Looking for an edge in the race against China

Designed by a Waltham company called FloDesign Wind Turbine Inc., the turbine looks a bit like a jet engine. It takes advantage of some of the same aerodynamic principles, which enable it to extract more energy from wind, without needing to be as big or tall as traditional turbines.

The FloDesign turbine and other leading-edge technologies are the best hope that Massachusetts and the United States have at remaining relevant in a clean-tech era that China seems determined to dominate. “One of every two wind turbines installed in the world is made and installed in China,’’ observes Lars Andersen, FloDesign’s chief executive. “They are growing an enormous local industry.’’

Already, the third-largest maker of wind turbines, Sinovel Wind Group, is based in China. (Two other companies in the top 10 are also Chinese.) Half of the 10 largest producers of solar panels are based in China. In Wired magazine recently, Microsoft founder Bill Gates was quoted complimenting the lithium-ion batteries made by a Chinese car company - which could one day compete with those made by A123 Systems Inc. of Waltham.

“While there are opportunities for collaboration between the US and China, there’s also a real competitive race with serious economic stakes,’’ says Dan Reicher, a Stanford University professor who served in the Department of Energy during the Clinton administration. “We’re talking about a multitrillion-dollar opportunity.’’

The big question for Massachusetts companies is whether cultivating alternative energy breakthroughs that produce more power, use materials more intelligently, or are easier to install can succeed in a market where low wages and copious government incentives make China the low-cost leader. And China is moving incredibly fast to develop big power projects that will use its home-grown products; on Governor Deval Patrick’s first foreign trade mission in 2007, the Chinese were asking basic questions about building off-shore wind farms, according to former Massachusetts energy secretary Ian Bowles.

Three years later, they had plunked 34 turbines into the East China Sea, which today produce 102 megawatts of power for the denizens of Shanghai. Cape Wind, the offshore power project that could soon be built in Nantucket Sound, was first proposed in 2001.

Just about every company working on new energy technologies has to think about how its products, research-and-development programs, and manufacturing strategy connect to China.

A123 designs batteries that can store more energy per pound, and last longer, than the run-of-the-mill lithium-ion battery that powers your laptop. The biggest share of its revenues - $43 million last year - comes from batteries it sells for electric and hybrid-electric cars, trucks, and buses. (Total revenue was $97 million in 2010.) Initially, says chief executive David Vieau, the company thought it would perfect the batteries’ chemistry and make some key ingredients in the United States, then do large-scale manufacturing in China.

The company has its own production facilities in Changzhou, China, that employ more than 1,300 people. “I figured we’d be making stuff in China forever,’’ Vieau says. But thanks to a $249 million stimulus grant from the Department of Energy, and about $125 million in incentives from Michigan, the company now has two factories in that state. Last week, the company announced it hired its 1,000th worker in Michigan.

“If you have a free factory,’’ says Vieau, “it helps make you more competitive with the Chinese model.’’ But A123, founded in 2001, has yet to turn a profit, losing $152 million last year. The company hopes its financials will improve as sales of electric cars increase, and as utilities start using high-capacity batteries to store power generated by wind turbines, solar panels, and other renewable technologies.

Vieau doesn’t doubt that Chinese companies have read scientific publications by the MIT researchers who helped develop A123’s battery formula, trying to clone the company’s products. “The only way to win in the long term is to continue to evolve the technology,’’ he says.

Like A123, FloDesign has benefited from government support: an $8.3 million grant from the Department of Energy, and a $3 million package from Massachusetts. (The company has also raised about $40 million from private investors, including the well-regarded venture capital firm Kleiner Perkins. It is hunting for more.)

Part of the state support requires FloDesign to keep its headquarters and primary R&D facility in Massachusetts, as well as create at least 150 jobs in the next three years. Current employment in the state is about 50, says Andersen. He says the company is still testing the turbine at Deer Island, and hasn’t made decisions about where it might eventually make its products.

We’ve already seen one pioneering Massachusetts alternative energy company get crushed by Chinese competitors. Evergreen Solar’s stock once traded at more than $100, but last week you could buy shares for 30 cents. Despite government subsidies to make solar panels in Massachusetts and Michigan - and a joint venture with a Chinese company - Evergreen couldn’t figure out how to make money as prices for solar panels plunged.

Commoditization is the word that strikes fear into the hearts of most entrepreneurs in the US clean-tech industry. Better products may not prevail if nearly as good products are half the price.

Reicher, the former US energy official, adds that government research funding, loan guarantees, and tax credits for renewable energy technologies have an uncertain future in this country, given efforts to slash federal deficits.

By the time FloDesign is ready to crank out wind turbines by the thousands, the alternative energy landscape may have changed dramatically.

Scott Kirsner can be reached at kirsner@pobox.com. Follow him on Twitter @ScottKirsner.