China Is Winning The Renewable Energy Crown

By Aaron Levitt | November 13, 2013 AAA

With its quickly growing population, emerging market superstar China is facing a bit of a problem- a surging electric bill. Back in 2010, the nation topped the U.S. to be the number one consumer of energy and seen overall energy consumption surge 111% from 1990 to 2008. Future projections for Asia’s Dragon continue that trend upwards for next few decades as China continues to modernize.

To cope with that exponentially rising demand, China isn’t just focusing on traditional fossil fuels such as coal, natural gas and oil. The nation has begun to tackle the issue with methods a bit more “green.” And according to a new report from the International Energy Agency (IEA), China will be leading producer of renewable energy in the next few decades.

For investors, China’s push to add more solar, wind and other alternatives could be one of the best long term catalysts for adding renewable energy to a portfolio.

The Biggest Player

China's breakneck economic growth has required vast amounts of energy, stemming from its heavy industry and infrastructure development. As a result, the Beijing government has taken on the task of balancing economic growth with responsible energy usage among its 1.3 billion people. The IEA’s latest World Energy Outlook report shows just how far China will go to meet its needs as well as balance the kinds of energy it produces.

According to the report, China will build more renewable power plants through 2035 than the U.S., European Union and Japan combined. Overall, the C in BRIC will grow its total renewable production capacity to reach 2,000 terawatt-hours (TwH) from now until 2035. New hydroelectric dams will be the largest contributor to that growth, China will still be adding both solar and wind facilities to its mix at a break-neck speed. Overall, China’s government aims to have at least 100 gigawatts (GW) worth of wind-power and more than 35 GW of solar generation capacity installed by 2015, alone.

Adding all these improvements in solar, wind and hydro capacity won’t be cheap however.

China has spent billions on new energy projects, subsidies and stimulus measures. In fact, the nation already accounts for 30% of the world’s investment in green energy. That amount is roughly twice what the U.S. spends on renewables. But to make the IEA’s prediction come true will require much more in the way of spending. According to official Chinese government projections, the nation will spend a staggering 1.8 trillion Yuan- or $294 billion- by 2015 on efforts to develop renewable energy sources.

Given how serious China is about adding renewable energy to generation mix and dollar amounts it plans to spend, investors may want to consider adding the sector to a portfolio.

Profiting From China’s Green Ambitions

With the IEA predicting that China will be the main driver of green spending, the PowerShares Global Clean Energy (NYSE:PBD) could be a great starting point for investors. The fund offers a broad mix of holdings- including First Solar (NASDAQ:FSLR) and waste-to-energy provider Covanta (NYSE:CVA). PDB also includes a 14% weighting to direct Chinese firms. That’s important as China’s green dominance is being capitalized by its own firms. Rival funds- such as Market Vectors Global Alternative Energy ETF (NYSE:GEX) –have far less exposure. Expense run 0.75% for the fund.

Low cost of production and Beijing's pro-export driven policies have helped cement China as a premiere solar destination. As one of the largest module manufacturers in China, Trina Solar (NYSE:TSL) provides some of the most efficient panels based on cost per kilowatt. The bulk of its business has traditionally stemmed from Europe, but new demand from its homeland as well as India has helped see increased demand for its products. The same can be said for rival Chinese solar module producers JA Solar (NASDAQ:JASO) and Yingli Green Energy (NYSE:YGE). Both have seen gains in sales in their own backyards. Overall, the trio could make some of the best plays for China’s continued growth in solar installations.

Finally, with the IEA predicting that wind energy will be one of the largest contributors to China’s energy mix in the future, the First Trust Global Wind Energy ETF (NYSE:FAN) could make a great play. The fund includes about 7% direct exposure to Chinese firms with holdings like China’s Ming Yang Wind Power Group (NYSE:MY).

The Bottom Line

With exponentially rising energy demand facing Asia’s Dragon, China has gotten serious about expanding its generation capacity of renewable sources. The latest IEA forecast shows just how serious China is about adding solar, wind and other green energy sources to its mix. For investors, that focus could be one of the best long term catalysts for the alternative energy sector.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

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