Perlman, GreatPoint’s chief executive, said Wanxiang, which has nearly 6,000 US employees, has a reputation for working well with its American partners. Wanxiang’s large stake in GreatPoint, Perlman added, is expected to help protect the Cambridge company’s proprietary technology from competitors in China, where intellectual property protection is still in its infancy.
Whether GreatPoint will be able to succeed in China will depend on several factors, said David G. Victor, who teaches the politics of energy policy at the University of California at San Diego. His main concern: how long GreatPoint’s relationship with Wanxiang will last, given a history of foreign companies’ abandoning American partners after gaining access to their technology.
In addition, he worries whether coal will remain cheap enough and the price of gas high enough to keep
GreatPoint’s product economically competitive.
“You’ve got all these different energy sources competing,’’ Victor said, “and it’s not clear to me, at scale, how this technology is going to perform.’’