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Why Is China Investing So Much in U.S. Solar and Wind?

The world’s two largest greenhouse gas emitters—the United States and China—have been forging a growing bond in combating climate change. Just last week, President Obama and President Xi made a landmark agreement to work towards reducing hydrofluorocarbons (HFCs), a potent greenhouse gas. And both the United States and China are leading global investment and development of clean energy. The United States invested $30.4 billion and added 16.9 GW of wind and solar capacity in 2012. China invested $58.4 billion and added 19.2 GW in capacity.

U.S.-China cooperation on clean energy was the topic of discussion at an event last week at the Woodrow Wilson International Center’s China Environment Forum. Experts from the World Resources Institute and the American Council on Renewable Energy (ACORE) looked at this cooperation from a seldom-discussed viewpoint – China’s renewable energy investments in the United States.

China’s Growing Overseas Investments in Renewable Energy

As new WRI analysis shows, Chinese companies have made at least 124 investments in solar and wind industries in 33 countries over the past decade (2002 – 2011). The United States is the number one destination of these investments, hosting at least eight wind projects and 24 solar projects. The majority of the investments went into solar PV power plant and wind farm development, while a few investments went into manufacturing or sales support.

Investment Drivers: The “Push-Pull” Effect

Experts from WRI and ACORE explored the various drivers behind such investments. From the China side, investments have been “pushed” out by market and industry factors, government policies, and strong financial support from the policy banks, such as the China Development Bank. Although China’s wind turbine and solar cell manufacturing industries have grown substantially, the market base for these industries is quite different. China’s solar industry relies on the international market for 95 percent of its sales, whereas its wind industry relies predominantly on the domestic market. Both industries are eyeing the United States for sustained or scaled-up market shares. Investment has proven an effective method to directly generate revenue and also create export opportunities for Chinese renewable energy companies. The Chinese government’s policies on “Strategic Emerging Industries” and “promoting healthy development of industries” call for both the solar and wind industries to grow internationally and pursue advanced technologies. Policy banks from China also actively provide funding for key companies’ overseas expansion.

The United States has also been “pulling” Chinese investments in. For example, the United States has abundant solar and wind natural resources. In windy regions, wind energy is already cost-competitive with fossil fuels. At both the federal and state level, policies exist to encourage renewable energy development. The federal Production Tax Credit is in place through the end of this year for wind power production, while the solar industry benefits from the Investment Tax Credit. At the state level, 29 states and Washington D.C. have set renewable energy portfolio targets. Although these policies don’t specifically target Chinese investors, they have served to attract many international energy investments to the United States. China is one of the major international investors.

Barriers to China’s Investment in U.S. Clean Energy

One major question arising from the recent event is the future of China’s solar and wind investments in the United States. Should the aforementioned drivers continue, they could help provide a promising future for continued investment. But barriers such as business culture differences and Chinese investors’ unfamiliarity with U.S. laws and policies are major factors to watch.

Other investment barriers include reviews of Chinese investments and rejections by the Committee on Foreign Investment in the United States (CFIUS), which Chinese investors sometimes perceive as problematic. Luckily, with early engagement and proactive compliance with U.S. policies, several major investment deals have been successfully executed recently. State-to-province cooperation is another platform where investments can be channeled. Already, California and China’s Jiangsu province have signed agreements on renewable energy cooperation.

In addition, the United States is currently experiencing close-to-flat energy demand growth. Therefore, increasing renewable energy generation capacity will need to be driven by a shift from fossil energy to renewable energy.

The Future of Clean Energy in the United States and China

The United States and China still face a lot of challenges in clean energy development, both within their own borders and with respect to their cooperation. Volatile renewable energy policies in the United States did not create an ideal enabling environment. On the other side of the Pacific, fast renewable energy development in China has caused many growing pains for the industry, such as the current inability of the electric grid to simultaneously assimilate all the installed wind power in China. Another major challenge is the trade tensions between the United States and China. For example, solar manufacturers, developers, and other stakeholders in both countries are debating the potential implications of the US-China solar panel anti-dumping cases on industry competitiveness and efforts to combat climate change. (For more examples of these trade cases, see the ChinaFAQs site.)

The United States and China recently issued a joint statement on climate change action, in which they committed to “set the kind of powerful example that can inspire the world.” More strategic cooperation and learning from each other can hopefully ease existing problems and encourage healthy development of clean energy industries in both countries.

Lihuan Zhou, an intern with WRIs' Governance program, also contributed to this post.

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