The breakneck expansion of China’s green energy sector has been observed with a blend of admiration and fear in some capitals, in some cases resulting in protectionist measures which have disrupted supply chains and backfired on domestic businesses and consumers.
A research paper from the Brookings Institution, a Washington-based nonprofit public policy thinktank, has argued the growth of China’s clean energy sector, which it dubs ‘Green China Inc’, is not a threat but an opportunity that can serve the West’s economic interests.
The paper points to four main opportunities for Western players to capitalize on the maturity of Green China Inc: the opening of China’s electric vehicle market; investment opportunities in big Chinese clean energy projects; a market in China for increasingly sophisticated technologies and business models to combat air pollution; and counterbalancing Beijing’s pan-Asian-African-European Belt and Road infrastructure initiative.
Investment at home and abroad
Seeking to avoid the solar rollercoaster ride experienced in early-adopter nations – triggered by ill-designed subsidies – China is taking more cautious steps in its newer clean energy sectors. The nation is opening its electric vehicle marketplace – the world’s largest, which accounted for more than a half global sales last year – with just over a million EVs.
Western companies willing to tap this burgeoning market are welcomed, as signaled by the ditching of a requirement they enter joint ventures with Chinese firms. The opportunity was seized by U.S. electric car maker Tesla, which broke ground on a gigawatt scale plant in Shanghai in January. China has also signaled it will lower levies on auto imports, the Brookings Institution paper notes.
Following uncertainty in the wake of the ‘5/31’ policy shift to rein in public PV subsidies last year, China is expected to be a 40 GW solar marketplace this year. Some of those projects, as well as other renewable energy capacity, will be financed by Western firms, not only to improve the environmental credentials of their Chinese operations, but also to profit from the nation’s broader attempt to ‘green’ its electricity system. For instance, Apple has committed to develop more than 485 MW of wind and solar projects in China to address its manufacturing emissions.
China’s notorious air pollution has opened a new market for investment. With cleaning up air pollution a national priority, China is paying for high-end air purification technology made by Western firms. The Brookings Institution study cites the example of IBM, which has developed software to help Chinese authorities manage air quality by, among other things, forecasting the interaction of weather and industrial pollution and identifying violators of air quality rules. A.O. Smith, a Milwaukee-based water heater maker, is another U.S. firm making hay out of Beijing’s desire to clean up the nation’s air.
The Brookings report also points to the Belt and Road Initiative, the massive program of Chinese investment in infrastructure in around 65 countries, and the desire of many of those countries to balance funding and technology from China with similar help from the West. While the need for funding and infrastructure is widespread, some nations opt for other sources than Beijing “because they fear becoming too beholden to China and sometimes because they believe that they can find more advanced technology elsewhere”, according to the paper.
Winners and losers
The paper also dives into the policy miscalculations typical of China’s early solar PV subsidy mechanism, describing them as crucial to understanding the development of Green China Inc. Referring to overgenerous public subsidy commitments, the report states: “By the end of 2017 the Chinese government had racked up a shortfall of tens of millions of dollars, and projections were that by 2020 the shortfall might triple.” Those assertions were based on discussions with Chinese energy policy officials, according to the paper.
Such a backlog of payments spurred the move to smarter subsides, involving a significant reduction in feed-in tariffs – in particular for projects comprising the least sophisticated solar panels – as well as auctions, as the sector continue to move towards grid parity.
The paper noted perhaps the broadest group of parties outside China with an economic interest in the rise of Green China Inc were equity investors. They were joined by non-Chinese investment banks, which have taken equity stakes in Chinese projects and offered a wider array of debt instruments than their Chinese counterparts.
Some investors will emerge as losers, warns the paper, but while it will be particularly difficult for Western clean-tech equipment manufacturers to compete with lower-cost production in China, the paper quotes studies predicting aggregate Western job losses resulting from the rise of Green China Inc will be outweighed by gains.
Finally, according to Brookings, a two-pronged strategy could be the right approach to building globally competitive domestic clean energy manufacturing sectors: “A focus first on research and development and second on manufacturing cutting edge – rather than commodified – clean energy goods.”