A decade ago, few would have imagined that state-of-the-art clean-energy technologies could be deployed in remote regions, like the Indonesia island of Sulawesi, which straddles the equator between the Indian and Pacific oceans.
But last year, a steel mill in the Indonesia Morowali Industrial Park began covering its roof with solar photovoltaic (PV) panels, replacing 65.9 megawatts (MW) of power previously generated by an on-site coal power plant. This 270 million yuan ($37.5 million) investment from a Chinese company will help the steel mill cut about 100,000 metric tons of carbon dioxide emissions each year.
Similar projects are starting to occur elsewhere in the world, too. For example, in Africa, a fiberglass manufacturer at the TEDA Industrial Park commissioned a 7.5 MW rooftop solar project.
As concentrated hubs of both production and energy consumption, industrial parks can make a significant impact in the global industrial transition to clean energy.
China’s Potential to Spur Decarbonization of Global Industrial Parks
Among the few countries that invest in overseas industrial parks — manufacturing and business facilities developed by one country and located in another — China’s investment has been significant. Together with development assistance, investment in overseas industrial parks is a leading form of China’s international investment.
New WRI research evaluating the technical potential of renewable energy projects developed in China’s overseas industrial parks, show between 1992 and 2022, the country invested 652 billion yuan ($89.7 billion) in 159 overseas industrial parks. These parks, which are joint ventures funded and operated by China and their host countries, are located in 54 countries around the world.
From mineral-rich resource hubs to high-tech research centers, these industrial parks are vital to global supply chains, shaping manufacturing and helping to spur global economic growth. These parks also include agro-industrial facilities which operate agriculture plants and processing businesses, and trade and logistics parks that serve as hubs where goods are stored and transported.
Nearly half the industrial parks are in Asia, while industrial parks in Africa and Europe make up the majority of the other half. Notably, most of these parks are situated in areas rich in renewable energy resources. For instance, most lie in mid- to low-latitude regions with ample and reliable sunshine, making them well-suited for solar energy deployment.
Our research shows that transitioning China’s overseas industrial parks to clean energy will sharply cut emissions in host countries, helping them reach their own climate change and renewable energy development goals.
By 2050, converting all of the China’s overseas industrial parks to solar PV and wind power systems, would bring the world 2% closer to reaching net zero. Making the transition before 2030 will bring the world nearly 5% closer to achieving this goal. This is technically achievable because the mature technologies needed to accomplish this already exist. Solar PV projects in China’s overseas industrial parks can reach maximum installed capacity of 419.66 gigawatts (GW). Wind power projects can reach maximum installed capacity of 116.48 GW. All told, this could eliminate a total of 340 million metric tons of carbon dioxide emissions each year.
Opportunities and Challenges
Supplying stable electricity to industrial park tenants is typically a fundamental service provided by its operators. For parks located in remote areas without access to the grid, operators need to build their own captive power plants, utilizing local energy resources. They may choose coal, diesel, gas or renewables, whichever is the least expensive or technically feasible. Tenants that want clean electricity may need to design, build, operate and maintain their own renewable energy plants in collaboration with industrial park operators and/or local solar or wind companies.
Technical Potential for Renewable Energy Solutions
Different technologies, rooftop solar PV systems, ground-mounted solar PV systems and wind power systems offer various advantages. Their scalability depends on geography, weather and energy requirements of various types of industrial parks. While quickly replacing entire fossil-fuel powered facilities is unrealistic in most cases, renewable energy could begin supplying smaller parts of the energy mix.
Converting to Renewable Energy Can Attract Private Investors
Integrating renewable energy into the electricity generation portfolio of industrial parks could attract an investment of more than 2 billion yuan ($280 million). This includes a potential investment of 552 million yuan ($77 million) in rooftop solar PV projects, 1.1 billion yuan ($158 million) in ground-mounted PV projects and 383 million yuan ($53 million) in wind projects.
Policy and Market Motivations to Decarbonize
China’s overseas industrial parks conduct low-carbon planning and actions on a voluntary basis, guided by associated policies and directives from government agencies, as well as by a national pledge to stop building overseas coal-fired power plants and step up support for clean energy.
There are also two emerging drivers stimulating their motivation: dynamic policies from host countries and evolving market demands.
The net-advantages of renewable energy over fossil-fuel based electricity options may be minimal when solely from a financial perspective. For the policy-driven lever, as the host country establishes a national energy transition strategy and sets national climate goals, creating sector-specific decarbonization requirements, such as registration and business license permissions for captive power plants in industrial parks or allowing electricity trade across property boundaries within parks, is a key next step.
Other factors may also have an impact, such as whether tax exemptions are applied to imports of renewable energy generation equipment, such as PV panels, into host countries without manufacturing capacity. Comparative electricity price and cost are always crucial, as they directly influence the investment-return model in business decisions regarding adopting renewable energy solutions.
For the market-driven lever, there is an emerging trend where key offtakers from the end market increasingly require that their deliverables be manufactured using 100% green electricity. Several tenants in the industrial parks are upstream players in various industries (such as stainless steel and battery), supplying intermediate products (such as refined nickel, nickel sulfate) as vendors in the supply chain.
Scaling Up Broader Decarbonization Practices
Decarbonization in industrial parks will require a collaborative effort. Establishing a multi-stakeholder partnership involving policymakers from both supply and demand countries, business investors, industrial park operators and financial institutions is crucial to unlock the technical potential of renewable energy. This requires enhanced, science-based coordination and cooperation among all relevant stakeholders.
Align Decarbonization Standards Nationally and Internationally
It is highly necessary for on-the-ground practitioners to guide concrete actions, inform policy frameworks and support project-wide evaluations. On renewable energy consumption proportion, for instance, it is recommended that renewable energy account for at least 15% of the total energy consumption within industrial parks.
Prioritize Energy Planning in Industrial Park Investments
Energy planning should be at the core of industrial parks’ future market scoping, ESG portfolios and investment strategies. Building on a solid understanding of host countries’ low-carbon policies and energy transition plans, industrial parks need to integrate local power pricing mechanisms and energy supply dynamics. This process should culminate in the development of a holistic, scenario-based and time-bound energy plan — potentially including a decarbonization roadmap that replaces existing fossil fuel-based captive plants (e.g., coal or diesel) with renewable energy-based captive solutions (e.g., rooftop solar projects) — and should be fully integrated into overall investment decision-making.
Maximizing Resource and Market Opportunities
Most industrial parks are in regions with abundant renewable resources and in proximity to end markets for renewable energy products such as solar PV panels. These favorable market conditions, resource endowments and technical potential can be harnessed to foster sustainable business partnerships, viable profit models and financing package such as blended finance. Such collaborations may involve industrial park developers, tenant companies and renewable energy investors. The projects can take various operational forms, including self-consumption, partial grid connection or full grid integration.
Develop High-Quality Project Preparation and Feasibility Studies
The process from concept to finalized investment documentation often takes longer than expected, with readiness being the key bottleneck. In this regard, renewable energy project preparation must fully meet requirements across technical, financial, and legal dimensions; ensure that cost–benefit analyses accurately capture financial flows and operational performance over a multi-year horizon; comprehensively assess the availability of financial tools and products to mitigate potential energy transition risks; and meaningfully incorporate community-level concerns throughout the process. Financial institutions can adopt tailored energy and electricity supply strategies that align with their specific priorities, including profitability, payback period, emission reductions and social impact. For example, China-Nigeria Economic and Trade Cooperation Zone is moving faster to take actions toward a clean energy transition and sustainable development with investment from the China–Africa Development Fund and support from the South-South Cooperation Fund on Climate Change.
Toward a Decarbonized Future
Industrial parks vary across a wide array of sectors, geographies and purposes, and so will their decarbonization trajectories. Whether the power is used to forge steel or manufacture fiberglass, and how much the renewable generation can be scaled will depend on multiple factors, such as economic circumstances, and governments’ policies and priorities at the national, regional and local level.
It also requires cooperation, negotiation and agreement between commercial investors, industrial parks’ operators and tenants. Feasibility can also hinge on whether renewables can supply constant enough power, to meet energy needs around the clock, and whether the companies and their customers prioritize decarbonization strategies. Nonetheless, one point is clear: industrial parks increasingly have the potential to translate their commitments into concrete low-carbon on-the-ground actions.