Sunday, July 25, 2010

China Outpaces the US & EU Combined in Renewable Energy Investments

According to Bloomberg New Energy Finance, China is leading both the US and EU combined in Alternative Energy investment. Caulk it down to governmental certainty in policy matters.

Starting in 2010 China installed a law that requires its utilities to buy renewable power or face stiff penalties. That certainty has caused investors to bet heavily on China.

In the second quarter of 2010 foreign investment in Chinese of wind turbines, solar panels and low-carbon technology increased 72% to $11.5 billion. Investment in China’s Alternative Energy sector totaled $33.9 billion, inclusive of securities transactions, venture capital, private equity and finance, accounted for 33% of total global investments in this sector.

In 2009 China installed 14 GW of wind power alone, far outpacing any other country. This expansion has been fueled primarily with stimulus spending. US stimulus funds, if actually spent, are targeted to add 16 GW of all forms of renewable energy to the US grid. However, energy legislation has stalled in congress, adding to regulatory uncertainties investors have in considering such projects.

The Chinese law is interesting in that it allows citizens to produce and sell power into the national grid. Finland passed similar legislation decades ago with the result that its paper mills now provide 30% of the electricity on its national grid, by tapping into their produced heat on-site to generate electricity.

The lesson here is that stimulus spending alone will not work. Regulatory certainty combined with incentives for private producers are required to pull through Alternative Energy power into the national grid. If a government will loan you money to produce alternative energy, but will not require its power grid to buy it, why would you invest?

Richard Wottrich

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