Power Your Portfolio With China’s Renewable Energy Industry
by Tony Daltorio, Investment U Research
Monday, April 12, 2010
At last year’s climate summit in Copenhagen, the United States did a lot of finger pointing at China. For that matter, China did a lot of pointing right back at the U.S.
Both seemed bound and determined to blame the other for the summit’s failure. But while the Obama administration talks a good talk about green technology, China actually does something about it.
A recent Bloomberg New Energy Finance report shows China spent $34.6 billion on renewable energy in 2009. That works out to over $94.7 million per day, nearly twice what the U.S. did.
More over, Bloomberg didn’t include government spending in that story. It covered private investment in renewable energy projects. And it detailed money raised in stock offerings, venture capital and private equity deals by companies within the industry.
Yet, despite the report’s limited scope, it still showed China firmly ahead in this regard.
China’s Renewable Energy Strategy
China is currently working on a renewable energy strategy that has other countries looking green… with envy, that is.
The country has two main reasons for focusing on green energy. For one, it doesn’t want to depend on unstable sources – such as the Middle East – for its power. Relying on itself easily solves that problem.
But there is also an element of industrial policy guiding China’s new direction. Green industries offer it the chance to become a technology leader without having to play decades of catch-up.
- To do that, the government plans to invest $216 billion in renewable energy over the next five years. Contrast that with the $80 billion set aside by the U.S. government for such projects.
- China hasn’t agreed to overall targets for reducing emissions yet. But it has agreed to aggressively reduce its carbon intensity, the amount emitted per unit of economic output.
- Beijing has set a target to reduce carbon intensity by 40%-45% by 2020. It plans on achieving that in part by increasing the amount of energy it derives from renewable sources. Government planners hope that within the next 10 years, renewable energy will account for 15% of energy needs.
Zhang Guobao, the deputy head of the country’s main planning agency – the National Development and Reform Commission – said recently that the government will unveil details of its plan to reach that target soon. But we already know it involves billions of dollars towards solar, wind and biomass plants.
The country already has many of the building blocks needed to get it started. In a few short years, it has built one of the biggest solar and wind power industries in the world.
More specifically, it leads in global manufacturing of solar panels. And it has for the past two years. Since the industry just keeps expanding at a rapid rate, China should continue performing well in this area for some time to come.
China’s Promising Alternative Energy Investments
China has several strong companies set to do especially well in the coming years… especially companies looking to expand outwards.
- Suntech Power ADR (NYSE: STP), the nation’s largest solar panel manufacturer, plans to expand overseas. Building a plant in Arizona is just the beginning of its strategy to take off in the US market.
- Yingli Green Energy ADR (NYSE: YGE) is also expanding into the United States. It set up coastal offices in San Francisco and New York last year. And it plans to build a $20 million production facility either in Phoenix or Austin.
- A-Power Energy Generation Systems ADR (Nasdaq: APWR) has profited nicely off of China becoming the world’s biggest wind turbine manufacturer last year. So it’s using some of its well-earned money to build a US plant.
In addition, both the solar and wind industries got a big boost by China’s stimulus program. That cash infusion accelerated already rapid expansion for both.
And research into renewable energy might be taking off as well. In a possibly ominous sign for the U.S. industry, Applied Materials (Nasdaq: AMAT) just opened a large research lab in Xian in central China… right when it’s pushing through layoffs in the U.S. and Europe.
As usual, there is another side to the story…
China Still Faces Renewable Energy Obstacles…
For all of China’s bold plans and ambitions concerning renewable energy, it still faces obstacles.
- Most of its best areas for wind farms lie in the north and northwest, far away from the bulk of the population. Transporting the energy to those industrial centers requires a large transmission network. But since nobody has invested in it yet, one third to one half of wind turbines constructed in recent years still stand idle.
- Even in the rapidly expanding solar panels industry, China’s usage remains limited. Solar power supplies only about 1% of the country’s energy needs, partially because of transmission problems.
In its defense, the Chinese government should announce major investments into a so-called smart grid sometime soon. And if they do, that should absorb the more irregular solar and wind power supplies. Still, those problems indicate that investors need to show great patience if they want to make a profit.
But the bottom line is that if they just stick it out, they should make significant gains.
Good investing,
Tony Daltorio
Related Investment U Articles:
- China’s Renewable Energy Industry Has the Capitol Complainers Out in Force
- Where to Invest in Renewable Energy’s New World Order
- America’s Energy Future is “Blowin’ in the Wind”
- The Wind Energy Industry Gusts East
- Why You Don’t Want to Bet on Europe’s Renewable Energy Attempts
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