TODAY’S STUDY: CHINA’S INVESTMENTS IN NEW ENERGY
China’s Overseas Investments in the Wind and Solar Industries: Trends and Drivers
Xiaomei Tan, Yingzhen Zhao, Clifford Polycarp, And Jianwen Bai, June 2013 (World Resources Institute)
Shifting to a low-carbon economy will require current emitting countries and projected future emitters to rapidly scale up their investments in renewable energy. In recent years, major emerging economies like China, India, and Brazil have been catching up with leading developed country investors in Europe and the United States. By some estimates, China is already the leading global investor in renewable energy infrastructure, and is increasing its overseas investments in renewable energy, particularly solar and wind. If China achieves its goal of sourcing 15 percent of its energy mix from renewables by 2020 and 30–45 percent by 2050, renewable energy will become closer to a mainstream energy resource within the country. Cost reduction incurred in this process would benefit not only China, but also the rest of the world.
This working paper aims to help policymakers, investors, and researchers better understand the trends in China’s overseas investments in the wind and solar industries, and the factors behind those trends. It examines the scale, nature, and types of China’s overseas investments in the wind and solar industries, and identifies the policy and market factors that drive these investments.
China has made at least 124 investments in solar and wind industries in 33 countries over the past decade. Of the investments for which data were available, the cumulative value amounted to nearly US$40 billion in 54 investments, and the cumulative installed capacity added was nearly 6,000 MW in 53 investments. Of the 124 investments, 41 were in the wind industry, 81 in the solar industry, and 2 in both the wind and solar industries.
The majority of investments were in electricity generation. Twenty-seven of the wind investments were in wind farms predominantly carried out through joint ventures, as were most of the 41 solar investments. Several investments were made in manufacturing facilities and to establish sales and marketing offices. Most of the investments were concentrated in a few developed countries: the United States, Germany, Italy, and Australia. A handful of developing countries, including South Africa, Pakistan, and Ethiopia, also attracted investments.
China’s investments in the wind and solar industries are driven by a multitude of factors including macroeconomic conditions; industry conditions; policies (both general and specific to the wind and solar industries) that “push” Chinese companies to invest overseas; policy incentives in host countries that “pull” Chinese investors; and financial support from Chinese banks that “enables” these investments.
China is driven to seek solar and wind markets overseas largely because its manufacturing capacity exceeds domestic demand. The Chinese government’s policy support and financial support—mainly from state-owned banks that respond to government policy—encourage this overseas investment trend. Host countries’ policies have also attracted investments from China’s solar and wind industries, either advertently through tax breaks, feed-in tariffs, or bilateral cooperation agreements, or inadvertently as a “side-effect” of policies discouraging imports.
Although the analysis in this working paper points to interesting trends and provides useful insights that enhance our understanding of China’s role as an overseas investor in the wind and solar industries, it is limited by a paucity of information. Beyond the data collected for the 124 investments, the authors also reviewed literature and carried out interviews to deepen the analysis. The analysis is confined to a subset of the renewable energy sector rather than the full range of possible low-carbon investments. The inadequacy of the data does not allow an analysis of the emissions impact of these investments. These limitations suggest areas for further research that could help improve an understanding of China’s potential to reduce emissions beyond its borders, and would allow policy analysis on how China could increase this positive impact, particularly in developing countries.
An accelerated shift to a low-carbon economy will require rapidly scaled-up investments in renewable energy industries. Investments in low-carbon technologies will need to be scaled up from roughly US$200 billion a year in 2011 to nearly US$2 trillion a year over the next few decades—a tenfold increase—to keep the world within a greenhouse gases stabilization pathway of 450 parts per million (ppm) CO2e, or global average temperatures within 2 degrees Celsius over pre-industrial levels. Whereas the United States, Japan, and some European countries have been leading investors, major emerging economies like China, India, and Brazil are ratcheting up their investments in the renewable energy sector.
Over the past several years, China has become a leading investor in global renewable energy infrastructure, and is increasingly investing in the sector outside its territory. This investment is consistent with a broader trend of major emerging economies like China, India, and Brazil becoming important sources of global overseas investments—globally their outward foreign direct investment flows ranked 5th, 21st, and 25th respectively in 2010. China was one of the few countries to increase its overseas investments through the global financial crisis in 2008 (UNCTAD 2012). China has become a major source of investment for the renewable energy sector globally and is increasingly a major renewable energy investor overseas, including in other developing countries.
This working paper reviews China’s overseas investments in the wind and solar industries. This area of research is new and complements research on China’s investments overseas, especially in extractive industries, as well as China’s domestic investments in the renewable energy sector.
The purpose of the working paper is to help policymakers, investors, and researchers better understand the scale, nature, and types of China’s overseas investments in the wind and solar industries, and the policy and market factors driving these investments. It is a step toward enhancing our understanding of China’s overseas investments in renewable energy industries more broadly. However, it does not include the hydropower or biofuel industries, nor does it compare China’s overseas investments in the solar and wind industries with the fossil fuel-based energy industries. Where relevant, China’s overseas investment in the wind industry is compared with India’s. The authors set out to consider Brazil’s overseas investments in the wind and solar industries for the sake of comparison, but no data were available on investments from Brazil, which suggests that Brazilian investors have not yet invested in the wind and solar industries overseas.
The working paper is organized in three parts. In the first part, findings from the data collected on China’s overseas investments in the wind and solar industries are presented. The second part focuses on the policy and market factors driving China’s overseas investments, including the role of China’s financial sector in enabling these investments. The final section presents conclusions and suggestions for further research and analysis…
Trends in China’s Overseas Investments in the Wind and Solar Industries…Factors Driving China’s Overseas Investments in the Wind and Solar Industries…
China is emerging as an important overseas investor in the wind and solar industries. Over the past decade, it has steadily increased its investments in these industries, driven by policy “push” and “pull” factors, domestic and overseas market conditions, and a supportive financial sector. Although China’s investments have been concentrated in the United States, Germany, Italy, Australia, and other developed countries, its investments in developing countries such as South Africa, Pakistan, and Ethiopia are increasing and appear likely to continue increasing in the coming years.
China is driven to seek solar and wind markets overseas largely because its manufacturing capacity exceeds domestic demand. Although increasing exports can partially address the situation, it is not alone a solution; industries face import restrictions in some major markets, particularly the United States. As a result, investments are seen as a way of retaining and expanding market share, strategically acquiring new technologies, filling the financing gap, acquiring undervalued assets in the wake of the financial crisis, and even creating demand for the export of products, as has been seen particularly in the case of Goldwind.
The Chinese government’s policy support and financial support mainly from the country’s state-owned banks, which are responsive to government policy, have encouraged this overseas investment trend. China’s policies, which are linked to its strategy of “Going Global” and focus on strategically developing “emerging industries,” including the wind and solar industries, have had the effect of “pushing” Chinese companies to invest overseas. This push has been aided by financial support, particularly from the China Development Bank, in some cases specifically for overseas investments, but in most cases for these companies to grow their businesses, which may include overseas investments.
Host countries’ policies have also attracted or “pulled” investments from China’s solar and wind industries, either explicitly through tax breaks and feed-in tariffs, or through bilateral cooperation agreements, or as a “side-effect” of policies discouraging imports. Although such policies have been prevalent in developed country markets, they are now increasingly being put in place in developing country markets. These policies are likely to increase China’s investments in developing countries as Chinese solar and wind industries continue to expand their markets, and as incentives are scaled back in developed-country markets. Overseas investments in solar and wind projects could release the excess capacity in the domestic manufacturing sector and make good use of China’s foreign reserve. Organizations with international presence can bridge the gap between resources in China and needs in other developing countries to create “win-win” situations…
Three Areas for Further Research and Analysis… Improve data on China’s overseas wind and solar industries… Expand research and analysis of investments in other low-carbon technologies… Conduct policy-oriented research on ways in which China could scale up overseas investments, particularly in other developing countries, to enhance energy access and reduce emissions…