Estimating Chinese Foreign Investment in the Electric Power Sector

China began investing in overseas power projects in 2003, with investments accelerating in the years since. After a steady growth period from 2003-2013, the past four years have witnessed a substantial increase in the volume of Chinese investment. 

In a new working paper, Kevin P. Gallagher, Zhongsu Li and Denise Mauzerall provide the first estimates of the generation capacity of Chinese overseas investment in the electric power sector. They analyze the spatial and technological distribution of China’s overseas electric power investments around the world and the pollution intensity of Chinese coal-fired power plants relative to those held by non-Chinese entities. 

Main findings:

• Chinese firms hold approximately $115 billion in electric power assets globally, with a power capacity of 81 GW power plants outside China owned or partially owned by Chinese firms. 
  • The absolute amount equals the total generating capacity of Iran in 2015, which ranks 14th in the world. 
• Chinese electric power plants span the globe, but are largely found in emerging markets and developing countries, particularly in Asia and Latin America. 
• China invests in a diverse portfolio of electricity generating assets, with the vast majority of Chinese investment going to coal, hydropower and gas while the share of solar and wind is relatively small but may be rising. 
  • Coal projects represent 30 percent of the total capacity, followed by gas and hydropower projects. 
• The majority of Chinese greenfield investment in coal plants use subcritical technologies (55 percent), though 84 percent of non-Chinese coal plants are subcritical, meaning those with lower heat efficiency of around 40 percent. 
• Chinese investors have introduced more efficient core technologies and less polluting end-of-pipe technologies than non-Chinese firms. 
  • Of coal plants with participation by Chinese firms through mergers and acquisitions (M&As), 71 percent are subcritical plants that deploy relatively strong end-of-pipe technologies.

By developing a new accounting method for tracking Chinese overseas investments, linking foreign investments to emissions in power plants by nationality, Gallagher, Li and Mauzerall  argue analysts and policymakers could obtain a fuller picture of a nation’s carbon footprint. In addition to consumption-based accounting, an ownership-based accounting system could provide a new viewpoint of carbon emissions in the context of globalization. Quantifying such ownership-based carbon footprint could expose potentially huge cross-border carbon leakage. In the coal sector, for instance, Japan and Germany have long been recognized as major coal investors in developing countries although they have successfully cut down domestic carbon emission. Gallagher, Li and Mauzerall combined publicly accessible information with a commercial database and identified Chinese ownership of global power projects at the unit level. In the future, the methodology could be used to track ownership of other nationalities and to estimate the global carbon footprint of major power investing countries.