When I worked at Electricité de France Group (EDF), the French energy giant and national champion, there was a story that circulated internally about the nuclear plants EDF helped set up in China.

EDF was one of the first Western multi-nationals to be invited into China in the mid-1980's and there was much skepticism at the time about the rule of law and the ability of EDF to protect its commercial interests, including, of course, its considerable intellectual property in nuclear plant operations.

In partnership with its sister construction company Areva (known as Framatome at the time), EDF provided much of the engineering design, control systems expertise, and on-site management during the early years of operation at the first French-built plants, Daya Bay Units 1 and 2, which entered service in 1993 and 1994, respectively.

The story goes that under a twinning arrangement with the host utility, a Chinese engineer "shadowed" each EDF employee, learning his tasks and tools in order to progressively take over day-to-day operations. Perhaps not surprisingly, the Chinese engineers from these first plants quickly became expert in EDF technology and helped domestic firms reverse engineer much of the IP.

As a result, China has largely appropriated the expertise needed to run the next wave of plants, above and beyond the original agreement, and cut EDF engineers out of the picture.

eSolar is striving to make concentrating solar power at cost parity with coal. (eSolar photo).

Officially at least, France is not complaining. In 2007, the two nations concluded a Euro 8 Billion (~$12 Billion US) accord for Areva to build 3.4 GW of new plants in China, using its new EPR pressurized water reactor design, and to supply fissile material to power the plants from its uranium mining subsidiary. The agreements were concluded as part of a state visit by French President Nicolas Sarkozy (highlighting the substantial political commitment in France to promoting its nuclear industry - also an interesting comparison to the US).

One take away from the EDF story is that the reality of "IP theft" is seldom as clear cut (or glamorous) as the James Bond image portrayed by the media - a stealth agent sneaking into the office at night, hacking security or perhaps rifling through files on an unsecured desktop.

In the EDF case, the transfer of proprietary technology and expertise was a slippery slope - the gradual and inevitable accumulation of knowledge by trained local staff, done with the complicity of the IP owner, as part of a long term, lucrative partnership. As everyone involved knew at the time, the Chinese would and did eventually acquire the skills to operate their own nuclear fleet. Once the genie is out of the bottle, it is hard to get him to pay corkage.

First Solar and eSolar: Faustian Bargains

I've been reminded of the EDF experience in the context of two recent deals involving US solar companies First Solar of Tempe, Arizona, the world leader in thin film PV modules based on Cadmium Telluride (CdTe), and Pasadena based eSolar, a leading developer of utility-scale concentrating solar power (CSP) systems.

As announced in the press, both companies signed mega-deals with authorities in Western China, each involving up to 2 GW of solar generation. But unlike standard Power Purchase Agreements in the US, the Chinese in each case negotiated for licensing of the technology to local manufacturers and "technology transfer" as an expected part of the transaction.

Based on the EDF experience, I am willing to speculate that these will be the last plants ever built by these two companies in China - at least as US based entities.

From a private, commercial perspective, of course, there is nothing unusual or even unsavory about any business owner knowingly sacrificing future market potential to generate current cash, selling off a small piece of its "soul" to save its skin. Times have been extremely tough for solar companies - especially those with non-silicon technologies that must compete against the massive pressure from raw silicon price drops of 50% in the last year, driving down the cost of competing PV, combined with the global economic slowdown and its affect on demand.

First Solar was the darling of the recent solar boom and has also led the retreat. After seeing its stock run up from $30 to $300 in '08 and early '09, FSLR currently trades at less than half its pre-crash high (a still healthy $137, as of today).

eSolar is tightly privately held, but has switched from project development to a pure licensing strategy, in part because of difficulties raising sufficient capital in today's tight capital markets.

While these two deals may make sense from a narrow, corporate perspective, from a national energy policy perspective, there is something ominous at work here. China is not just any local market and solar is not just any technology.

What we are seeing is a very high stakes strategy -- the proverbial "shot across the bow" - no doubt orchestrated from the very top levels of the Chinese energy bureaucracy, to challenge US strategic leadership in the next generation of clean energy technology.

The question is: is anyone in Washington even paying attention?

CORRECTED: Unlike eSolar, Ausra does not license its technology. Ausra designs, manufactures and installs solar thermal steam generators for power generation and industrial processes.

Matt Lecar is a veteran energy industry expert with 18 years in utilities, international business development, cleantech venture capital, and consulting. Most recently, he served as Fund Manager for the CalCEF Angel Fund, a first-in-kind seed stage fund focused exclusively on clean energy markets. This article is part of a series called "View from the Poletop" -- broad perspectives on the current state of markets in renewable energy, energy efficiency, and smart grid.

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