* China invested record $67.7 bln in clean energy last year
* Faces annual finance gap 3.5 times that amount by 2020
LONDON, March 21 (Reuters) - China will have to raise up to $243 billion a year by 2020 to finance clean energy development, said a report commissioned by Beijing which will be presented to the government this month.
Premier Li Keqiang this month pledged more action in tackling China's heavy pollution which sparked public anger this winter.
Last year, China accounted for one quarter of world investment in renewable energy. It invested a record $67.7 billion in clean energy - 20 percent more than in 2011 - in a year when overall global clean energy investment declined.
But it will have to spend over three and a half times that amount by 2020 to help meet its carbon intensity cut and low-carbon energy targets, said the report by non-governmental organisation The Climate Group and Beijing's Central University of Finance and Economics on Thursday.
China aims to get 15 percent of total energy demand from low-carbon sources by 2020 and cut its carbon intensity by 17 percent from 2011 to 2015 and by 40-45 percent by 2020 versus 2005 levels.
Carbon intensity is the amount of carbon dioxide emitted per unit of gross domestic product (GDP).
These goals will require total investment of up to $333 billion by 2015 and $413 billion by 2020, said the report seen by Reuters, which was commissioned by the Chinese government's National Development and Reform Commission (NDRC).
Current public and private funds are not enough to cover this investment, resulting in a finance gap of around 2 percent of China's projected GDP in 2015, or up to $214 billion a year.
This will reach up to $243 billion a year by 2020.
"Although the gap in finance identified is a substantial figure, it is also true that it represents around a relatively modest 2 percent of GDP...China's leaders have the tools to close this gap," the report said.
A separate study in January by Tsinghua University estimated China would need to invest 1.8 trillion yuan ($289 billion) in its renewable energy sector from 2011 to 2015.
Both public and private finance will be needed to plug the finance gap but private sector finance will have a larger role to play particularly after 2015, the Climate Group report said.
The government will have to use a number of different sources, including international climate funds, sovereign wealth funds, micro-financing, as well as ensure China is attractive to institutional investors.
It should accelerate setting up regional carbon markets and reduce fossil fuel subsidies.
China also needs to create the right policies and incentives to leverage private finance, such as establishing a national climate fund and a green investment bank and a carbon trading regulatory commission, the study said.
The Chinese government should consider preferential tax rates for cleaner fuels, market mechanisms to promote energy efficiency and make it easier for green bonds to be issued. ($1 = 6.2118 Chinese yuan) (Editing by William Hardy)