September 1, 2014

Asian investors buy into CT energy industry

Photo | Pablo Robles
Photo | Pablo Robles
Kent McCord has worked in Connecticut fuel cells since 2001. He started with UTC Power, which was then bought by ClearEdge. He now works for Doosan, which purchased ClearEdge in July.
Photos | HBJ File
STR CEO Robert Yorgensen, who saw the company’s stock drop from $8.67 per share when he took over to $1.44 per share at the end of August, will be one of three incumbent members to stay on the company’s seven-member board of directors once Zhenfa takes over.

The Far East's ambition to become a worldwide renewable energy leader has made some Connecticut companies a prime acquisition target of Asian investors.

First, South Korean conglomerate Doosan Corp. bought bankrupt South Windsor fuel cell manufacturer ClearEdge Power for $32.4 million in July. Then last month, Doosan announced plans to reopen ClearEdge's dormant South Windsor plant with the goal of churning out fuel cells to boost its global market presence in renewable, distributed generation.

In August, Enfield solar parts manufacturer STR Holdings, which has struggled mightily following the collapse of the worldwide solar panel market, sold a majority stake to Chinese solar array developer Zhenfa Energy Group Co. for $21.7 million. Zhenfa will provide a China-based production facility rent-free to STR for five years, and help the Connecticut company sell its parts to Chinese solar panel manufacturers.

The two deals don't necessarily represent the start of a flood of Asian investment in Connecticut companies, but they do show the state's strong industries, particularly advanced manufacturing and renewable energy, are attractive to foreign investors, said Anne Evans, Connecticut district director for the U.S. Department of Commerce.

"I don't think the Chinese or the Koreans or even the Germans say, 'Let's go invest in Connecticut.' They follow the money and look at places they already know," Evans said. "Things go much better if the investor already understands what you do."

Even though the purchases were made by two separate companies from different countries, the ClearEdge and STR acquisitions represent Asia's desire to cut back on fossil fuel power plants in favor of renewable generation, experts say. At the same time, Asian companies want to own the technology that makes the shift possible, so they can produce products in-house instead of importing them from foreign companies.

"There is really a movement away from centralized generation and a movement toward decentralized, onsite power generation," said Kent McCord, director of market strategy for Doosan. "Doosan wants to diversify its [lines of business], and it is trying to get more involved in distributed generation."

Getting off the grid

Distributed generation isn't an idea exclusive to Asian counties and companies. The concept of moving away from large-scale, far-off power plants to smaller devices like fuel cells and solar panels to generate onsite electricity independent of the power grid started gaining steam in Connecticut after two 2011 storms knocked out power to more than 675,000 customers twice.

For Asian countries, the push toward distributed generation came after the Fukushima Daiichi nuclear disaster in 2011, which caused a meltdown and radiation leaks in Japan, said Bryan Garcia, president and CEO of the Connecticut Clean Energy Finance & Investment Authority (CEFIA).

"For countries like Japan, there is an underlying security and reliability concern over there, and Fukushima highlights that," Garcia said.

Garcia said the Zhenfa and Doosan purchases were the first major Asian acquisitions of Connecticut companies he was aware of, particularly in the energy space, but more could follow, especially with fuel cells. Since ClearEdge and Danbury-based FuelCell Energy are the largest fuel cell makers in the world, Asian companies looking to break into the market would target either of them or one of the 600 companies in their Connecticut supply chain.

CEFIA already has hosted trade delegations from Asian countries like Japan at FuelCell Energy's 14.9 megawatt installation in Bridgeport, the second largest in the world, Garcia said.

"There is something here in fuel cells that Connecticut has a core competency in," Garcia said.

The South Korea-Connecticut fuel cells connection is particularly strong because the technology is a cornerstone of South Korea's renewable energy portfolio. FuelCell Energy built the largest fuel cell installation in the world in South Korea, and the company's Korean partner Posco Energy has injected more than $300 million in FuelCell through product purchases and stock acquisitions.

Doosan-ClearEdge deal

Doosan's ClearEdge acquisition came after the company went bankrupt this spring and abruptly laid off 300 workers. ClearEdge, which was based in California but had its major production facility in South Windsor, was selling its remaining assets in a July auction to pay off creditors.

Doosan is a major conglomerate in South Korea specializing in areas like power plants, manufacturing, and construction through subsidiaries like Doosan Heavy Industries & Construction and Doosan Engine. In 2013, the conglomerate had $21.5 billion in revenue.

Doosan bought ClearEdge, whose fuel cell operations were formerly owned by Hartford conglomerate United Technologies Corp., because it diversifies its portfolio while still operating near the company's core strengths, McCord said. Doosan wants to be a major player in distributed generation and ClearEdge's 400 kilowatt fuel cell is considered the leading technology in that field.

Doosan's South Windsor operations — officially called Doosan Fuel Cell America — will benefit from being part of a major conglomerate again, McCord said. The subsidiary can get discounts on fuel cell parts thanks to Doosan's large supplier base and ability to purchase bulk orders.

"The fuel cell industry, in general, we all have to get our prices down," McCord said.

Doosan has hired 60 people in South Windsor with an eye toward more than 100 employees. It plans on resuming production this fall with the first Doosan fuel cell scheduled for completion in early 2015.

As part of its 10-year plan to become a worldwide fuel cells leader, the company wants to establish manufacturing operations in other strong markets, including Korea and Europe, said McCord.

What makes South Windsor attractive for Doosan now is ClearEdge's facility, which was constructed by previous owner UTC Power when it was building fuel cells for the Moon landing, said Joel Rinebold, director of energy initiatives for the Connecticut Center for Advanced Technology.

"That facility would be hard to replicate elsewhere," Rinebold said. "It has a layout that will support advanced manufacturing as well as R&D."

STR-Zhenfa deal

Unlike Doosan's deal, where the company was looking to establish Connecticut operations, the STR stock purchase had more to do with a business looking for financial help while establishing lower-cost Chinese manufacturing operations.

STR and Zhenfa officials declined to comment for this story.

STR once was the global leader in supplying solar encapsulants — which protect photovoltaic cells from being damaged by weather, handling, etc. — and had manufacturing operations in East Windsor, Florida, Malaysia, and China. The company saw significant revenue gains as demand from Europe caused solar panel production to skyrocket. Those gains, however, were erased when the worldwide solar market was flooded with panel oversupply, grinding panel production to a halt.

Zhenfa's $21.7 million investment for a controlling stake in STR would have cost $718 million in late 2011, when the company's stock price was valued near $26 per share, according to the Nasdaq price index. The deal is an example of the types of acquisitions likely to come out of China over the next few years, especially as the value of global solar companies is down, said Henry Beck, a partner with Hartford law firm Halloran & Sage, who went to China for three weeks this year to study business opportunities there.

China is looking to move away from burning coal and petroleum for power and will be the world's No. 1 market for solar panels, said Beck. Chinese companies want the technology in their own domestic market but also want to be in a position to be a leader globally.

U.S. solar company acquisitions also could help Chinese manufacturers work around the coming U.S. tariffs on Chinese solar panels. Those tariffs are a result of U.S. complaints that the global oversupply in solar panels was caused by a flood of low-cost Chinese solar products, Beck said.

"It is a good opportunity for these Connecticut companies," Beck said. "We are looking for more of these deals to come Connecticut's way."

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