Green business to reap China’s environmental policy rewards
New pollution targets and major clean up projects bode well for renewables and environmental infrastructure
China’s latest round of green policies offers opportunities for environmental and renewable energy companies, analysts say, although a tougher enforcement regime may trip up those who fail to adhere to the new rules.
Environmental protection is one of the eight priorities in this year’s Government Work Plan, while the 13th Five-Year Plan outline presented to the National People’s Congress also calls for stringent environmental regulations.
Hard targets on pollution back up these resolutions. In 2016, organic water pollutants will be cut by another 2 per cent while sulfur and nitrogen-based air pollutants may go down by 3 per cent. In addition, a significant cut in airborne particulate measure PM2.5 has also been ordered.
Over the next five years, water consumption, energy consumption and carbon dioxide emissions per unit of GDP should fall by 23 per cent, 15 per cent and 18 per cent, respectively. The number of days with good urban air quality is targeted to exceed 80 per cent by 2020.
It will be an expensive balancing act to maintain economic growth while reducing its environmental impact.
“At least 10 of the 100 major projects for the next five years are environment related,” Deutsche Bank analysts said in a research note last week. “This implies investment opportunities for environmental companies.”
Projects range from the protection of key ecological sites and almost 400 waterways, to the clean-up of ten million acres of polluted farmland and preservation of 40 million more, to the establishment of 50 industrial waste utilisation bases.
Some of the most ambitious – and lucrative – projects are water-related. Water environment renovation is planned for a range of gulf areas, including the toxic Bohai Bay, along with the development of “sponge cities” featuring good water infrastructure.
Singapore-listed China Everbright Water has been short-listed in one of 16 sponge city demonstration projects in Zhenjiang, with total investment of around 2.5 billion yuan (HK$2.99 billion) and an annual government subsidy of 400 million yuan for three years.
Deutsche Bank analysts also expect SIIC Environment Holdings and Beijing Enterprises Water Group to win new water-related projects. Guangdong Investment, CT Environmental Group and China Everbright International are others who could catch investor fancy.
Renewable energy has its own target as the National Energy Administration strives to get coal-fired power generation below 60 per cent. Non-hydropower renewable power is set to account for 9 per cent of power consumption by 2020, and provinces with more abundant solar and wind resources, like Gansu and Xinjiang, have higher targets.
Jefferies analyst Joseph Fong welcomed the quota, but said persistent overcapacity threatened the profitability of companies and projects – and was a factor behind the low share prices of Xinjiang Goldwind, China High Speed Transmission Equipment, China Longyuan Power and Huaneng Renewables.
“China’s aggressive push in wind and solar has been inefficient to date,” Fong said, laying the blame with inadequate official and market oversight of capacity deployment and a shortage of capital discipline among companies.
In a bid to improve efficiency, the National Energy Administration issued a directive on Friday that regions suffering from the worst wind power wastage due to power grid bottlenecks must put new projects on hold and increase utilisation above a guaranteed minimum.
The move generated a surge in wind power stocks, and analysts said the shifting focus from capacity to utilisation was a positive that could mitigate the reluctance of power grid operators to dispatch renewable energy due to complaints over its stability and price.
To reflect the priorities and broad divisions of the country’s new anti-pollution policies, the Ministry of Environmental Protection announced on March 3 that it will restructure, setting up dedicated departments for water, air and soil protection.
“These will replace the old structure’s overlapping functions, and will align better with regulators in carrying out the various pollution control plans,” Deutsche Bank analysts wrote.
The Ministry also plans to strengthen enforcement by introducing a “vertical administration system” over the next two years. The scheme would see city and county-level environmental protection agencies reporting directly to provincial agencies, reducing the influence of local governments.
This comes on top of reported improvements in enforcement since the implementation of the current Environmental Protection Law. According to the Ministry, it inspected 1.77 million companies in 2015, of which 20,000 polluters were shut down, 34,000 had production suspended and 89,000 received warnings and rectification orders.