China set to invest $200bn in renewable energy sector

REUTERS

HONG KONG • China is set to spend $200bn on renewable energy over the next 15 years, and industry players are racing to grab a slice of the action.

That kind of money would buy you an oil firm the size of Chevron and leave change to fund the current renewables programmes of all Europe's top oil firms for 25 years.

So from the arid plains of Xinjiang to the rolling hills of sub-tropical Guangdong, Chinese and foreign firms are erecting 40-storey wind turbines, installing solar panels, and conducting tests on corn for biofuel.

Beijing wants a tenth of its energy to come from environmentally friendly sources by 2010 – a desire driven by soaring air pollution and chronic environmental degradation that is swelling medical bills and provoking discontent.

Projects will need turbines, blades and other power components, which is why General Electric Co, Vestas Wind Systems and Gamesa, as well as homegrown firms China Solar Energy Holdings Ltd. and Suntech, are expanding capacity in the country.

“Renewable energy will likely become China's next boom sector with oil at historical high prices,” said Norman Ho, a fund manager at Value Partners, which has invested in Chinese wind energy components supplier Nanjing Gearbox.

“China needs energy to support its GDP growth.” Crude hit a record above $78 a barrel yesterday.

Analysts like Suntech and Shanghai Electric, but call attention also to budding niche players such as China Solar and Taiwan's E-ton Solar.

“We believe solar energy’s high growth prospects, particularly off a small base, make it a viable component of any investment strategy focusing on the renewable energy theme,” Merrill Lynch said in a recent research report.

Credit Suisse estimates the compound annual growth rate of China's wind power capacity at 39 per cent in 2004-10 and 20 per cent in 2010-20. “This represents a remarkable growth potential for manufacturers of wind turbines,” Credit Suisse’s Angello Chan said.

In the short run, teething troubles such as a shortfall of raw materials facing Taiwan solar player Motech Industries might be an issue.

And crucially, analysts warn of a potential regulatory about-face or waning enthusiasm, the absence so far of a detailed incentives-and-subsidies plan, and a lack of official experience in the area.