In the face of slimming profits and regulatory headaches, one of China's largest independent power producers is reviewing its mainland positions.
AES China Generating Co, which has stakes of 2,917 megawatts in 10 projects throughout the country, is hard pressed to find a formula that will allow it to expand its portfolio.
'We are making money, but were not getting the kinds of returns we anticipated,' said Bill Ruccius, president and chief executive officer of AES China. 'I think it's safe to say in China we're getting the lowest returns on our investment of almost any country in the world.' That means something to a company that owns and operates more than 100 generating plants and eight distribution companies in 20 countries.
The reason for its difficulties in China, Mr Ruccius said, lay with a regulatory regime that had promoted the use of cost-plus contracts, whereby power developers in theory obtained a guaranteed rate of return on investment. That usually equalled project costs plus a percentage, usually 15 per cent.
In practice, however, such returns depended upon annual tariff approvals. And the State Development and Planning Commission had not backed a single tariff increase this year.
'Part of the reason we hear is that [Beijing] is concerned about GDP growth; an increase in electricity prices will hurt that,' said Mr Ruccius, adding that the company had been able to reduce costs at its plants, due in large part to the 7.5 per cent slide in coal prices this year.
'AES is totally against cost-plus contracts,' Mr Ruccius said. 'Cost-plus contracts stink. There is no incentive for people to reduce costs.