China’s Huaneng Renewables slows down expansion after power price cut

Company had 9.72 GW of installed wind farms and 0.63 GW of solar farms at the end of last year

PUBLISHED : Thursday, 17 March, 2016, 2:29pm
UPDATED : Thursday, 17 March, 2016, 6:23pm

Huaneng Renewables, one of China’s largest wind power producers, plans to slash its capacity expansion this year, after a new plant installation binge last year ahead of power price cuts this year.

The subsidiary of the nation’s largest power producer, China Huaneng Group, aims to add 1.1 giga-watts (GW) of new wind farms this year, down from 2.19 GW last year.

It plans to add 0.3 GW of solar farms this year, compared with 0.14 GW last year.

The company had 9.72 GW of installed wind farms and 0.63 GW of solar farms at the end of last year.

“With lower [regulated] power prices taking effect this year, we do not rule out adopting a dual ‘invest and develop’ approach to expansion [as opposed to develop only in the past],” president Lin Gang said on Thursday.

We do not rule out adopting a dual ‘invest and develop’ approach to expansion
Lin Gang, Huaneng Renewables

That means it could fulfil part of its capacity goals by investing in rivals’ existing projects instead of building its own.

It has set a capacity expansion budget of 10 billion to 12 billion yuan for this year, of which 2 billion to 3 billion yuan will be spent on solar farms and the rest on wind farms. That is down from 15.9 billion yuan last year.

The company also plans to keep its annual capacity expansion pace at 1 to 1.5 GW in the five years to 2020, which implies an average annual growth of 8.2 to 11.5 per cent. That compares with 24 per cent in the five years to last year.

Chief financial officer Yang Qing said each fen per kilowatt-hour (kWh) of power price cut would cut wind projects’ return rate by 0.7 to 0.9 of a percentage point, and that of solar farms by 0.4 to 0.5 of a percentage point.

She said the cut could be offset by lower finance costs from lower interest rates, lower plant construction costs via savings from scaled-up operation, and measures to boost power sales.

On Tuesday, Huaneng Renewables posted a 65.9 per cent jump in net profit to 1.86 billion yuan for last year, from 1.12 billion yuan in 2014.

About half the jump came from higher government subsidies and penalty income from suppliers to the tune of 267 million yuan, alongside a 104 million yuan increase in foreign exchange gains.

The profit was 8.8 per cent higher than the 1.71 billion yuan average estimate of 25 analysts polled by Thomson Reuters.

The firm’s share price jumped 11.8 per cent on Thursday to HK$2.18.

Revenue rose 19.6 per cent to 7.36 billion yuan on the back of an 18.6 per cent rise in wind power output, while solar power generation grew 62.6 per cent from a low base.

In December, Beijing slashed producers’ power prices by 5 fen per kWh or 9 to 10 per cent in northern and western regions with rich wind resources but small power demand between last year and 2018, and by 3 fen or 5 per cent in central and coastal regions with fewer resources but bigger power demand.

The differential was aimed at shifting developers’ focus away from regions suffering from power grid bottlenecks in the north.

Some 15 per cent of the wind power generated on the mainland last year was wasted and not utilised due to the bottlenecks, up from 8 per cent in 2014.

Lin said the wastage ratio was likely to worsen before improving next year, as it would take time for measures, including consumption quotas, recently unveiled by Beijing with the aim of forcing local governments to absorb more clean energy to take effect.

He predicted the average wastage ratio for Huaneng would rise to as high as 12 per cent this year from 9 per cent last year.

It sold power directly to major customers on a small scale last year, bypassing the monopoly grid operators in regions with major wastage ratios, as part of Beijing’s industry reform, but company vice-president He Ji said such a strategy was unlikely to provide a substantial boost to power sales in the foreseeable future.