When leaders from 175 countries signed the historic Paris climate accord at the UN headquarters in New York on April 22, Chinese entrepreneur Alan Li was among many hailing the move and eying arguably the greatest business opportunities the world has ever seen in renewable energy.

For Li, chief executive of Hong Kong-listed United Photovoltaics (United PV), the unprecedented international deal is a major step forward that will catalyse new energy investment globally.

“A new era is coming as the whole society starts to embrace new energy,” Li told FinanceAsia. “The commitment [to tackle climate change] made by China and the US, the world’s top two carbon polluters, is a milestone in the development of new energy such as solar power.”

China and the US together account for more than 40% of global emissions, according to the Global Carbon Project, a scientific organisation that tracks the carbon cycle.

Set up in 2013, United PV is the solar farm subsidiary of state-owned conglomerate China Merchants Group and has grown quickly through aggressive acquisitions. It now owns 28 solar power plants with an aggregate installed capacity of around 1 gigawatt across China. United PV’s bigger domestic rival, the loss-making GCL New Energy, owned 41 solar power stations in China with an installed capacity of 1.6 gigawatts as of the end of last year, according to the company’s annual result.

United PV’s fast development comes at a time when Beijing is pushing hard to reform the country’s energy portfolio through the rapid adoption of renewable energy, to help build a greener economy and cut chronic pollution levels.

The country’s solar power plants generated 38.3 billion kilowatt hours (kwh) of energy last year, an increase of 64% year-on-year. But that represented less than 1% of China’s total power consumption of 5.56 trillion kwh, according to the Chinese National Energy Administration (NEA) and the semi- official China Electricity Council.

Last June, China pledged that by 2030 it would cut its carbon emissions per unit of GDP by 60-65% compared with 2005 levels, peak its carbon emissions, and derive 20% of its primary energy consumption from non-fossil sources.

“This requires strenuous efforts but we have confidence and resolve to fulfil our commitments,” Chinese President Xi Jinping said at the opening ceremony of the initial Paris Agreement intergovernmental negotiations on November 30, according to the official Xinhua News Agency.

According to Li, United PV plans to invest a further $1.3 billion this year snapping up solar plants, not just at home but also overseas – in Europe, the US, and Australia – and is targeting an internal rate of return of about 8%.

With a cash balance of Rmb947 million ($144 million) at the end of last year and short-term debt, mainly bank loans and convertible bonds, of Rmb1.63 billion, that means United PV will look to raise additional capital in the coming months. The company’s annual report also shows that it helped to save about 740,000 metric tonnes in carbon emissions by generating about 859,730 megawatt hours of solar power, 77% more than in the previous year.

United PV recorded a net profit in 2015 of Rmb373 million, up 43% year-on-year, while its income from power generation increased by 66% to Rmb631 million.

ROOM FOR IMPROVEMENT

While renewable energy, such as solar power, only accounts for a small fraction of China’s entire energy portfolio, the country has been acting on its promise to cut carbon emissions.

Last year alone China added a record 15.1 gigawatts of new installations, making for a total solar capacity of 43.2 gigawatts and outstripping Germany with 38.4 gigawatts as the nation with the most installed solar capacity globally, according to the NEA.

Under the 13th five-year plan (2016-2020), a national policy blueprint, China aims to more than triple the country’s solar power capacity by 2020, adding an average of 20 gigawatts of photovoltaic power each year for the next five years, according to the NEA.

If that goal is met, solar capacity will represent 15% of new power installations from 2016 to 2020. Developing one gigawatt of solar power capacity requires about Rmb8 billion in investment, meaning a potential Rmb800 billion in total investment over the five-year period.

“It would see a huge expansion [in China’s new energy] and so there would be an opportunity for investors,” Roberto Bocca, head of energy industries at the World Economic Forum, told FinanceAsia.

Still, as elsewhere, increased solar power capacity does not always equate to increased consumption and efficiency.

What is important, Bocca said, is not just to invest more in capacity but also to alter the energy value chain. “Otherwise [even if] you add [new energy] production, it is not usable in some part or not optimised,” he said.

For instance, 31% of photovoltaic capacity in Gansu and 26% in Xinjiang, two major solar producing regions, was forced to sit idle last year as Chinese power demand growth decelerated to just 0.5%, also making it difficult for coal-fired generators to run at full capacity.  The curtailment ratio further advanced to 39% and 52% in the first quarter of this year, data from the NEA shows.

In addition, poor transmission capabilities meant solar power could not be transferred from where it’s generated – usually remote areas of western China – to densely populated coastal cities in the east where demand is stronger.

The idle solar capacity cut into the government subsidy payments solar power operators rely on and which can often be delayed as a result of lengthy and complicated application procedures.

“This sector still largely counts on the government support,” said Robin Xiao, an energy analyst at China Merchants Bank International Securities, who estimates subsidies make up about 60% to 70% of total revenues earned by photovoltaic companies and are liable to delays lasting up to 18 to 24 months.

“That would have an impact on their cash flow and cause some uncertainties" for their businesses, he said.

But with coal-fired pollution choking the air and a top source of public dissatisfaction, some industry participants and analysts said transformation of the country’s energy structure remains a must for Beijing, in spite of the financial pressures.

“The cost of thermal power is indeed lower than solar power but its hidden costs haven’t been reflected in the price. The damage it brings, such as hazardous smog, has increasingly become an unbearable burden on the country’s healthcare system,” United PV’s Li said.

In a long awaited announcement in late May, the National Development and Reform Commission, China’s top pricing regulator, and the NEA jointly set out the minimum guaranteed utilisation hours for solar and wind power plants in those areas affected by curtailments – up to 1,500 hours and 2,000 hours annually, respectively.

“It is good news for renewable energy companies as it can at least guarantee these companies will receive a minimum return and can help their power projects survive,” Xiao, the analyst, said.

Longer-term, United PV is confident the economics of solar energy will pay for itself as the necessary infrastructure for transmission catches up with generating capacity, betting on the completion of ultra-high-voltage electricity transmission circuits by 2020, in which, according to the official newspaper Economic Information, Beijing will have invested Rmb700 billion.

“The problem of curtailment is just temporary,” Li said. “Any new industry, when it comes out, it’s like an ugly duckling which requires a lot of fixes. But you cannot stop it from becoming a swan eventually.”