The Global Environment Fund (GEF), a private equity firm specializing in clean energy investments, has invested US$30 million in UPC Renewables China Holdings, an independent renewable energy producer. The investment comes in the wake of a UN approval for carbon financing of 32 Chinese wind farms.
UPC Renewables has developed 150 megawatts of wind capacity in China since 2006, and the company has another 3 gigawatts currently under development. GEF has approximately US$1 billion in assets under management, which it has already used to invest in a Chinese water treatment equipment manufacturer in addition to investments in Mexico, Brazil, and Hungary.
The presence of smaller, independent wind firms in China will help drive energy prices lower and make wind a more compelling alternative to traditional fossil fuel sources. But the overwhelming dominance of state energy firms in the sector will not be seriously impacted. The high barriers to entry – both in terms of setup costs and government relationships necessary to connect wind farms to the national power grid – will allow state-owned utilities such as China Huaneng Group (listed subsidiary: Huaneng Power International, 0903.HK, 600011.SH, HNP.NYSE) to retain an advantage. This is exacerbated by the fact that China continues to deny international operators access to its offshore wind resources.
Expansion of wind power capacity, by whatever kind of company, drives demand for equipment. International wind turbine manufacturers like Siemens (SIE.ETR) stand to benefit, as do their domestic counterparts including Goldwind Science & Technology (002202.SZ).