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Wind energy, equipment companies attract favour from stock analysts

PUBLISHED : Friday, 24 April, 2015, 3:53pm
UPDATED : Friday, 24 April, 2015, 5:31pm

Wind energy and equipment companies in China are increasingly attractive to stock brokers due to their improving utilisation rate and favourable policies as they look to better days after their share prices were whipsawed last year.

China is on track to expand the use of clean energy in power generation before the air pollution problems gets any worse.

Besides the increasing use of nuclear energy, wind energy and equipment companies are favoured as the Chinese ask every province to consume a certain amount of renewable energy as the country gave a committment to take action to reduce greenhouse gas emissions.

In a joint statement by Chinese President Xi Jinping and US president Barack Obama in November last year, China, the world’s biggest emitter of greenhouse gases, agreed to cap its growing carbon emissions by 2030, while adding 800 to 1,000 gigawatts of nuclear, wind, solar energy generating capacity by 2030, more than all existing capacity by the coal-fired power plants on the mainland.

The utilisation of wind farms in China is expected to rise 13 per cent this year, signalled by strong wind power output since December, analysts at Macquarie said. The utilisation hours of wind farms in China dropped by 10 per cent last year due primarily to low wind speeds.

They noted that the curtailment rate - the amount of wind-generated electricity not reaching the grid due to the prioritisation of other energy resources – is seen falling to 4 per cent in the next three years from the current 8.5 per cent.

Analyst at BNP Paribas concurred, suggesting that major wind farm operators will probably delivere strong growth of power generation in the first free months in a range between 9 and 24 per cent.

“We estimate utilisation hours will rebound by 7 per cent, given that wind speed recovery is on track,” said Daisy Zhang of BNP Paribas.

According to a report by Credit Suisse, stocks in the wind industry are up an average 25 per cent, outperforming the meagre 5 per cent increase in thermal coal companies.

“Weakness in coal-fired power producers could be a broad-based one, while wind operators continued on the road to recovery,” Dave Dai of Credit Suisse said in a research note last week.

Besides the natural factors of last year, the analysts believe that more ultra high voltage lines would be completed this year to reduce wind curtailment and the low base of last year is also another positive factor for these companies.

A further round of tariff cuts is also one of the major drivers for the industry, with the National Development and Reform Commission cutting wind feed-in tariffs by 2 cents yuan/kwh for onshore projects since January this year.

Macquarie said they anticipate the wind tariff will be cut again in 2016 when the wind curtailment is largely reduced, as the country plans to match wind tariffs with coal fired tariffs by 2020.

A joint report in 2011 by the intergovernmental policy adviser, the International Energy Agency and the NDRC’s Energy Research Institute projected that even without a carbon emissions tax, wind power generation costs and prices would match those of coal-fired power plants by 2020, as falling turbine costs more and will offset rising labour and construction expenses.