The world’s largest nation is on a spending binge as it continues a record $ 360bn dollar five-year commitment to significantly expand its capacity in the renewable energy sector. It’s an ambitious target but the Central Government has renewed its focus towards cutting its reliance on the use of fossil fuels to power its enormous demand for electricity generation and at the same time tackling its worsening air quality and pollution.
According to China’s National Energy Administration (NEA) installed renewable power capacity will make up half of all new electricity generation towards the fifth year in 2020 and encompass a broad spectrum of technology, including, wind, solar, hydro and nuclear.
China is set to become the largest player in the worlds renewable energy industry, as already the country has obtained the status of being the world’s largest solar generator for nearly two years now. Still the current plan estimates that despite the scale of its requirements its renewable sector will just account for less than 20% of overall energy consumption by 2020.
Because of its focus towards renewable energy China has already seen a gradual decline in its use as well as importation of coal, with consumption having declined from its peak in 2013 and as importations of coal fell sharply in 2015 by approximately 30%.
Under the targets of China’s renewable energy development plan the NEA expects investments into Solar of US$ 140bn by building around 1,000 significant solar power plants and boosting the country’s capacity by five times. Another US$ 100bn is programmed to be spent on wind farms and more than US$ 70bn into building new hydroelectricity plants, following long after the country’s opening of the world’s largest hydro-electric dam, well known as the Three Gorges Dam.
The amounts of investment are huge capacity. And after the success of the country’s massive 22,500 MW Three Gorges Dam project, there are plans to continue investing heavily into hydropower as well as geothermal and the rapidly expanding and exciting area of biomass. Again, due to the sheer scale of Chinas requirements it is of no surprise that the country has, for some years now, dominated the worlds wind turbine manufacturing industry, with more than half of the world’s top ten wind turbine producers being Chinese companies, the largest of which, Goldwind, maintains its position as the world’s number one producer. With the balance of $50bn to be spent on new tidal projects as well as further development of the country’s geothermal generation capacity.
When it comes to the sheer scale of China’s energy needs the country is fast becoming the world’s largest renewable energy producer, with the country’s investment of US$ 110bn into clean energy in 2015, nearly three times that spent in the European Union of US$ 40bn in the same year. And clearly the trend for strong growth will continue for many years to come, offering strong long-term growth prospects for many of the world’s leading suppliers and developers, such as Siemens and GE.
The government has also delivered on its commitment to reduce its dependence on coal as a cheap source of generation as numbers from the NEA shows China invested much less into developing new coal fired power stations in 2015 of US$ 20bn and that this amount was less than one fifth of the US$ 110bn its spent on renewable energy power plants.
And we can expect to see this aggressive trend continue as the Chinese government projects that the countries renewable energy sources will continue to expand significantly through to 2020 when it expects to have 200 GW of solar installed and up to 250 GW of wind power capacity. And after the success of the country’s massive 22,500 MW Three Gorges Dam project, there are plans to continue investing heavily into hydropower as well as geothermal and the rapidly expanding and exciting area of biomass. Again, due to the sheer scale of Chinas requirements it is of no surprise that the country has, for some years now, dominated the worlds wind turbine manufacturing industry, with more than half of the world’s top ten wind turbine producers being Chinese companies, the largest of which, Goldwind, maintains its position as the world’s number one producer.
Lured by China’s rapidly expanding and diversifying energy markets and the governments strong commitment towards the renewable side of the business, global investors are increasing exposure to this sector with a particular emphasis on suppliers of equipment and providers of finance to fuel this ongoing boom.
Recognising the enormous demands for finance from the renewable sector in China, government policies have been focused towards increasing the involvement of local development banks as well as a bold initiative to establish a ‘Green Financial System’ to support the capital needs of the industry. This system which was led by the Peoples Bank of China as well as the Green Financial Task Force in China, has since its beginnings in 2015,
The demand for finance is huge and the Government has reacted accordingly to allow for non-traditional sources of finance to help fill the funding gap, on the back of its Green initiative, Chinese banks have gone on to issue a number of large US$ 1bn plus green bonds, after the initial success of the Agricultural Bank of China’s first issuance back towards the end of 2015. Whilst initially many of the world’s larger investment banks have had, at best, minimal exposure towards helping to finance this build out of China’s renewable sector, we expect to see this change over time. In this regard it has been interesting to note further calls from policy makers around the world, particularly in the United States, with President Donald Trump calling on China to open its markets further to U.S firms, and financiers.
We encourage investors to follow closely developments within China’s energy markets which are fundamental to the ongoing growth and health the country’s economy, and which will continue to offer investors a growing range of ways to gain exposure to this growth. Electricity is one of the most fundamental investments available and every portfolio can benefit from the stability that the industry offers and the cash nature of the returns it generates.