China Ousts U.S. as Most Attractive Market for Renewable Energy Investing

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China for the first time has overtaken the United States as the most attractive country for renewable energy investment, according to a quarterly index ranking released yesterday (Wednesday) by accounting firm Ernst & Young.

As the world's biggest energy consumer, China set a goal to generate 15% of its electricity from renewable sources by 2020 – up from 9% in 2008 – and has been encouraging investment in its clean energy companies to make its target.

"China has all the benefits of capital, government will, and it's a massive market," Ben Warren, Ernst & Young's environment and energy infrastructure leader, told Bloomberg. "We would expect to see China retaining a dominant position."

Ernst & Young compared regulations, access to capital, land availability, planning barriers, subsidies and access to the power grid to determine the 27 countries' rankings. The report ranked investments in onshore/offshore wind, solar, biomass and geothermal energy projects.

The Asian nation shared the lead with the United States in 2010's first quarter but moved ahead as the U.S. government failed to enforce clean energy legislation.

Out of a possible score of 100, China earned 69 points, edging out the United States at 67. Germany ranked third after the United States, with India in the fourth spot and Italy listed fifth.

The government support in China gives it a huge advantage over the United States and other countries in pursuing clean energy projects. For example, in Australia where the government doesn't make renewable energy projects nearly as much of a priority as China does, renewable energy stocks have fallen 31% in the past year.

"The sector has strong growth potential given that the Chinese government policy is clearly supportive," Derek Sulger, a partner at Shanghai private-equity firm Lunar Capital, told The Wall Street Journal. "We have also observed that many public market investors have looked toward alternative energy as a way to gain exposure to China's demand for cleaner, more diversified energy sources, particularly in an environment where concerns over the general economic environment have impacted more traditional industries."

In the second half of 2009, China almost doubled consumer subsidies for generating renewable power to $545 million.

Meanwhile, the U.S. government let a program expire that provided grants for clean energy projects, leaving few incentives for companies to invest in renewable energy.

"What we're seeing in the U.S. is a continued resistance to committing to long-term visible and transparent support for the sector," said Warren. "The U.S. market has always suffered from this boom and bust tax-based incentive regime."

U.S. wind energy investments also fell as wind developers faced financing troubles due to low natural gas prices and slack electricity demand, according to Ernst & Young's report.

China's wind and solar investments are generating more interest – and financing – each quarter. China last year quadrupled its solar photovoltaic power installations to 160 megawatts, and could grow to 600 megawatts this year. State-run China Development Bank Corp. plans to lend as much as $17 billion (116 billion yuan) to China's biggest solar firms by market value: Yingli Green Energy Holding Co. (NYSE ADR: YGE), Suntech Power Holdings Co. (NYSE ADR: STP) and Trina Solar Ltd. (NYSE ADR: TSL).

China last year had three wind turbine makers among the top 10 worldwide in sales by megawatts: Xinjiang Goldwind Science & Technology Co., Dongfang Electric Corp. and Sinovel Wind Group Co.

China's IPO Market Goes Green

The profit potential of renewable energy is too rich for investors to turn down as the industry becomes more competitive. The cost per unit of electricity generated by solar panels is falling 20% a year and could reach levels charged by coal-fired electric providers in about five years.

"Grid parity should be reached even sooner if a price on carbon is introduced by the Chinese government," said Tim Buckley, portfolio manager at Arkx Investment Management.

Interested investors are targeting China, where the opportunities are growing at the fastest pace, and future investment in China's renewable energy sector will be poured into a number of initial public offerings (IPOs) slated to debut in Hong Kong and U.S. markets in coming months.

Chinese wind-turbine maker Xinjiang Goldwind Science & Technology Co. will make a $1 billion Hong Kong offer in the next few weeks. China Suntien Co., a renewable energy unit of the Hebei province government, will offer $500 million in Hong Kong. Also expected to hit Hong Kong is wind power group Huaneng New Energy Industrial Co. with a $1.5 billion IPO in October.

Mingyang Electric Group Co. plans to raise $300 million to $500 million in a U.S. IPO this year, bringing the total of China renewable energy IPOs to a record level in 2010.

In 2009, China overtook the United States in total renewable energy investments for the first time ever. China pushed $34.6 billion into renewable energy projects – mostly wind farms – while the United States spent just $18.6 billion.

China also pulled in $11.5 billion in asset financing for clean technologies in the second quarter of 2010 – more than the United States and Europe combined.

"[W]ith the needs for energy security and energy demand from countries like China, the move to renewables is unstoppable, and you're increasingly seeing renewable energy companies that are a good value," Geoff Evison, managing director of Arkx Investment Management, told The Journal.

While IPOs will offer investors more opportunities to break into the clean energy race in the coming months, some analysts suggest looking into companies just starting out.

"[W]e like so-called expansion-stage companies that are one to two years away from IPOs," Chris Rynning, from Beijing-based private equity firm Origo Partners, told The Journal. "Expansion-stage companies typically have commercially scaled their technologies but need capital to grow and often are at a tipping point in terms of sales and profits."

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  1. John Chiu | September 11, 2010

    How does one purchase stocksl listed in LSEW as in EDCL And INTE recommended in your report?

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