Alternative Energy: China’s Next Big Investment Opportunity?

China is the world’s second-largest consumer of energy after the United States, and it shows no sign of slowing down. According to a report presented by the China Greentech Initiative at the World Economic Forum meeting in Dalian on September 10, China is responsible for 16% of the world’s energy consumption, is the second-biggest consumer of crude oil and is the largest consumer of coal. Between 70% and 80% of its energy supply comes from burning coal, and although coal is a major contributor of greenhouse gases, China plans to increase its coal-fired power generation capacity by the equivalent of two 500-megawatt plants a week to meet the country's burgeoning energy requirements.

But while such figures throw many environmentalists into despair, others see promising opportunities. New laws, regulations and fiscal measures are encouraging the development of alternative energy sources. So, too, is a wave of fresh investments from domestic and international companies, including a number of deals announced in recent months. For example, on August 20, GE Drivetrain Technologies, a unit of GE Transportation, and Chongqing XinXing Fengneng Investment Co. in central China announced a joint venture to produce gears for wind turbines. And in early September, U.S.-based First Solar signed a memorandum of understanding to build a two-gigawatt solar plant in Ordos City in Inner Mongolia, which will be followed by several more plant openings over the next 10 years.
China’s giant state-owned energy companies are not sitting on the sidelines during all this activity. In mid-August, China Electricity International announced plans to invest RMB 120 million in a joint venture to develop wind projects in Inner Mongolia, while the other four state-owned players — GD Power Development, China Huaneng Group, Datang International Power Generation and China Power Investment — have also received approval to invest in Inner Mongolia.

A particular area of interest is wind energy. Among the reasons why, says Jeff Jiang, managing director of U.S.-based Renaissance Carbon Investment, is that it may be the most clean energy resource currently available. What's more, unlike hydropower, wind power plants do not have to be near water or valuable arable land. Its main challenge, however, is transmitting the power from remote parts of China, such as Inner Mongolia and Xinjiang province, to areas where energy is needed most.
China’s wind power market has grown quickly, with installed capacity doubling annually over the last four years. Today, China ranks fourth in the world after the United States, Germany and Spain in terms of installed wind capacity, and it accounts for 10% of the world’s total.

To read more about the growth of alternative energy in China, see the current issue of China Knowledge at Wharton.