June 2011


Eric Knight

The sun king

Shi Zhengrong and his wife, Vivienne, with Andrew Upton and Cate Blanchett, atop the Sydney Theatre Company, which is 70% powered by Suntech's Pluto technology, November 2010. © Brendon Thorne/Getty Images
Shi Zhengrong

In November 2000 four officials from the Chinese province of Jiangsu travelled to Sydney to meet a 37-year-old Australian researcher, Shi Zhengrong. As the party shared a meal at Shi’s home in Beacon Hill, the head of the delegation turned to Shi and made him an offer. Return to China, he said, and he would be helped to enter business for himself. The delegate said he would arrange cheap land, dexterous labour and a US$6 million equity investment from the Wuxi municipal government. In exchange Shi would start a solar company, the Wuxi Suntech Power Corporation, in partnership with the local state-owned enterprise.

Shi took six months to make his decision. He had arrived in Australia the year before the Tiananmen Square protests had engulfed his homeland. Since then he had worked hard to achieve a settled life. He had started a family, become an Australian citizen, and taken out mortgages on three properties in outer-western Sydney. But Shi decided he would take the risk. In the winter of 2001, Shi, his wife and their seven-year-old son boarded a one-way flight from Kingsford Smith Airport to the city of Wuxi in Jiangsu. Within five years Shi had become one of the richest men in China. In 2005 the Suntech Power Holdings Company became the first privately owned company based in China to list on the New York Stock Exchange (the Wuxi government’s stake had been bought out some time before). Since then its revenues have doubled. Suntech’s current market valuation sits close to US$6 billion, making it the second-largest solar manufacturing company in the world.

Shi Zhengrong was born in 1963 on the wrong side of Mao’s Great Leap Forward. His parents had been farmers in a small farming community on Yangzhong Island on the Yangtze River. They were hard workers but a combination of bad administration and natural disasters had left them near famine. Born the younger of twin boys, and the fourth child in a poor family, Shi was given up for adoption. A neighbouring family who mourned the death of their stillborn child, born the same morning as Shi, became his adoptive parents. From modest beginnings, Shi made the most of what he had. He progressed through school with top grades and, in the 1980s, won a government scholarship to study undergraduate optical science in Manchuria. When asked what lessons he learnt from his childhood, Shi is brief: hard work, determination and focus.

There is another way to explain his success. It relies on what I call the network theory of success. This theory does not diminish individual brilliance but focuses on the tight network of supporters and collaborators gathered around an individual. In science, for example, we like to think of Nobel prize–winners as prodigies locked in laboratories alone until the day they concoct their winning formulae. In practice, most of the scientific elite build on the work of others – their predecessors and colleagues. The same can be said of economics. Our most outstanding entrepreneurs and business pioneers are rarely solo fliers. In The Competitive Advantage of Nations (1990), Harvard economist Michael Porter argued that what mattered most to an economy’s long-term success was having highly concentrated networks of innovative people, rather than lots of individual geniuses. Radical breakthroughs in technology and business innovation are rare occurrences, but they are more likely to happen when like-minded people cluster together.

The fact that one of the world’s most successful clean energy billionaires comes out of Australia may need some explaining. Australia’s excellence in developing solar technology predated Shi Zhengrong by several decades. Our cluster of talent in the field of solar energy cannot be explained by our abundance of sunlight alone; the sun is only half the story. The early deployment of solar energy in Australia owes much to the tyranny of distance. In the ’70s Telecom Australia became interested in installing microwave repeater stations to service remote communities. It turned out solar power was the only way to power these devices.

Telecom Australia did not invent solar power. In the early ’40s, Bell Laboratories in the United States developed silicon cells with efficiencies of around 2%, efficiency being the degree to which sunlight can successfully be turned into electricity. The technology had been swept up in the space race of the ’60s to power satellites and spaceships. Australia did not feature in these developments but its unique geography meant it was an attractive testing ground for early terrestrial deployment. When an energy crisis in the Middle East caused oil prices to balloon in the ’70s, Australia was well-positioned to take advantage of the growing interest in solar. At the intersection of these macro trends – Australia’s terrestrial deployment and a demand for more research – arrived a young Australian researcher, Martin Green.

Professor Green established his academic career in electrical engineering at the University of New South Wales and quickly realised that solar-cell efficiency was the area that offered him the greatest opportunities. His early years were spent replicating the best work coming out of the US. In 1974 he initiated the Solar Photovoltaics Group at UNSW, which was soon working on the development of silicon solar cells. By the late ’70s the US Department of Energy (DOE) was unsuccessfully trying to finance American research groups to outdo Green’s work. Each time an American group reproduced Green’s experiments, news arrived that Green had skated ahead. The department eventually gave up and, in 1983, began to fund Green’s work directly. This meant his was the only research group outside the US to be financed by the DOE.

When it comes to Australian research it is common to bemoan a lack of funding. This has not been the case for Green and his solar colleagues at the UNSW. DOE’s money dried up in the ’80s due to the political difficulty of funding foreign institutions but Green’s laboratory was generously replenished in 1990 by an Australian federal government Special Research Centre grant. This new program was eventually replaced by the Australian Research Council’s Centres of Excellence program, which, in 2003, helped finance the ARC Photovoltaic Centre of Excellence. If there is a lesson to be learnt from Australia’s solar cluster it is this: what matters as much as, or perhaps more than, the amount of money invested in Australian scientific research is how the money is distributed. Australia will never be able to compete with the US and China for volume of scientific investment. But the network theory of success suggests it doesn’t need to. What matters is who receives what investment there is.

Economists jump around violently when policies are introduced that allow bureaucrats to ‘pick winners’. What ‘winners’ means here is rarely clarified. With science funding, the federal government has been most successful when it has tied funding to a person with a dynamic network of collaborators, rather than when it has attempted to sponsor a particular technology or industry. Funding Professor Green and the UNSW solar cluster, for example, has been more successful than funding the Australian photovoltaic industry as a whole. The emergence of Australia’s solar cluster in the ’80s and ’90s owed little to public investment in that particular technology, and much to the freedom Green had to build his network. 

Mapping Green’s collaborations reveals another characteristic that is important in a highly successful network: the concentration of people. Green’s network is highly incestuous and this is a good thing. One of the first PhD students to work under Green was Bruce Godfrey in the late ’70s. When Godfrey finished his studies, he promptly went to work for an American company, Tideland Signal. The company was a world leader in solar-powered marine navigation systems and agreed to locate its manufacturing facilities in Sydney so it could employ Godfrey’s skills. The company became a breeding ground for young solar pioneers. Most significant among them was a young Stuart Wenham. Wenham joined the company – on Professor Green’s recommendation – after taking undergraduate courses under Green at UNSW. Wenham helped Godfrey to set up Australia’s first solar-cell production line for the company. “It really was a lot of fun and after two years, the production line was up and running well. On independent measurement, our cells were the most efficient made on any production line in the world,” Wenham recalls. He then left in 1983 to do his PhD in Green’s lab.

Professor Stuart Wenham describes Green as the most outstanding theoretician and researcher in photovoltaic energy he has ever met and, by all accounts, the mid ’80s was a fruitful period for both Green and Wenham. The pair developed a technology, known as the ‘buried contact solar cell’, which uses a simple method to embed metal contacts in a solar cell to maximise the cell’s exposure to sunlight. The Australian Academy of Technological Sciences and Engineering listed the device as one of the top 100 Australian innovations of the twentieth century. The specific achievement was the conversion of 20% of sunlight into electricity in 1985 (that is, 20% efficiency), although the cell’s first world record had come two years earlier using a slightly altered technology.

Despite the academic accolades, the buried contact solar cell was not a huge commercial success compared to what came later. What it did manage to do was something more important: it constructed a giant billboard for Green’s lab. From 1985, the Green–Wenham team had its pick of the best Australian and international students eager to save the world through science. Few labs were able to compete with them in terms of prestige and quality of work. The full commercial impact of this rapidly expanding network was not apparent at the time but its import can be seen now. Of the world’s top dozen solar companies, roughly half of the chief executive officers or chief technical officers either worked in Green’s lab or trained in a neighbouring research group in Australia. They each have their own story but one stands out from the rest. It is the story of the young man from Yangzhong Island.

Shi’s first encounter with Green was inauspicious. In 1989 Shi was employed at the physics department at UNSW. On a notice board in the electrical engineering department, Shi spotted an advertisement for a research fellowship working under Professor Martin Green. When Shi walked down to the professor’s office to ask about the job he was told the position was filled. Shi pushed further, asking if there was part-time work available. Green acquiesced and the two spoke briefly before Shi was sent on his way. Shi is still not sure why Green changed his mind but the next day he received a letter offering him a full-time job in the lab. He turned it down, asking for a PhD position instead. The central administration of the university approved the request six weeks later and Shi began what would become the fastest completed engineering PhD in the university’s history.

Academic credentials alone were insufficient for Shi to make it in business. His real apprenticeship came next when he was hired into Australian industry. In 1995 Green and Wenham decided to commercialise technologies they had been developing with Shi alongside the buried contact solar cell. The process of raising private investment had been difficult but they had secured the backing of Pacific Power – the state-owned electricity utility in NSW – along with the university’s support. This was a highly unusual co-operative arrangement. Private investment in start-up companies typically comes from venture capitalists but Australia’s relative dearth of high-risk capital was a problem. Alternative arrangements were necessary. Pacific Power agreed to invest about A$47 million in the company, named Pacific Solar. The money was put towards a little factory in the southern Sydney suburb of Botany; researchers here were tasked with taking a solar cell the size of an iPod and scaling it up to the size of a flat screen TV. Shi was made the deputy director of the company’s research and development activities under the directorship of Green and Wenham.

The drive to innovate in a start-up company does not come from a single source. Good quality science is not enough, nor is it just about raising lots of money. What is important is the interaction between the two. Entrepreneurs in start-up companies talk about their ‘burn-time’. Burn-time is the number of days a company has before it runs out of money. This pressure is what drives an entrepreneur to be innovative, because, when the money runs out, the company must either find new investors or liquidate.

About three years into working with Pacific Solar, Shi began forming the view that the burn-time was almost up. Although the company could go on finessing the technology, there were better ways to invest money. Far more important than continuing the finite research work, Shi believed, was to use large-scale manufacturing to rapidly reduce the cost of old solar technologies. Once these processes were in play, the new technology developed by Pacific Solar could be added to improve the business. Shi came to this view knowing that patents for solar cells developed during the space race by Spectrolab in the US had expired. If these technologies were linked to the horsepower of Chinese manufacturing then they could create radical market-led innovation in the energy sector.

When Shi took the idea to Wenham and Green they were doubtful. Several Chinese entrepreneurs had tried to do a similar thing before and failed. Also, they felt Shi’s skills were best deployed at Pacific Solar. On the day Shi decided to leave the company, he walked into Green’s office at UNSW and handed him a Suntech business card with his name and the words ‘managing director’ on it – the student had stepped out from under his master. Green was disappointed to see Shi go but he and Wenham made him a promise. They would give Shi their full support whatever happened.

Shi’s business model at Suntech revealed a surprising thing about the new industrial revolution in the clean energy or ‘clean tech’ sector. After a certain point, clean tech was actually a remarkably low-tech affair. Whereas solar manufacturers in California and Germany had devised ways to automate their solar-panel production lines, Shi’s success was paradoxically based on de-automation. By the early 2000s, Suntech’s operations involved hundreds of workers trained to layer glass plates with silicon by hand. These workers, to be sure, were treated properly. They were given on-site accommodation, food and a decent education. But the important point was to invert the traditional view that China was a dumping ground for low-skill, low-tech manufacturing. While it was true that the cheapest paper plates and toothpicks on the planet still came out of Chinese factories, so too did the world’s cheapest solar panels. In 2001, when Shi submitted a business plan to the Wuxi government, he had proposed to take the cost of solar panels from $5 per watt of output to $3 per watt. Within two years, he was producing panels at $2.80 per watt with the help of a 300-strong workforce.

Low-cost manufacturing was one thing. But Shi’s real skill lay in using China’s manufacturing base to leverage Australian intellectual property on a global scale. Between 2001 and 2008, Shi flew between Wuxi and UNSW at least twice per year. Formally, these visits were to oversee the joint development of Suntech’s Pluto technology. Patented at UNSW, the technology produced a highly simplified version of earlier high-efficiency solar cells, thereby sending millions of dollars in revenue to the university. Informally, Shi’s visits cultivated important personal ties with Australia’s top engineering graduates. By 2006, at least two UNSW PhD students were being seconded to Suntech annually. This allowed the company to move seamlessly between the fiercely competitive world of low-cost production and the special cluster of talent inside Australia’s brains economy.

The success of the model of injecting Australian intellectual property into Chinese manufacturing was in stark contrast to the trajectory of Pacific Solar. Shortly after Shi’s departure, Pacific Power refused to refinance the business. The company found new investment from Eni, the Italian energy utility, but attempts to manufacture solar panels in Australia were thwarted because high labour costs made it uneconomical. By 2005, as Suntech launched on the New York Stock Exchange, Pacific Solar was again looking for new investment. Q-Cells, a leading German solar company, agreed to buy the technology and manufacture the thin-cell modules in Thalheim, a semi-industrial city in former East Germany. The plan may have worked but the severity of the global financial crisis coincided with China’s burgeoning prowess in solar manufacturing, and made the company a soft target. In 2010 Shi bought CSG Solar (part of the Q-Cells consortium) – a company he had been watching for more than a decade. This inserted an Australian technology into the heart of Shi’s company and bumped several Australians into prominent positions within Suntech.

Too often it is said that Australia cannot compete with the world’s economic superpowers. The reasons given are numerous. We are a nation of 22 million people; we possess a fading infrastructure; we command a distant geography. These things are all true but they cast the Australian economy in the wrong light. They focus on Australia the country, not Australia the people. We tend to measure our economy by the wrong unit of analysis. It is easy to rate the Australian economy in terms of what lies beneath the ground but if we measured it by the connection between its people instead, we would soon discover an intellectual and commercial cluster of rare depth and breadth.

Perhaps this makes us unique among the world’s modern economies. Whereas some economies are tied to their location – the European Union, the expansive domestic economies of North America and East Asia – Australia is almost defined against its location. Gone are the days of our youngest and brightest shipping themselves to England and commenting from afar on the state of the Australian postal service. In the modern Skype era, Australia – the people – has become a global economic cluster. Our intellectual property is already competing on the international stage. It is being helped on its way by a network of Australians hungrier, better educated, more mobile and more ambitious than ever before. Warren Hogarth, an Australian and a venture capitalist at one of Silicon Valley’s leading firms, tells me that each month the valley hives with cocktail parties brimming with Australian ideas. The economic value of these ideas is not lost to Australia by virtue of being shared abroad. Rather, the potential of these ideas is realised once they are taken out of Australia and sold into the global marketplace. In a sense, our diaspora leverages the economic significance of Australian ideas. One Australia-based venture capitalist I spoke to made this point while on the verge of backing two of our latest clean-tech entrepreneurs, claiming the ‘expat Australian’ has become a distinct asset class.

This point is missed by those who see the Australian economy as being defined by its borders. In 2006 the then Opposition leader Kim Beazley stood before an audience to announce his concern about the way Shi earned his living. “China’s richest man,” he said “grows rich off Australian [intellectual property].” Green was quick to write to Beazley, assuring him that Shi’s management of the intellectual property was exceptional. Shi invests his money, time and reputation in building the Australian brand abroad. He has also fostered a close ongoing relationship with UNSW, which includes Suntech sponsoring research and scholarships. “He’s the best thing that ever happened to us,” says Richard Corkish, head of the School of Photovoltaic and Renewable Energy Engineering at UNSW. But Beazley’s point was bigger than a legal quibble; it spoke to the kind of economy Australia wanted to have. Beazley implied that Australia would have been better off if it had kept its solar manufacturing jobs at home rather than sending them to China. It is a sentiment shared by the other big Kim in Australian politics, Labor’s Minister for Innovation Kim Carr.

The real question should have been this: Which part of the clean-tech economy does Australia want to own? Do we really want to compete for the manufacturing jobs of Suntech’s Wuxi factories? Or do we want to command the revenue stream flowing from the brains of our well-networked engineers and scientists? Shi is a template for how Australia can use its networks to succeed at home and on the world stage. He returns with his family every Christmas to spend the summer at his home in Sydney. It is about time we claimed Shi Zhengrong’s story as our own.

Eric Knight
Eric Knight is a Visiting Research Fellow at the University of Oxford and a research associate at the ANU Centre for Climate Economics and Policy. His first book, Reframe, will be published in early 2012.

June 2011

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