(English summary only)
With the trend of energy decarbonization worldwide and rapid reduction of renewable energy costs, the renewable energy leaded by photovoltaic and wind power attract more and more energy investors. In 2019, China has ranked the first in the world for seven consecutive years in investment of renewable energy. Relying on the leading advantage of manufacturing and engineering of renewable energy equipment, more and more Chinese companies explore and invest in renewable energy projects along the BRI countries which have abundant solar radiation and wind resources.
Although the scale of Chinese investments is growing, Chinese renewable companies face much challenges when they “go out”. With the purpose for better understanding of the financing models, challenges and recommendations of renewable energy projects by Chinese Companies in the BRI countries. Greenovation Hub (G:HUB) and TSINGHUA PBCSF finished this report at the end of 2019. This report analyzes and conducts a comparison with 14 Chinese-involved investments and 11 international companies-involved investments cases which locate in different countries and areas in Asia, Europe, Africa and south America. And these cases include photovoltaic and wind projects that have different types of investors and financing models. Based on case study, interviews with Chinese investment companies and financial institutions, this report concludes as follows:
Firstly, compared with tradition power generation projects, the types of investors of renewable energy projects by Chinese companies in the BRI countries are much more diversified. Except for the tradition Chinese large-scale power generation companies are enrolled in the investments, some Chinese manufacturing and engineering companies of renewable energy equipment also play the role of exploring and investing in the overseas markets. The high financing costs constrain the competitive bidding ability and the return on investment, bringing much challenges for Chinese companies when they “go out” for renewable energy investments. On one hand, the delaying of domestic fund withdrawal leads to insufficient funding capacity for overseas investment, which is especially true for private companies. On the other hand, due to the high debt levels and weak purchasing power of some BRI countries, it is difficult to provide sovereign guarantees for the financing of renewable energy power projects. And the export credit insurance quotas have been allocated to overseas thermal power project investments and the coverage of export credit insurance are insufficient. These factors result in limited subsequent financing capabilities for Chinese companies.
Secondly, from the perspective of different types of financing models, at present Chinese financial institutions support the BRI renewable energy projects by recourse loans as the same as for thermal power projects and hydropower projects, but with insufficient understanding of the characteristics of renewable energy project such as it has small scale of investments, short construction period, the risks of construction is relatively controllable and the evaluation of grid parity markets or policy environment is insufficient also. Moreover, the cost of borrowing foreign currency funds from Chinese banks is higher than from international financial institutions, so the loan interest rates from Chinese banks are higher and automatically disadvantaged. Compared with international companies-involved projects, Chinese-involved investments rely more on the tradition types of financing models that with little cooperation with international commercial financial institutions, multilateral development institutions, such as the blended financing from the Word Bank or the Asian Development Bank. So Chinese-investors have failed to take full advantage of the preferential loans from international multilateral development institutions and financial institutions. When the projects operate for a period of time and achieve stable returns, Chinese-involved investments lack of cooperation with long-term investment institutions such as international pension funds, sovereign funds, insurance companies and other long-term investment institutions.
Based on the study and analysis of the above cases, the report proposes recommendations for Chinese investment enterprises, Chinese financial institutions and Chinese governments/regulators respectively:
Due to the substantial decrease of the cost of renewable energy and increasing new restrictive policies on high-carbon emission industries from more countries, coal power projects may face the risk of becoming non-performing loans or stranded assets in the upcoming five to ten years. The report suggests that Chinese financial institutions should reduce the support for coal power projects in BRI countries and free up resources to support the development of renewable energy projects, it also helps the portfolios from Chinese financial institutions to improve the long-term resilience. For example, China Export Credit Insurance Corporation (SINOSURE) could lessen the requirements for guaranteed measures for non-sovereign projects of renewable energy projects. SINOSURE should prioritize the support for renewable energy projects in their underwriting portfolio, increase the insurance coverage, extend the insurance period, lower the acceptance policy threshold, moderately reduce the rate and etc.
At present, Chinese banks overemphasize country risks and ignore the objective assessment of industry and project risks. From the perspective of Chinese policy makers and regulators, at present when the People’s bank of China conducts the macro-prudential assessment (MPA) for banking financial institutions, however the assessment mechanism does not cover financing services for overseas renewable energy projects yet. Therefore, it is recommended that the MPA assessment system is modified to cover Chinese banks’ overseas green credit balance and growth rate. Moreover, as green investment in BRI countries totals more than $ 1 trillion per year, this report recommends that a special fund should be launched to support the BRI renewable energy projects and green industries.