Banking for 7 billion and 7 million

GLOBAL INVESTOR 3.06 Basics — 26
Use of New Energy by Electric Utilities,” covering new energies
including wind, solar, biomass, small hydro and geothermal. It is
also noted that many Asian governments are starting to provide
incentives for alternative energy (see table 1).
China’s renewable energy potential
China is both the world’s second largest consumer of energy and
the second biggest emitter of greenhouses gases, behind the USA.
The International Energy Agency claims that, by 2020, China will be
consuming more energy than the USA today, and its GHG emissions
will have more than doubled. Figure 4 shows China’s renewable
energy capacity, based on Credit Suisse Investment Banking estimates.
In the 11th Five Year Plan (FYP), the Chinese government
increased its commitment to promoting renewable energy by including
two measures enhancing energy efficiency and promoting the
use of renewable energy. The National Development and Reform
Commission (NDRC) asserted that up to RMB 1.5 trillion (USD 184
billion) would be invested in renewable energy by 2020.
Feasibility and technology in China, Japan and Asia
We believe China’s renewables sector is likely to display rapid
growth in the areas of solar energy, wind power and biomass.
However, there are also opportunities in the electricity sector, as
China is estimated to require over 30 GW of new generating capacity
every year to sustain its booming economy and growing population.
Demand from the residential and service sectors continues to
surge as living standards improve, with industry accounting for
around 75% of electricity consumption. Combined heat and power
(CHP) can make a major contribution to energy efficiency in China
and help meet its soaring energy demand. This will create a huge
potential market in China for foreign equipment manufacturers,
system integrators and operators, as well as investors. But the opportunity
is now, as major new hydroelectric power and other power
schemes come on stream toward the end of the decade, and then
the energy saving potential of CHP will no longer be an issue. Thus,
the count of beneficiaries can be expanded to include both foreign
and domestic electricity power generation companies. As China
tackles its environmental woes, other potential beneficiaries will
include Japanese providers of environmental services and equipment.
The rationale is that Japan will be well positioned to provide
China with the world-class expertise it needs, given that Japan
faced a similar environmental pollution problem in the 1970s. Companies
that can potentially benefit from new environmental regulations
in China include Mitsui & Co. (BUY). As one of the largest
trading firms in Japan, Mitsui & Co. trades GHG emission credits
based on the Kyoto Protocol and captures business opportunities
from CDM projects, which help developing countries fund technology
transfers to reduce their GHG emissions. A number of Asian
companies with renewable energy policies, technologies and solutions
are also well positioned to benefit from the coming “renewable
energy revolution,” such as Shanghai Electric (BUY) – electricity/
wind; Sharp (HOLD); Kyocera (BUY) – solar; Kuala Lumpur Kepong
(HOLD) – biomass; Toyota Motor (BUY); and Honda Motor
(HOLD) – hybrid cars.
Table 3
Figure 4
Source: NRDC, Credit Suisse estimates
Generation of renewable energy in China
China’s renewable energy will reach 530 million tons of standard
coal equivalent (mn tce) by 2020, according to CSIB estimates. Renewable
energy is likely to be the next booming sector.
in million tons
600
500
400
300
200
100
0
2004
2005
2006
2007
2008
2009
2010
Non-hydro renewable energy
2011
2012
2013
Hydro
2014
Source: EIA, IEA, IGA, AWEA
Leaders in renewable electricity
Iceland is a world leader in renewable energy, with over 99% of the
country’s electricity derived from renewable sources. A country’s success
rate of using renewables is based on geographical viability.
Hydro Geothermal Wind PV Solar*
Canada USA Germany Japan
USA Philippines USA Germany
Brazil Italy Spain USA
China Mexico Denmark Australia
Russia Indonesia India Netherlands
* 2004 figures
2015
2016
2017
2018
2019
2020
1
Daniel Gilbert, “If only gay sex caused global warming”, Los Angeles Times, July 2, 2006
2
NR: non-rated. Note that we do not rate these stocks and make no recommendations on
them as investments.