Pollution Puts Chinese Clean Energy Investment Into Hyperdrive: JinkoSolar Holding Co., Ltd. (JKS), Arch Coal Inc (ACI)

Wind may have been first, but it’s solar that is expected to lead China’s green investment in the future. The country expects to install 40 GW of solar by 2015, more than all solar installations worldwide last year. There are a lot of ways to play the solar market in China but investors need to be cautious buying over-leveraged solar companies. Two companies to watch going forward are JinkoSolar Holding Co., Ltd. (NYSE:JKS) and Trina Solar Limited (ADR) (NYSE:TSL). Jinko is a small solar maker but it has a better balance sheet than most competitors and it is getting into the systems space in a big way. Trina’s balance sheet still holds a lot of debt but this is one of the best brands in Chinese solar, and it’s a company that is more likely than other large manufacturers to last through the upcoming shakeout.

What to avoid
Solar and wind may have strong futures in China but there will be losers from all of this pollution as well. An easy target, as usual, is the coal industry.

Coal stocks have been beaten up over the past year but I think China’s pollution will only make the industry worse. The first challenge is demand. Coal is one of the big drivers of pollution in China and regulation could impact demand going forward. With wind and solar playing a bigger role in energy I don’t think demand will continue to grow the way it has over the past decade.

The second problem for companies trying to export coal into China is that China doesn’t like to be a long-term importer of anything. Despite growing demand, a recent survey by Thomson Reuters predicted a 10% decline in coal imports in 2013, which would put even more pressure on coal stocks.
Arch Coal Inc (NYSE:ACI)‘s recent results show just how bad conditions are in coal. The company’s revenue fell 21% in the fourth quarter despite increased Chinese imports in 2012. Another stock to avoid is Alpha Natural Resources, Inc. (NYSE:ANR), which is expecting losses to grow in 2013 instead of getting smaller.

Foolish bottom line
It seems like clean energy is slow to catch on in the U.S., but China is behind it 100%. For China, it’s a matter of necessity more than political convenience. If your most visible cities are covered by smog and residents can’t go outside it affects everything from public health to business. That’s why China is making big bets on cleaner energy, something that will continue far into the future. Even China knows a cleaner future is a better future.

Right now I would say wind and solar will be long-term winners and coal will eventually be left in the dust.

The article Pollution Puts Chinese Clean Energy Investment Into Hyperdrive originally appeared on Fool.com and is written by Travis Hoium.

Fool contributor Travis Hoium has no position in any stocks mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw. The Motley Fool has no position in any of the stocks mentioned.

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