By Paul Davies and Andrew Westgate
Market research has long recognized China as the largest investor in its own domestic renewable energy industry. According to Bloomberg New Energy Finance, China invested US$102 billion in 2015 alone. However, a report by the Institute for Energy Economics and Financial Analysis (IEEFA) found that China’s dominance in renewables is rapidly growing overseas as well.
The report details China’s robust international investment activity. In 2016, for example, China made 11 outbound clean energy investments exceeding US$1 billion for a total of US$32 billion — a 60% increase from 2015. China also ranked as the fifth-largest investor in renewable energy projects in other emerging markets in 2016, totalling US$19.7 billion since 2005. However, according to the report, China still directs a majority of its investments in renewables towards the United States, Germany, and other developed countries.
The report also found that China currently accounts for one quarter of global renewable energy capacity and one third of all global investment in renewables. Chinese manufacturing has altered the economics of renewable power worldwide, making solar generation cost-competitive with electricity from fossil fuels such as coal and natural gas. As a result, official figures indicate that coal consumption, the main component of China’s carbon emissions, fell in 2016 for the third year running.
According to Peng Peng, head of policy consulting at the China Renewable Energy Industry Association, “[t]he Chinese government has been encouraging Chinese companies to ‘go out’ and will continue to do so”. He added, “With this policy support and the improvement in Chinese manufacturing standards, I believe more and more Chinese companies — both state-owned and private — will invest in overseas renewable projects”.
Nevertheless, China continues to build coal-fired power plants. Although the central government is promoting cleaner options, the current incentive structure may encourage provincial officials to approve unnecessary construction. However, officials have begun cancelling a number of coal-fired projects in the planning pipeline, aware that China already has more coal-fired power generation than the country requires.
China aims to obtain 20% of its energy from renewable sources by 2030. The National Energy Administration of China (NEA) has announced that, in order to achieve this objective, NEA will spend approximately US$360 billion over the next three years. Tim Buckley, director of IEEFA, said, “At the moment China is leaving everyone behind and has a real first-mover and scale advantage, which will be exacerbated if countries such as the US, UK and Australia continue to apply the brakes to clean energy”.
This post was prepared with the assitance of Tegan Creedy in the London office of Latham & Watkins.