Renewable Energy: The Trillion Dollar Opportunity for Chinese Overseas Investment

• Published date: 01 November 2018
• DOI: http://doi.org/10.1111/cwe.12260
• Date: 01 November 2018
• Author: Miquel Muñoz Cabré,Zhongshu Li,Kevin P. Gallagher

©2018 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 27–49, Vol. 26, No. 6, 2018

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*Miquel Muñoz Cabré, Senior Research Scholar, Global Development Policy (GDP) Center, Boston

University, USA. Email: miquel@bu.edu; Kevin P. Gallagher, Director, GDP Center, Boston University, USA.

Email: kpg@bu.edu; Zhongshu Li, Researcher, GDP Center, Boston University, and PhD candidate, Woodrow

Wilson School, Princeton University, USA. Email: zhongshu@princeton.edu. The authors would like to

acknowledge the research assistance of Junda Jin, and useful comments made by participants of the Institute

of World Economics and Politics, Chinese Academy of Social Sciences/Global Development Policy Center

joint workshop on Opportunity and Risk for Chinese Overseas Investment.

Renewable Energy: The Trillion Dollar Opportunity for

Chinese Overseas Investment

Miquel Muñoz Cabré, Kevin P. Gallagher, Zhongshu Li*

Abstract

This paper compares the global ows of Chinese overseas investment in power plants

with renewable energy investment potential embodied in “Nationally Determined

Contributions.” With over US$1tn (671 GW) in Nationally Determined Contributions

renewable energy investment potential in developing countries, we estimate the total

level of power plant investments from China’s policy banks and commercial entities

since the early 2000s at US$216bn (158 GW). Although past investment has mainly

been directed at fossil fuels and hydroelectric power, we argue that China is uniquely

poised to lead renewable energy global investments for three reasons: (i) China’s

solar and wind industries are globally competitive; (ii) Chinese policy banks can give

domestic firms advantages in financing global expansion; and (iii) renewable energy

investment opportunities still exist in developing countries with less sovereign risk than

for traditional energy investments. The Chinese government should provide special

incentives for the policy banks to capitalize on these investment opportunities by

deploying Chinese solar and wind technologies to Belt and Road countries and beyond.

Key words: climate nance, development nance, foreign direct investment, nationally

determined contributions, renewable energy

JEL codes: F3, O19, Q2, Q54

I. Introduction

Over the past 15 years, China has become one of the largest investors in the world.

Chinese companies, commercial banks and policy banks have been making major

inroads in every region of the globe. Looking ahead, China has launched the Belt and

Miquel Muñoz Cabré et al. / 27–49, Vol. 26, No. 6, 2018

©2018 Institute of World Economics and Politics, Chinese Academy of Social Sciences

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Road Initiative (BRI) with the goal of catalyzing trillions of dollars of investments into

infrastructure and regional integration across Asia and beyond (Miller, 2017; Suokas,

2017). Moreover, China has become a world leader in the effort to prevent and mitigate

global climate change – collaborating on the China–US climate agreement that led to the

Paris Agreement on climate change in 2015 (Carbonnel, 2018). China has put in place

major policies to reduce the use of fossil fuels and has dramatically expanded the use of

renewable energy technologies on the Chinese mainland and its capability to supply these

technologies, particularly wind and solar, to other economies (Gallagher and Xuan, 2018).

To date, an analysis that quanties the potential investments globally for China and

other countries for clean energy, that also tracks the extent to which China is seizing the

opportunity to obtain such assets, has not been performed. This paper seeks to quantify

the opportunity for Chinese overseas investment in electricity generation from renewable

energy sources. A bottom-up estimate of the investment opportunity is calculated based

on country-by-country demand, as reected in the Nationally Determined Contributions

(NDCs) to the Paris Climate Agreement (Munoz Cabre and Sokona, 2016; IRENA,

2017c). This demand, quantified with monetary and electric capacity metrics, is

compared to China’s current overseas energy investment ows (Gallagher, 2017), thus

identifying existing gaps and opportunities. Policy recommendations explore how

China’s advantages and capabilities can be leveraged to address such gaps and maximize

the economic soundness, development impact and environmental sustainability of

China’s overseas energy investments.

This paper is structured as follows. Sections II and III provide an overview of

the renewable energy sector and a brief introduction to NDCs, respectively. Section

IV explains the methodology of quantifying investment opportunity in terms of

investment potential and electric capacity, as well as the methodology used to analyze

existing Chinese overseas investment in power plants. Section V exhibits the results

of an analysis of 153 NDCs, of which 113 contain quantifiable renewable energy

contributions, with attention to Belt and Road (B&R) countries. Section VI juxtaposes

our investment potential calculations with China’s record in those regions and

technologies to date, and looks at the gaps between China’s overseas energy investment

ows and the investment potential identied from the NDC. Section VII concludes and

provides some policy implications.

II. Renewable Energy Overview

Renewable energy today is a story of economic growth and development, a story

with side benets, the most signicant of which at the global level is climate change