China’s Missing Solar & Wind Finance For Overseas Energy Projects Revealed

  • Date: 23/04/20
  • Panda Paw Dragon Claw

New paper sheds light on reasons behind the lack of renewable energy lending from China’s policy banks

CBDEXIMRE
Source: “Chinese Development Finance for Solar and Wind Power Abroad”, Bo Kong & Kevin P. Gallagher, Feb 2020

From 2000-2018 China’s two policy banks, the China Development Bank (CDB) and China Export Import Bank (CHEXIM), loaned over USD 251.3 billion to overseas energy sector projects. Of that finance, traditional energy sources such as coal and hydro dominated, occupying 45.2% and 33.7% of the total finacinging respectively. Just 2.3% went to wind and solar projects.

Given that China is the world’s leading manufacturer of wind and solar power generation equipment, given that the domestic renewables sector is experiencing overcapacity, given that Belt and Road actors have been tasked from the highest levels with expanding a “green BRI”, and given the enormous energy needs and renewable potential in BRI countries, why has so little of China’s two policy banks’ overseas finance go toward wind and solar projects?

recent paper by Boston University Global Development Policy Center’s Kevin Gallagher and Bo Kong labeled this reality a “counterfactual puzzle” and dug into the reasons for it. Why China’s Belt and Road Initiative has not led to large scale deployment of renewables as has been seen domestically in China is a question on the lips of many on the climate community, from NGOs to government staffers. Panda Paw Dragon Claw seeks to provide some insights on that critical question by digesting a few recently published papers and reports on that topic for our readers.

Is there potential for a renewable-powered Belt and Road?

In theory, both the supply and demand side for a large scale roll out of renewable energy projects along the Belt and Road are well aligned.

On the supply side, China has been a global leader in wind and solar power investment, manufacturing and deployment for most of a decade. Moreover, with the domestic market plagued with overcapacity, there is also a push factor from the supply side propelling Chinese companies to explore new markets. By as early as 2012 China’s solar PV production capacity exceeded total global demand by 33%. In fact, the overcapacity problem was in part driven by the two policy banks’ huge amounts of financing for the sector. By 2017, CBD and CHEXIM financing was behind about 40% of total installed wind and solar power in China, the paper points out.

In addition, both CDB and CHEXIM have an explicit mandate to promote the international expansion of China’s renewable energy sector. As early as 2015, a “guiding opinion” document from the State Council urged companies to “actively participate in investment and construction” of wind and solar PV projects overseas. In the same year, Deputy Director General of the New Energy Department of China’s National Energy Administration (NEA), Liang Zhipeng, publicly urged CDB and CHEXIM to assist China’s renewable energy companies’ exports, investments and expansion overseas.

This is backed up by a political vision for a “green Belt and Road” endorsed multiple times by President Xi Jinping himself. It also more broadly dovetails with China’s ambition to be seen as a key partner or even leader in global climate governance.

On the demand side, Belt and Road countries are projected to see large growth in power demand over the coming decades and an enormous market for solar and wind investment awaits, estimated at almost USD 800 billion globally. A report from Tsinghua University, Vivid Economics and Climateworks Foundation last year projected that keeping economic growth pathways across Belt and Road countries in line with the Paris Agreement’s 2 degree target could require investment to the tune of nearly USD 12 trillion up to 2030.

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