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China's Global Renewable Energy Expansion

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China's Global Renewable Energy Expansion This report by the Institute for Energy Economics and Financial Analysis (IEEFA) examines 30 corporate case studies to explore China’s rising global leadership in the low-carbon- emission energy industry. The extent of China’s domestic investment in renewables has surpassed all expectations, with the resulting technology development and economies of scale driving down costs to the point where renewables are exceeding grid parity in an increasing number of market segments. In renewables, China is now actively pursuing a “Going Global” strategy, particularly in conjunction with its “One Belt, One Road” program, which aims for a Pan-Asia development approach; 2015 saw eight foreign investment decisions by Chinese firms exceeding US$1 billion each and worth a total of US$20bn. In 2016, the total foreign investment in deals exceeding US$1bn each rose 60% year on year (yoy) to US$32bn across eleven transactions by Chinese firms. IEEFA expects this trend to accelerate in 2017. A change in leadership in the U.S. is likely to widen China’s global leadership in industries of the future, building China’s dominance in these sectors in terms of technology, investment, manufacturing and employment. China is the world leader in domestic investment in renewable energy and associated low-emissions-energy sectors. China invested US$103bn in this sector in 2015, up 17% yoy, according to Bloomberg New Energy Finance (BNEF)—two and half times the amount undertaken by the U.S. Figure i: New Investment in Renewable Energy by Country and Asset Class, 2015 and Growth on 2014 (US$bn) Source: UNEP, Bloomberg New Energy Finance According to the International Energy Agency (IEA), China will install 36% of all global hydro electricity generation capacity from 2015-2021. Similarly, China will install 40% of all worldwide wind energy and 36% of all solar in this same period. Given that the rapidly improving cost competitiveness of renewable energy is driving expansions of renewable energy capacity in an ever-increasing number of countries around the globe—in Europe, India, the Middle East, Latin America, and North America—and given that multibillion- dollar renewable energy tenders are being announced weekly, China is performing no small feat by being responsible for over a third of all investment across the three sectors. Five of the world’s six largest solar-module manufacturing firms in 2016 are in China. At a time when First Solar of the U.S. has announced it will retrench 25% of its global staff, China National Building Materials (CNBM) is building a US$1.6bn 1.5GW thin-film solar module facility. CNBM clearly seeks to challenge First Solar’s absolute dominance of this subsector. Dow Chemical U.S.’s decision in 2016 to sack 2,500 staff and exit the building-integrated photovoltaic (BIPV) solar manufacturing sector will only assist CNBM’s move. On the wind front, Goldwind, a Chinese company, overtook Vestas in 2015 to become the largest wind-turbine manufacturer globally. Counting its more domestic-focussed companies, which included United Power, Ming Yang, Envision and CSIC, China owns five of the ten top wind-turbine manufacturing firms. China’s Tianqi Lithium is the largest lithium ion manufacturer globally following its acquisition of Talison Lithium in 2012 and Galaxy’s Jiangsu processing facility in 2015. It comes as no surprise to see Tianqi spending US$2.5bn in September 2016 to acquire a 25% minority stake in SQM of Chile, the world’s fourth-largest lithium firm. Lithium prices skyrocketed in 2016 as the world recognised electric vehicles (EV) are set to challenge the historic dominance of the global automotive sector by internal-combustion engines. While Tesla attracts Western media attention, its global lithium ion battery and EV leadership is being challenged by two Chinese firms, BYD and CATL. Chinese leadership and control of the global lithium sector is developing along the lines of the rare-element mining and processing sector, which is now 90% and 72% controlled respectively by Chinese enterprises after the financial collapse of Molycorp US in 2015. State Grid Corp of China (SGCC) is the world’s largest electricity utility, employing over 1.9 million staff and generating annual sales of US$330bn. In 2012, SGCC set a target for US$50bn of foreign investments by 2020. As of 2015, SGCC had invested US$30bn of that amount, including in three separate multi-billion dollar transactions in Brazil and Pakistan. SGCC made the largest renewable energy and electricity distribution deal of 2016 in the US$13bn acquisition of a controlling stake in Brazil’s CPFL Energia SA. International grid connectivity is a key priority of SGCC. China Three Gorges Corp (CTGC) commissioned the world’s largest hydro-electric facility at 22.5 gigawatts (GW) in 2012—a project with almost 20 times the Hoover Dam’s 1.35GW capacity. In 2016, CTGC now operates 60GW of electricity capacity. With PowerChina, it dominates global investment and construction of hydro-electric dams. In 2014, a consortium of industrial partners including EDF, AREVA, China General Nuclear Corporation (CGN) and China National Nuclear Corporation (CNNC) committed to invest in the £16bn Hinkley Point C nuclear power station in the U.K. China is now the world leader in technology control and investment in new installations of nuclear power generation. While nuclear power is neither renewable nor low-cost and fast to implement, this investment illustrates the breadth of China’s export investment focus across the energy system. China’s alternative energy industry has been developing rapidly, while applications of green-and-smart energy have become the focus of the world. In a series of government development policies for “Going Global” that include “One Belt, One Road”, the “Silk Road Fund,” the “China-Pakistan Economic Corridor,” and the “Bangladesh-China-India- Myanmar (BCIM) Economic Corridor,” international renewable energy investment has become a key focus for China. Investment and employment of course go together. The IEA’s World Energy Outlook 2016 estimates that China holds 3.5 million of the 8.1 million renewable energy jobs globally. Chinese institutional investment assets under management rose by 500% from 2005-2015, from US$1.1trillion to US$7.1 trillion. This makes China the second or third-largest institutional investment market globally, and its presence in this space is expected to increase to US$10 trillion by 2020. The fact that only 2% of the current total is invested offshore is a key statistic: If China increases this ratio to 10% by 2020, it would amount to US$1 trillion of new foreign investment. China has led the development of the Asia Infrastructure and Investment Bank (AIIB) and the New Development Bank. When combined with the US$40bn Silk Road Fund and the foreign investment capacity of the China Import Export Bank, the China Development Bank et al, China is clearly building the financial capacity to drive M&A and to fund follow-up capital expenditure programs required to drive electricity-sector transformations across Asia, Africa and South America. t t n n e e m m y y p p n n n n a a a n n i i i na o o a a a a l l e t t t t l i e e s s s s tral tral tral ma ma v v ki r r ki ki ki e e Brazil Brazil Brazil Brazil Ch e e a a a a Egypt Country Country P P P P /D Aus Aus Vietnam /D Aus Portugal G G Indonesia t t Argenti e e g g r r a a T T E R c n i n g n n o i i o r t i n t u a n o r i a n n t r o ct i e n n o o u e i i n o o t t i i fa k ct b n i r e s s y a a r u u e s s r r t r o g g n t s g r e e i r s w mi mi n n t e d e n s s d n e e e ma ms s n n n w r r r E n g g a a a co a o o e o r r l r r t t fa r y o t t G p t t u n c c e e e d y y o d t t ci d i n & e w w i w Se Se Lithium t t r n o o s i ci ci y o u i i Wi t r r p p ct p Hydropower Hydropower Hydropower w b i /mo r r ci l e r o i l ct ct l Wa t r r e a a E r l l s e e i Renewable energy Renewable Renewables Hydro, Renewables Hydro, l l d o ct ce E E y d So So h r e l H y a E l ffs ct i O r So ct e l E Figure II:KeyChineseRenewableEnergyInvestmentsOverseas2015 s t t e s s s n t t s s e e H n n n a A n i i a l a l me r l P l e mb p p n P p n r o o w o l G i o i o r s a r s t o t l e y s s e ct r d n n d v t p o H y a s t o s y e e e SA mi r o mi o h r t n s h r s d m m d ct a n n d mb a i n d c c l p p n a Wa i i y r y a r fa g a P o o i ct G r a n r l l r h co r r H T e e T m l M e e ct j e V i t d e a l W v l v o z c o n e C o P e i l n p r e i e r fi fr E a P r DUET SQ M So r So p -E o E -R w L ci a y d B /D /D Iberwind l K s h r F t t Ce e a f a n g w t y r e e e a a 6 h o l P l l So n e & I g e g g 1 CP Wi -L b r r r i r o N - n Hydropower plant Hydropower r So W a a e & a e E 5 T T M a n i n M w a 1 t E i 0 o W e l 0 a p 0 E ch n e 2 r 5 u i E ke M e B J K s u R a D e s r e v O s t ze ze i i ) ) s s n n n l l e b b a a e e 5.4 2.5 1.8 1.7 1.6 1.6 1.2 1.2 1.1 1.0 4.7 3.7 2.5 2.2 2.2 2.1 1.5 1.1 m S$ S$ 13.0 32.1 20.0 t U U /d /d s ( ( e EV EV v n I k r n o ) o i L p a a a t I w t u n n n a i i i r o e e e r r r o p p p r r r N u u CSA Ch Ch Ch G p ( r r f f f ct ct r d g e p Co Co Co o o o u u e r c n n r r i i s s s Co r r w t t r r n n n w a s s o o t e e e o e t t o o o Co o i i i ct n a a s s P g g g t t t y e r r r s p r e e e fr fr l y n a a a g o o o i & v v e o r r r n a n E r l I I g r me n n t g r i g o o o G G G t r e d s h /I /I n g g e a p p p So r r y o e e e r r r E e g n n n h i e e H TBEA En e e e v r r A L G o o y i i g r r r J n Zo K K u Co u Co Co U I n g h h h e e a r l F T T T q
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