Over 40%<\/p>
of Belt and Road energy projects announced in the first half of this year were wind and solar<\/p><\/div><\/div>\n\n\n\n
Data from the Green Finance and Development Center, at Fudan University in Shanghai, suggests that this may finally be happening. In the first half of this year, investments and contract signings for solar and wind power projects accounted for nearly 42%<\/a> of Chinese engagement in the overseas energy sector, compared to 26% in the whole of 2022 and 15% in 2021. In terms of value, engagement in solar and wind grew slightly compared to the first half of 2022 off the back of an uptick in construction contracts. Coal projects saw zero investment, while gas and oil projects accounted for around 22% of each.<\/p>\n\n\n\n At the same time, however, overall investment of Chinese companies in the overseas energy sector has declined to its lowest level since the start of the BRI ten years ago. The year 2021 was also the first since 2000 to see no new loans<\/a> to overseas energy projects from China\u2019s state-run banks.<\/p>\n\n\n\n \u201cGreen development\u201d on the BRI will be discussed at one of three high level forums taking place during the Third Belt and Road Forum in Beijing on 16 and 17 October. As the BRI enters its second decade<\/a>, will it be able to fulfil the 2021 promise to \u201cstep up\u201d support for green energy in developing countries? What opportunities and obstacles stand in its way?<\/p>\n\n\n\n In the years running up to Xi\u2019s UNGA announcement, coal power projects on the Belt and Road became a hotspot for controversy and discontent. Projects such as one at Lamu<\/a> in Kenya, Hunutlu<\/a> in Turkey, Celukan Bawang<\/a> in Indonesia, and Gwadar<\/a> in Pakistan, to name a few, attracted criticism for their emissions implications, failure to properly consult local communities, and risks to the local environment.<\/p>\n\n\n\n Since 2021, however, many of these projects have been cancelled. Forthcoming analysis by the Centre for Research on Energy and Clean Air (CREA) indicates that 36 coal power plants, representing nearly 36 gigawatts (GW) of capacity, have been cancelled since September 2021. Some projects have still moved to construction even after Xi\u2019s announcement, particularly \u201ccaptive\u201d coal power plants designed to serve industrial facilities. CREA argues that a further 19.2 GW worth of coal power that is currently in the pipeline should be cancelled as the projects have still yet to receive permits or finance. The organisation also says that a further 10 plants, for which permitting or financing deals have already been signed but have not yet entered construction, \u201cshould be converted to renewables\u201d.<\/p>\n\n\n\n \u201cA project will need to be built to ensure no breach of contract. However, because no physical infrastructure is in place yet, it is still possible for contracts to be renegotiated to renewables,\u201d explains CREA director Nandikesh Sivalingam.<\/p>\n\n\n\n The expansion of wind and solar energy along the Belt and Road may be easier said than done, however. Dr Wei Shen of the Institute of Development Studies at Sussex University, UK, explains that high levels of debt and rising interest rates on loans have increased project risk and affected investor sentiment. Added to this, he argues, Chinese institutions tend to be relatively inflexible and slow to respond to the changing overseas investment environment.<\/p>\n\n\n\n Specifically, Shen\u2019s research suggests<\/a> that Chinese energy companies investing overseas can no longer rely on the finance and construction model, underwritten by sovereign guarantees of the host country, that has dominated BRI infrastructure projects until recently. Rather, companies will need to be more creative and flexible in finding financing and working with non-Chinese parties. To date, private companies have proven much more capable of doing this than China\u2019s big state-owned companies. As a result, we see a number of renewable energy infrastructure partnerships involving companies from both China and elsewhere, including Europe and the US, but also emerging markets such as the UAE and Turkey.<\/p>\n\n\n\n For example, a construction contract signed<\/a> for a 115 megawatt (MW) solar plant in Upington, South Africa, in the run-up to Xi Jinping\u2019s state visit to the country in August, involved a consortium of Chinese state-owned companies, China Energy Engineering Corporation and Gezhouba, South African partners, as well as France\u2019s EDF.<\/p>\n\n\n\n The obstacles are not just financial, however. Two recent reports from the Green Finance and Development Center called attention to the \u201cintricate political-economic circumstances and vested interests\u201d of the energy sectors of Pakistan<\/a> and Vietnam<\/a>, two of the largest destinations for China\u2019s overseas energy investments over the last decade. The authors note that both local government and state-owned companies in Pakistan have an interest in preserving the coal power and mining industries. Moreover, despite the declining costs of renewables, these interests are unlikely to shift anytime soon, due to insufficient risk presented to coal investors in Pakistan\u2019s power sector, report co-author Haneea Isaad tells China Dialogue. Similarly, in Vietnam the authors point to the interests of coal power plant operators and coal importers, who have signed long term-contracts on the supply of coal. The authors conclude that the \u201cacceleration of green energy transition is not a one-size-fits all model.\u201d<\/p>\n\n\n\n Another way Chinese financiers and companies could help accelerate energy transitions in Belt and Road countries is by aiding the early retirement<\/a> of coal power plants they have been involved in building over the last decade.<\/p>\n\n\n\n One way to do that is by conditional refinancing of such projects. This involves offering a new loan at a lower interest rate to pay back the original loan, on the condition that the plant be retired earlier than its planned lifespan, which is often 30 to 40 years. Freed-up capital or portions of the low-interest loan could then be invested in renewable projects. Such early retirements could also lower the risk of Chinese-backed plants becoming \u201cstranded assets\u201d as countries move towards lower-emission power generation as part of their climate pledges and energy security goals.<\/p>\n\n\n\n \u201cChinese sponsors have a large portfolio of plants that can potentially be phased down early,\u201d explains Professor Christoph Nedopil, director of the Griffith Asia Institute and co-author of the Pakistan and Vietnam reports. \u201cEarly retirement can be a win-win-win situation: for the Chinese sponsors who are cutting losses of existing plants and improving their returns through combined investments into renewables, for the host country\u2019s economy, and for the environment.\u201d <\/p>\n\n\n\n Another approach particularly relevant to countries with high sovereign debt could be \u201cdebt-for-climate\u201d swaps. These could involve payments owed to Chinese policy banks being partially cancelled or renegotiated in return for the early retirement of coal power assets or construction of renewable energy projects. The swap could also be extended to include agreements on Chinese companies\u2019 involvement in new (and more profitable) renewable energy projects, Nedopil explains.<\/p>\n\n\n\n \u201cThe financial instruments are aplenty,\u201d says Isaad. \u201cHowever, this is all very theoretical at this point. To my knowledge, the Chinese have not been brought in on these initiatives yet and without that we cannot progress even an inch.\u201d<\/p>\n\n\n\n China is the major supplier to solar projects across the world, accounting for over 80%<\/a> of solar panel manufacturing worldwide, according to the International Energy Administration (IEA).<\/p>\n\n\n\n Despite the complexities of transitioning to cleaner energy investments overseas, exports of solar components manufactured in China are soaring. In the first half of 2023, they increased 13%<\/a> compared to the same period last year, according to Chinese customs\u2019 data, one of very few bright spots amid China\u2019s current economic travails.<\/p>\n\n\n\n While the European market accounted for around half of those exports, data compiled by China Dialogue indicates that Belt and Road geographies are also a part of the picture of this boom in demand for Chinese solar components.<\/p>\n\n\n\nA difficult transition<\/h2>\n\n\n\n
![\"People](\"https:\/\/dialogue.earth\/content\/uploads\/2023\/10\/Kenya-protest-against-lamu-coal-plant_CD_GP0STTG8P.jpg\")
<\/div>A different approach<\/h2>\n\n\n\n
The Chinese have not been brought in on these initiatives yet and without that we cannot progress even an inch<\/blockquote>Haneea Isaad, Green Finance and Development Center<\/cite><\/div><\/div>\n\n\n\n
Solar king<\/h2>\n\n\n\n