China’s solar sector is heating up. In 2015, the country had the largest potential solar power generation capacity in the world, taking over Germany’s previous spot in the hot seat. In the same year, China was responsible for over a third of the world’s estimated $329 billion renewable energy allotment, at roughly $110 billion, followed by the U.S.’s $56 billion during the same time period.
However, the global powerhouse’s lending practices fail to meet the clean energy metrics that domestic generation facilities seem to strive for. Between 2007 and 2014, China’s international development banks spent 66 percent of their total foreign energy expenditure on coal power generation. During those seven years, Chinese development banks financed an estimated $117 billion in non-national power generation, which was roughly equivalent to investment from the World Bank and Asian Development Bank combined.
What is fueling China’s fire for offshore coal investments? Its large appetite for risk could have something to do with it. China is lending to countries that other international financial institutions are not. The credit risk for 13 of the top 20 recipients of Chinese development bank money was significantly higher than that of recipients from other Multinational Development Banks. This means investment in smaller developing countries, which may not have strict environmental or anticorruption regulations.
Other contributing factors could be that these contracts often include purchasing agreements for Chinese exports and are backed by rights to commodities. Additionally, the fact that China has installed more solar than it can use and is forced to leave some plants offline could inspire the country to invest in less developed power grids abroad.
Despite mixed messages, it looks like the Chinese government is in fact dedicated to transitioning to a clean energy future both domestically and abroad. As the Financial Times points out, last September, the Chinese government stated that it will “strictly limit” investments in carbon intensive power generation.
Domestically, the country’s sun power industry has a good shot at reducing costs such that it could compete with coal power prices in the near future. As Bloomberg notes, solar cell efficiency is expected to increase from 18 to 20 percent over the next few years, which alone would make the clean power cheaper than coal. On a global scale, solar energy should be cost competitive with coal by 2025.