China's Overseas Investments in the Wind and Solar Industries: Trends and Drivers

Executive Summary

Shifting to a low-carbon economy will require current emitting countries and projected future emitters to rapidly scale up their investments in renewable energy. In recent years, major emerging economies like China, India, and Brazil have been catching up with leading developed country investors in Europe and the United States. By some estimates, China is already the leading global investor in renewable energy infrastructure, and is increasing its overseas investments in renewable energy, particularly solar and wind. If China achieves its goal of sourcing 15 percent of its energy mix from renewables by 2020 and 30–45 percent by 2050, renewable energy will become closer to a mainstream energy resource within the country. Cost reduction incurred in this process would benefit not only China, but also the rest of the world.

This working paper aims to help policymakers, investors, and researchers better understand the trends in China’s overseas investments in the wind and solar industries, and the factors behind those trends. It examines the scale, nature, and types of China’s overseas investments in the wind and solar industries, and identifies the policy and market factors that drive these investments. China has made at least 124 investments in solar and wind industries in 33 countries over the past decade. Of the investments for which data were available, the cumulative value amounted to nearly US$40 billion in 54 investments, and the cumulative installed capacity added was nearly 6,000 MW in 53 investments. Of the 124 investments, 41 were in the wind industry, 81 in the solar industry, and 2 in both the wind and solar industries.

The majority of investments were in electricity generation. Twenty-seven of the wind investments were in wind farms predominantly carried out through joint ventures, as were most of the 41 solar investments. Several investments were made in manufacturing facilities and to establish sales and marketing offices. Most of the investments were concentrated in a few developed countries: the United States, Germany, Italy, and Australia. A handful of developing countries, including South Africa, Pakistan, and Ethiopia, also attracted investments.

China’s investments in the wind and solar industries are driven by a multitude of factors including macroeconomic conditions; industry conditions; policies (both general and specific to the wind and solar industries) that “push” Chinese companies to invest overseas; policy incentives in host countries that “pull” Chinese investors; and financial support from Chinese banks that “enables” these investments.

China is driven to seek solar and wind markets overseas largely because its manufacturing capacity exceeds domestic demand. The Chinese government’s policy support and financial support—mainly from state-owned banks that respond to government policy—encourage this overseas investment trend. Host countries’ policies have also attracted investments from China’s solar and wind industries, either advertently through tax breaks, feed-in tariffs, or bilateral cooperation agreements, or inadvertently as a “side-effect” of policies discouraging imports.

Although the analysis in this working paper points to interesting trends and provides useful insights that enhance our understanding of China’s role as an overseas investor in the wind and solar industries, it is limited by a paucity of information. Beyond the data collected for the 124 investments, the authors also reviewed literature and carried out interviews to deepen the analysis. The analysis is confined to a subset of the renewable energy sector rather than the full range of possible low-carbon investments. The inadequacy of the data does not allow an analysis of the emissions impact of these investments. These limitations suggest areas for further research that could help improve an understanding of China’s potential to reduce emissions beyond its borders, and would allow policy analysis on how China could increase this positive impact, particularly in developing countries.