China moving to renewable energy – who is following?

16. November 2017 | Drooms Global

China is one of the world’s biggest polluters, but it is also the country leading the change towards renewables. As the US has chosen to withdraw from the Paris Agreement, China is attracting more followers to adopt its strategy – a very attractive perspective for investors.

China has a huge problem when it comes to pollution. The images of thick fog on the streets of Beijing tell the story rather starkly. But the country has decided to do something about it. In the process, it has become a leading power in the renewables sector.

China increases its investment in renewables

The country’s energy agency has announced plans to invest around 2.5tn yuan ($367 billion) into renewable energy generation by 2020 this summer. The five-year plan for the energy sector predicts the investment will help create over 13 million new jobs in the sector. By 2020, renewable energy – solar, wind, hydro and nuclear – will provide around half of all new energy generation in China.

In its plan last year, the National Development and Reform Commission (NDRC) estimated that investments in renewables will follow a similar pattern. According to the NDRC, the investments in different renewable sectors over the five-year period would look like this:

  • 1tn yuan for solar power
  • 700bn yuan for wind farms
  • 600bn yuan for hydro power

The country has set a goal of covering 20% of its energy needs with clean energy by 2030. According to analysts, the country is well on its way to meeting this target. At the end of 2015, China’s clean energy consumption hit 12%.

Astonishingly, the Chinese province of Qinghai ran entirely on renewable energy for a week in June this year to demonstrate its ability to cope without fossil fuels.

Chinese companies are driving the green technological revolution

China isn’t just increasing investment and use of clean energy. It is also driving technological innovation in the field and manufacturing a substantial amount of the renewable technology used outside of China. Two-thirds of the world’s solar panels come from China and nearly half of the world’s wind turbines are manufactured in the country.

For energy companies, the focus is on China – M&A between Chinese and non-Chinese companies has increased in the last decade. According to a report by Rödl & Partner and Mergermarket, the renewable energy sector will experience a 72% increase in M&A activity in the short term. With cross-border activity also increasing, it’s important for companies to find solutions that enhance their deal-making activities. This can be done using a variety of tools, from virtual data rooms to third-party due diligence services.

Countries following China’s lead

China’s commitment to clean energy has attracted other countries to follow suit – even though the US seems to be walking the other way. France has announced it is to ban all new oil and gas exploration by discontinuing new licencing for hydrocarbons. President Emmanuel Macron and his government are also looking into reducing the nuclear proportion of its energy sector and launching a renovation program to help French homes reduce energy consumption.

The cost of delivering renewable energy is coming down, thanks to innovation in the sector. Low-carbon electricity now costs under $0.05 per kilowatt-hour in countries such as Denmark, Egypt, Peru, Mexico and the United Arab Emirates. This is below what fossil fuels and nuclear cost.

In Europe, multiple countries have passed legislation to phase out the use of nuclear energy or are switching to renewables. Can countries meet the objectives? That is still unclear, as the experts are warning about a dip of investment. Between 2015 and 2016, investment in renewable energy installation around the globe fell by 23%.

Part of the problem is a narrow focus on just wind and solar energy. However, all renewable energy technologies will help tackle the issues of climate change. The wider the approach, the better the chances are of reducing global warming.

Preparing for increased energy M&A activity

For companies operating in the sector, the coming years are likely to present plenty of opportunities. China looks committed to switching to renewable energy, and if its economy continues its upward trend, the investments are likely to trickle outside of the country.

Efficient and effective M&A will become crucial for companies. To be part of the success of renewables, countries must prepare – in the context of cross-border transactions and the growing regulatory framework, it is crucial to facilitate the exchange of due diligence information. Understanding the importance of cross-border business, data room providers are investing in technology enabling instant document translation. Ensuring smooth communication between stakeholders worldwide is at the core of an international deal market that aims to stay fluent yet fully compliant.