Asian governments are warming to the idea of offering incentives for green investment and could help attract billions of dollars in funding for solar and wind power industries struggling under tight credit conditions.

Major Asia-Pacific markets from Australia to China and Japan to South Korea are at various stages of refining sweeteners to encourage renewable energy projects. Some are raising renewable energy targets to boost large-scale green projects.

Boosted by such incentives, Asia could overtake the Americas and Europe to be the biggest market for renewable projects by 2012, analysts say.

As governments spend their way out of the financial crisis, part of that cash is being used as incentives for green projects mobilizing increased private investment, said Edgare Kerkwijk, managing director for Asia Green Capital, a renewable energy and commodity-focused investment management firm.

While the credit crunch has discouraged private investment in some industries and markets, Asia's renewable and environmental sectors should benefit from government stimulus packages.

HSBC estimates spending on green-related investments, including railways used as alternatives to carbon-intensive air transport and energy-efficient power grids, to account for 20 percent, or $272 billion, of stimulus spending in Asia -- more than double the amount earmarked for green projects in the Americas and five times bigger than Europe's.

We believe these commitments are but the first installments of further efforts by governments to use low-carbon growth as a key lever for economic recovery, HSBC analysts Nick Robins and Robert Clover said in a report.

In Australia, analysts expect private and government investments in clean energy projects to reach A$20-A$30 billion ($27.6-$41.4 billion) by 2020.

The country plans to introduce the world's broadest emissions trading scheme, which will be its primary policy tool to drive reductions in greenhouse gas emissions and boost investment in clean energy.

As part of the biggest stimulus package to date, China has also earmarked the most to green-related projects. HSBC estimates green-related investments will account for 34 percent, or $200 billion, of China's total stimulus package of $586 billion.

That will be on top of solar subsidies Beijing announced last month aimed at helping local manufacturers who face sagging international demand.

Japan and South Korea are also ramping up green investment, with Tokyo recently announcing plans to install solar systems in about 37,000 schools and offer subsidies of 100,000-250,000 yen ($1,009-$2,521) for each purchase of energy-efficient cars.

South Korea has set a target for alternative energy to account for 11 percent of total energy demand by 2030, compared with just 2.6 percent now. Investment required to meet that target is estimated at 111.5 trillion won ($88.3 billion).

The country has various policy initiatives, including a price support scheme for electricity from renewable sources similar to Germany's feed-in tariff, benefiting green energy suppliers.

HURDLES AHEAD

Asian renewable companies, including China's largest solar company, Suntech Power Holdings, and South Korean polysilicon firm DC Chemical, should benefit as governments push harder for the development of clean energy.

Analysts said incentives for the solar sector will go a long way to driving regional demand for solar energy systems, helping create bigger businesses for companies involved in the entire solar supply chain.

Makers of solar cells in Taiwan including Motech Industries Inc, E-Ton Solar Tech Co and Gintech Energy Corp should benefit, while boosting business opportunities for panel makers like Japan's Kaneka Corp, Sanyo Electric Co Ltd and Sharp, and China's Yingli Green Energy Holding Co Ltd and JA Solar.

Industry experts say most investments may go to wind power projects, which are the cheaper option, benefiting wind turbine makers such as India's Suzlon Energy Ltd and China's Xinjiang Goldwind Science & Technology Co Ltd.

Governments' green push should also help smaller alternative energy companies like China Solar Photovoltaic SA.

We were very encouraged by China's new policy, though it is too early to say what the impact will be as the detailed guidelines have yet to come out, said Veerraju Chaudary, chief operating officer at China Solar.

Analysts say there are hurdles ahead, however.

Most investors want to see clarity in regulations for government incentives, and tight credit and strained government budgets could limit the flow of funds to some projects.

The subsidies showed the government is committed to supporting the industry, but that's not enough, said Zhenhua Pan, deputy general manager of solar firm Jetion Holdings Ltd. Subsidies should also apply to solar power stations, especially in the remote inland areas not covered by the national power grid.

China's offer of a subsidy of up to 20 yuan ($2.93) per watt on rooftop and building-integrated solar projects still lacks detail on how it will be implemented, and it's unclear if the same level of financial incentive will be available to other types of solar projects.

A sharp fall in the price of carbon-based energy, meanwhile, has discouraged investors from spending more on expensive renewables, but industry experts believe government incentives could win businesses back to green projects.

Cheap oil may have discouraged investments in alternative energy, but subsidies and tax breaks are helping make these projects commercially viable, said Asia Green's Kerkwijk.

(Additional reporting by Fang Yan in SHANGHAI; Editing by Ian Geoghegan)

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