China Doubles Down on Solar: Investors Return to Green Energy Sector

Following the 2020-2021 boom, most global renewable energy stocks came under pressure. This was driven by renewed investor interest in fossil fuels amid relatively high prices, intense competition in the renewable energy sector, elevated interest rates, and reduced government support in some countries (such as the U.S. under the Trump administration). That said, the main negative factors have now largely been priced in by the market, while green energy development continues in the world's largest economies. Against this backdrop, we believe now is a good time to consider investments in the renewable energy sector.

In our view, China is currently one of the most promising regions for investment. The Middle Kingdom is the absolute global leader in installed capacity for solar and wind energy, as well as in annual growth rates. In 2025, the combined capacity additions in solar and wind energy could exceed 300 GW for the second consecutive year. Growth is primarily driven by solar—China's solar energy association expects additions of up to 255 GW in 2025, compared to 277 GW the previous year. It's worth noting that historically, the association's forecasts have been quite conservative—a fact underscored by solar capacity additions of 212.2 GW in January-June of this year, 2.1 times higher than a year earlier.

At the same time, it's important to note that this year's seasonality for solar capacity additions will likely be inverted. Traditionally, China sees the largest capacity additions in December, but this year the peak was likely reached in May. This is due to regulatory changes—starting June 1st, pricing for solar and wind power plants became market-based, no longer guaranteeing a certain level of profitability. However, even with the strong capacity additions in May and the regulatory change in June, additions still reached 14.2 GW in June. We believe June's solid performance speaks to the strength of China's solar energy development trend.

Despite its existing leadership in renewable energy in absolute terms, China still retains significant potential for further energy transition. Currently, coal remains the foundation of China's energy balance, and even in electricity generation—where renewable penetration is highest—fossil fuels accounted for 62% in 2024.  

For investments in China's renewable energy sector, we highlight Global X China Clean Energy ETF (2809.HK). The fund covers primarily solar, wind, nuclear, and hydropower. It includes both companies directly engaged in electricity generation and manufacturers of various equipment for these sectors.

Since its late 2021 peak, this ETF has declined by more than half. The fund's weak spot has been companies involved in solar panel manufacturing and related equipment, as solar panel prices fell by nearly two-thirds last year alone due to a local overproduction crisis. However, further price declines without corresponding cost reductions now appear unlikely, given that several sector players are operating at a loss.

That said, technology cost reduction is one factor driving further renewable energy adoption, which supports revenue growth for sector companies. We also note that following the sector correction, valuation multiples for companies in the ETF have become quite attractive. Specifically, the median P/E 2025E and EV/EBITDA 2025E multiples for the ETF's ten largest holdings stand at 17.4 and 14.8 respectively—fairly modest figures given a projected median annual revenue growth rate of 11.5% for 2024-2027.

Our current target price for Global X China Clean Energy ETF is HKD 88.4, with a "Buy" rating. We note that we may revise the target price upward if China maintains high growth rates in solar and wind capacity additions over the coming months.

Among international ETFs, we highlight the solar-focused Invesco Solar ETF (TAN). Roughly half of this ETF's assets are concentrated in the US market, around 20% in China, with the remainder distributed primarily among companies from developed economies.

The US focus meant the ETF was in correction mode ahead of Donald Trump's election, as markets were already pricing in the new president's more skeptical stance toward renewable energy sources. However, as often happens in markets, the "sell the rumor, buy the news" principle kicked in, and since Trump took office the fund has begun gradually bouncing back.

According to estimates by consulting agency Wood Mackenzie, even accounting for the new administration's actions, solar capacity additions in the US will reach 40-45 GW annually in the coming years—close to record levels. This is largely explained by strong demand from households, for whom home solar systems remain economically viable in many cases.

Given positive demand expectations, the projected median average annual revenue growth for Invesco Solar ETF's ten largest holdings over the 2024-2027 period stands at 11.1%. Meanwhile, against the backdrop of the ETF's recent correction, the P/E 2025E and EV/EBITDA 2025E multiples for the fund's ten largest holdings are 14.9 and 11.6 respectively—quite modest valuations by historical standards.

Our current target price for Invesco Solar ETF is $48.4, with a "Buy" rating.