23 Jan 2020
Belt and Road Renewable Energy Development: the Path to Cooperation and Mechanisms for Promoting International Cooperation
By The Natural Resources Defense Council
In 2013 President Xi Jinping first proposed the Belt Road Initiative (BRI). Throughout the past five years, in accordance with the principles of consultation, joint contribution, and sharing, China’s international energy and resources cooperation has become a top priority for BRI development. In 2017 China successfully hosted the Belt and Road Forum for International Cooperation in Beijing. On October 18, 2018, President Xi sent a congratulatory letter to the BRI Energy Ministers’ Meeting and International Energy Transformation Forum held in Suzhou. He noted that energy cooperation is a key area for BRI development, and China is willing to strengthen energy cooperation with other countries in the framework of BRI, to create favorable conditions for the advancement of common development, to jointly promote sustainable development of global energy and achieve global energy security. At the same time, representatives from 18 countries including China, Turkey, Malta, and Pakistan jointly issued the Joint Energy Ministers’ Declaration on Building the Belt and Road Energy Partnership, indicating that this partnership will be formally established in 2019, and will be open to all countries and international organizations to promote mutually beneficial energy cooperation.
In the past decade, China’s renewable energy has grown rapidly. From 2008 to 2017, the global average annual growth rate of wind and solar power installed capacity was 19% and 46% respectively. China’s average annual growth rate of wind and solar power installed capacity reached 44% and 191% respectively, laying a solid foundation for China’s renewable energy cooperation with BRI countries.
This report examines renewable energy resources, such as hydropower, wind power, and solar power in countries along the BRI from both a regional and national perspective. It presents a panoramic view of the policy conditions, industrial conditions, and existing opportunities and challenges affecting international renewable energy cooperation in BRI countries. Based on governmental planning targets for renewable energy installed capacity in key BRI countries, this report estimates that the total installed capacity of renewable energy in 38 countries along the route could reach 644.334 GW from 2020-2030, and total investment in wind and solar power could reach $644.334 billion. If China takes a 10% market share, it would be a $64.334 billion investment opportunity. However, currently renewable energy cooperation in BRI countries faces a myriad of challenges, including financing difficulties, low electricity pricing, and inadequate policy support, all of which have become major obstacles for BRI renewable energy development. For example, when looking at Chinese investment in overseas wind power, equipment from Chinese enterprises has a price advantage when compared to that of US company General Electric, but the financing interest rate of the latter’s overseas projects is about 3%, while Chinese enterprises generally reach about 6%-7%. The advantage of low Chinese equipment cost is thus directly offset by the disadvantage of high financing costs. In addition, vicious competition between Chinese companies has resulted in price drops in various international consortiums. This has damaged China’s interests and has become a major stumbling block for China’s BRI renewable energy projects.
There is a huge potential for China’s BRI renewable energy cooperation. China has formed an international development cooperation model for renewable energy, which consists mainly of overseas Engineering, Procurement and Construction (EPCs), opening production facilities overseas, overseas mergers and acquisitions, and overseas research and development. The cooperation has been focused on the ChinaPakistan Economic Corridor, the Bangladesh-China-India-Myanmar Economic Corridor, the China-Indochina Peninsula Economic Corridor, the China-Central Asia-West Asia Economic Corridor, the New Eurasian Land Bridge, the China-Russia-Mongolia Economic Corridor, and China-Africa Cooperation. International cooperation on renewable energy, with an emphasis on hydropower, solar power, and wind power, has formed a pattern of all-around, multi-level international renewable energy project coordination. Typical cases include 1) The Sweihan Photovoltaic Project, jointly developed by China’s JinkoSolar and Japan’s Marubeni in Abu Dhabi, UAE, which includes a 25 year power purchase agreement (PPA) with the Abu Dhabi Water and Electricity Authority; Sinomatch and General Electric cooperation on a 102 MW wind power demonstration project in Kapedo, Kenya; 3) The acquisition of an 80% stake in the German Meerwind offshore wind farm by the Three Gorges Group; 4) The 900MW Bahawalpur Solar Park Project developed by Zonergy in Pakistan is the largest Photovoltaic Project under construction globally; 5)The Silk Road Fund’s purchase of shares in a Shanghai Electric and Saudi ACWA concentrated solar power project; and 6) China General Certification Center’s promotion of a mutual recognition system for international standards for new energy based on wind and solar.
This report argues that China’s international renewable energy cooperation should be guided by international development and localized operation, and should focus on overseas power plant investment, overseas power plant EPC, overseas R&D, and international standards cooperation. All cooperation must fully consider the economic development and strategic needs of the host country in order to effectively align China’s advantages with BRI countries’ domestic resources. It is also important to coordinate foreign investment strategies of renewable energy enterprises, the host country’s energy strategies, and regional environmental constraints. Future cooperation should target renewable energy EPC, power plant investment, and power plant operation and maintenance, focusing on developing regional and national level renewable energy investment cooperation mechanisms, risk prevention mechanisms and support systems.
Before 2020, China should focus on renewable energy projects in key BRI areas, which includes ensuring greater publicity and promoting overseas renewable energy investment, and enhancing the international influence of Chinese renewable energy enterprises. From 2020-2025, China could gradually improve the development of integrated renewable energy projects, as well as the application and promotion of smart energy and micro-grid projects. At the same time, China could also strive to improve participation and market recognition for Chinese enterprises in renewable energy cooperation with BRI countries.
In terms of regional cooperation, this report recommends China focus on renewable energy development in the six economic corridors planned by the government, and on clarifying the type of cooperation based on the situation of each specific region. For example, investment in the China-Pakistan Economic Corridor should consider Pakistan’s rapid growth of electricity supply, focusing on stabilizing existing renewable energy projects and improving overall quality and efficiency. Cooperation in the Bangladesh-China-India-Myanmar Economic Corridor should focus on signing agreements on specific projects, striving for mutual trust and fostering partnerships, first laying a foundation and then growing and developing from there. China-Indochina Peninsula cooperation should focus on improving the global competitiveness of highquality manufacturing bases, and strengthening local operations to expand globally. The China-Central Asia-West Asia Economic Corridor is recommended to be linked to national planning initiatives, such as Kazakhstan’s “Bright Road”. The New Eurasian Land Bridge cooperation should give full play to the role of the “16 countries” mechanism in central and eastern Europe, and should promote the development of port and logistics center projects through the development of solar energy, wind energy, the energy internet, and other related industries. China-Russia-Mongolia renewable cooperation should promote the use of renewable energy power in border areas through regional economic integration. Lastly, China-Africa renewable energy cooperation should rely on platforms and support systems, such as the Forum on China-Africa Cooperation, to promote China’s renewable energy standards in Africa.
The key for BRI international renewable energy cooperation is to focus on aligning with host countries’ energy strategies and forming a comprehensive cooperation facilitative mechanism. It is recommended to make use of 28 multilateral cooperation mechanisms, such as the Asia-Pacific Economic Cooperation (APEC) and G20, with an emphasis on the strategic development opportunities in the three 100GW+ renewable energy markets: the Eurasian Land Bridge (259.85 GW), the Bangladesh-China-IndiaMyanmar Economic Corridor (177.74GW), and China-Africa cooperation (141.084GW). This development could focus on solar and wind power, while actively promoting biomass and geothermal projects. In addition, it is also recommended to work to develop a roadmap for promoting energy cooperation through establishing a joint working mechanism for these regions.
In terms of cooperation in key countries, China is recommended to combine regional mechanisms with key country mechanisms, develop a list of key projects, and promote China’s participation in major hydro, wind, solar, biomass, geothermal, and marine energy projects of key countries. For example, China has participated in the development of 70% of hydropower projects worldwide, with projects in Nigeria, Indonesia, Pakistan, and others. In terms of photovoltaics, Jinko Solar, Canadian Solar, GCL, LONGi, Trina Solar, JA Solar, Chint and more have established solar cell and module production bases in countries like Vietnam, Malaysia, Thailand, Indonesia, and Germany, forming a supply chain and market network of high-end solar equipment connecting China with foreign countries and benefiting the whole world. In terms of wind, PowerChina participated in the Dawood Wind Farm project in Pakistan, and Chinese wind power companies including the China Three Gorges Corporation, the China General Nuclear Power Group, the China Energy Investment Company, Goldwind, Envision Energy, Ming Yang Smart Energy, etc. have participated in the investment and construction of wind projects in the UK, Germany, Australia, and others. In terms of concentrated solar power, SEPCOIII also cooperated on a CSP project in Morocco.
In the field of EPC, Chinese companies including PowerChina and Gezhouba Group worked on EPC for renewable energy in countries such as Laos, Nigeria, Ghana, and Guinea. In the finance sector, Chinese financial institutions such as the China Development Bank, China Export-Import Bank, China Export and Credit Insurance, and the Silk Road Fund have provided green financing for renewable projects in countries such as Pakistan, the United Arab Emirates, and Ethiopia.
Finally, in order to encourage Chinese companies to participate in BRI international renewable energy cooperation, this report proposes the following recommendations:
(1) Plan ahead. Build and connect international cooperation platforms by relying on the Chinese government’s efforts in strengthening international exchanges;
(2) Promote cross-border research and consultation on renewable energy, and develop policies and plans to guide the nature of the cooperation;
(3) Promote innovation in renewable energy cooperation models, including advanced production capacity, international trade, international mergers and acquisitions in the fields of international engineering, hydropower, nuclear power, wind, and solar energy;
(4) Actively promote innovation in BRI renewable energy financing models, including EPC+F, on-lending through international financing organizations, sovereign wealth funds, BRI renewable energy bonds, international development funds, overseas industrial funds, and international syndicates;
(5) Promote the formation of BRI renewable energy cooperation standards, norms, and guidelines, led by China with international participation and mutual recognition, and form a multi-level international standards cooperation system for renewable energy;
(6) Promote capacity building for digital wind and solar power, digital EPC, digital power plant operation and maintenance, and digital training;
(7) Promote diverse links between industry organizations and stakeholders in BRI countries, pool domestic and foreign forces, and work together to promote international BRI renewable energy cooperation.
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