Deal focus: CITIC backs China geothermal energy player

Bringing three billion people into the middle class isn’t good for the environment. If the One Belt One Road agenda succeeds in modernizing China’s Silk Road trading partners over the next three decades, it will entail a massive increase in fossil fuel consumption. In fact, the environmental limitations of arid Eurasia could jeopardize the whole plan.

CITIC Capital and China Everbright know that problem solving on this scale requires worldwide brainstorming. As such, the investors are committing $100 million in debt and equity funding to an Icelandic geothermal energy technology developer that is already tracking progress in cleaning up China’s smoggiest cities. The investment, which also includes a $50 million loan facility from the Asian Development Bank, is expected to support expansions into Kazakhstan, Mongolia, and possibly Europe. 

“The strategic value of this investment is as significant as the financial success because it has a lot of important implications for all stakeholders involved, including some of the most polluted provinces in China and China’s neighboring countries facing similar challenges,” says Fanglu Wang, a managing partner for the CITIC Capital Silk Road Fund. “This is a case where an interesting technology outgrew its limited home market and found success in a major market such as China, and beyond.” 

Tenacity has been a big part of the story for CITIC and Arctic Green Energy (AGE). Wang met with the company’s founder, Haukur Hardarson, in eight different cities around the world before initially investing in 2015. The partnership’s key accomplishment has been the acceleration of an unlikely joint venture between AGE and Sinopec, the world’s second-largest oil company. Sinopec Green Energy now operates in 40 Chinese cities and produces 3.6 thermal gigawatts of energy a year.  

AGE’s Sinopec connections have provided the venture with a competitive edge against its geothermal peers, especially regarding the exploration risk related to drilling dry wells. AGE’s drilling success rate stands at 100% versus a geothermal industry average of 60-70%. In the oil game, this figure rarely cracks 7%. 

More importantly, the partnership has proven that geothermal energy is economically applicable to non-volcanic countries. While high underground temperatures related to volcanism are necessary to generate standard electrical current on an urban scale, the low to medium temperatures of Chinese geology are sufficient for indoor heating. AGE and CITIC now believe that geothermal energy for heating and cooling is the most effective weapon against greenhouse emissions. 

“This was not an obvious sector, so it did take some curiosity and persistence to discover its appeal,” says Wang. “We try to be creative and lead the pack with all our investments, and this is a case where we could do that with a unique investment thesis.”   

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• Topics
• Greater China
• Europe
• Industrials
• Expansion
• CITIC Capital
• China Everbright
• energy
• Growth capital
• China
• One Belt One Road