China’s Booming Solar Energy Landscape

China’s economy has slowed down and the ripple effect is being felt across virtually every business segment, including China’s energy industry. Energy has always been a focal point for China as the historical population growth and subsequent economic ascent constantly required new and cheap forms of energy. As China’s economy contracted in 2015, so did the country’s energy consumption and overall fossil fuel production. For the first time, China’s thermal capacity, primarily from coal, dropped below 50% of the country’s electricity generation. This is a positive sign for the future mitigation of CO2 emissions and growing concerns about China’s contributions towards climate change. While China decreases the its dependence on fossil fuel production, they are simultaneously making significant progress towards a renewable energy future. Without a doubt, the bulk of China’s cleantech investments are focused on the red hot solar energy industry.

China has always played a prominent role in the global solar energy market, but the country has historically participated much more as a manufacturer rather than an integrator or developer. The cost per watt of solar PV modules has dropped more than 80% over the past decade, and China’s robust solar manufacturing economy is by far the most significant contributor to this drastic reduction in pricing for end users. The price of Chinese produced solar modules dropped so quickly that US based manufacturers attacked Chinese manufacturers for allegedly dumping solar modules into the U.S. market. In 2014, U.S. solar panel manufacturer SolarWorld won a trade case when the Department of Commerce found that China was in fact illegally dumping solar modules into the U.S. market. The U.S. placed tariffs on Chinese made modules with hopes of sparking greater interest in U.S. based manufacturing, but instead, China ramped up their own domestic solar energy integration spawning an unfathomable pace of local project development.

China spent $110 billion on clean-tech investment in 2015 alone. More than 15GW of solar energy was added to China’s distribution system in 2015, bringing the country’s total to more than 43GW of installed solar capacity. As of February 2016, China now has more solar installed than any other country in the world, including Germany who has stood as the global leader for the last eight or ten years. The majority of China’s solar energy market is utility scale (greater than 2MW) but there is still tremendous growth occurring in the distributed PV sector including commercial and industrial applications. China is forecasting a whopping 18GW of solar in 2016, along with 24GW of wind and 16GW of hydroelectric plants. In a short period of time, China has emerged as a the world’s renewable energy superpower.

The pace of energy development is typically determined by the ability to access project financing. China’s government has heavily incentivized and subsidized solar energy in recent years, but more innovative sources of financing are also starting to emerge. SolarCity, the vertically integrated market leader in the US, completed its first securitization of solar project revenues a few years ago, and this concept has now spread across the Pacific. Shenneng Nanjing Energy Holding Co, a Chinese solar developer with more than 400MW of operating capacity, completed a $152 million securitization of solar assets last month using future electricity sales from their projects. As China’s capital markets shrink and companies struggle to find sustainable sources of financing, creative methods of financing including asset backed securities will be replicated by more and more market participants.

With the world’s best domestic manufacturing infrastructure, along with a developer base prepared for large scale growth, China’s energy landscape is poised to change drastically over the next decade. The country will continue to curtail fossil fuel production and devote an increasing amount of effort towards a cleaner economy. China has a real opportunity to drive job creation, domestic investment, and augment the health of future generations by fully embracing a renewable energy future. Investments will spill over into other sectors including transportation and agriculture where the ripple effects will improve the efficiency and resiliency of China’s future economy.

Pierre Moses
MBA Candidate 2016