Green China: Eco Investors Crack the Forbidden Kingdom

John Kuhns, CEO of China Hydroelectric Corp., is one of the few successful foreign investors in the Chinese green energy market.


John Kuhns, CEO of China Hydroelectric Corp., is one of the few successful foreign investors in the Chinese green energy market. Kuhns started buying hydroelectric power-generating equipment in China in 1986 and went on to develop several projects there in the mid-1990s. Today, with 29 stations, China Hydroelectric is the largest of the nation’s power companies using environmentally friendly sub-50-megawatt generators. “Hydropower is the cheapest way to make juice in China, and it is also clean, so its future is very bright,” says Kuhns, who also founded the first wind power company to go public in the U.S.

With regulatory risks in Europe and the lack of a renewable energy policy in the U.S., investors may want to follow in Kuhns’s footsteps. Asia and Oceania have seen the biggest worldwide increase in investments in renewable energy projects since 2008, largely as a result of activity in China, the World Economic Forum says in its latest report on green investing. China has the world’s biggest clean energy asset financing market, with investments worth $29.8 billion, or 86 percent of the country’s total clean energy financing. The U.S. is a distant second with $11.2 billion, according to a recent report by the Pew Charitable Trusts, a Philadelphia-based think tank.

Besides hydropower, major green energy projects in China include wind, solar photovoltaic and concentrated solar power. “Investors are looking at TLC — transparency, longevity and certainty,” says Mark Fulton, global head of climate change investment research at Deutsche Bank’s DB Climate Change Advisors. “China has a lot of ambitious goals.”

Although breaking into the Chinese green energy market is far from easy, it helps to take on a knowledgeable Chinese partner, Kuhns says. The rewards are worth the effort. The country’s hydropower capacity — 200,000 megawatts — is the world’s biggest and could double within ten years. By comparison, total U.S. hydropower capacity is about 95,000 megawatts, according to the U.S. Department of Energy.

Moreover, China accounted for some 80 percent of East Asia’s total infrastructure spending between 2006 and 2010, according to Morgan Stanley; this provides enormous opportunities for smart investment funds.

One of them, the Impact Funds Climate Change unit of Paris-based Natixis Asset Management, invests in suppliers of green-oriented railway systems to China and other emerging markets; they include Ansaldo Energia, Bombardier and Siemens. The fund was launched a year ago and has grown steadily, now managing €134 million ($184 million), mainly from European institutional investors.

“Emerging countries are very strongly supporting energy-efficiency plans,” says co–portfolio manager Suzanne Senellart. “China wants to double its high-speed railway infrastructure” by 2020.

Some investors want a global political consensus before they risk money. The Danish pension fund ATP earmarked €1 billion for climate-friendly infrastructure projects in Brazil, China, India, North Africa and Russia, but backed away in December 2009 after United Nations climate change conferences in Copenhagen and Cancún failed to lay out a coherent global investment strategy.

“If institutional investors are expected to deliver 80 percent of the funding, politicians need to create frameworks that allow us to invest,” says Ulrik Dan Weuder, portfolio manager at ATP. He says politicians at the U.N. climate change conferences need to deliver binding resolutions that show clear targets and clear demand for climate-related projects in emerging markets. “We need transparency and reliable investment programs, targets and framework,” Weuder says.

Despite the hurdles, the world’s fastest-growing economy is too important a player in green markets to ignore. “In the future,” says Weuder, “you won’t blink to invest in solar power or wind farms in China.” .