China’s wind and solar power developers are seeking growth overseas as they face a potential slowdown in the domestic market. While some have a preference for developed markets with lower political and regulatory risks, others have found good reasons to invest in developing nations despite the challenges that can present. Hu Guodong, deputy general manager of wind farms developer China Datang Corporation Renewable Power, said large state-backed firms like his may shift more resources to developing projects abroad in light of a possible decline in returns in the domestic market. The government has proposed cutting subsidies for renewable energy projects in 2018, which industry executives warn may lead to a drop in installation volume. “In 2018 and 2019, we expect a decline in domestic installation and China’s large central government-backed firms may have to seek growth more aggressively overseas,” he said on the sidelines of a wind power conference in Beijing on Thursday. “Our domestic market is facing growth bottlenecks.” Chinese equipment makers cannot only rely on the domestic market, they must go abroad to win orders Chen Jun, chairman, Dongfang Electric Wind Power Beijing has proposed to cut subsidised solar power tariffs by up to 30 per cent for ground-mounted projects approved next year and those of wind farms by up to 6 per cent for new onshore projects approved in 2018. It has also reduced support for the wind and solar sector by asking developers to compete in the wider power market dominated by coal-fired power, and to generate sales beyond certain guaranteed volumes. The selling prices of these excess volumes will no longer be guaranteed at subsidised levels - part of a gradual reform of the electricity industry to become more market-oriented and efficient. Hu said China Datang is mainly looking for opportunities in North and South America, and Australia. The company requires overseas projects to generate at least a 10 per cent return when calculated without debt leverage, the same as current returns in the domestic market. Sun Jianzhong, chairman of turbines and parts maker CSIC (Chongqing) Haizhuang Windpower Equipment, a unit of state-owned China Shipbuilding Industry, said his company also has a preference for developed nations. It has invested in a small-scale, 28 megawatt wind farm in the US state of Iowa as part of it overseas business expansion plan. “Why the US? Because if our products can be demonstrated to be successful in a high-end market, then we should stand on firm ground when opening doors in other markets,” he said. Chen Jun, chairman of CSIC’s rival Dongfang Electric Wind Power, is also concerned about a forthcoming downturn in orders in China, the world’s largest market for both wind and solar power equipment. “Chinese equipment makers cannot only rely on the domestic market, they must go abroad to win orders in order to sustain growth,” he said. His company last year supplied a customer in Sweden, and it is delivering products to another firm, which is building the largest wind farm in Russia. China’s wind power industry faces slowdown as tariff cuts loom But some projects developers have a more cautious attitude toward cracking foreign markets. Zhou Xiaole, the investor relations director of Concord New Energy, a Hong Kong-listed mid-size wind and solar farms developer on the mainland, said the company is taking an “observe and wait” approach on overseas projects. “We are very cautious and will stick to our non-debt leveraged return requirement of 8 to 9 per cent,” he told the Post . “We prefer the United States where we have completed a small project, and we like its good legal and regulatory environment. We would also consider investing in projects that have already obtained development approvals or are already in operation.” Still, developing nations also have their appeal. In some nations, power shortages and high energy costs offer some of the best reasons for us to venture abroad Cui Yaping, vice president, Zonergy Cui Yaping, vice president of Zonergy, the renewable energy unit of Shenzhen-based telecommunications equipment giant ZTE, said solar and wind projects are economically viable even without subsidies in some nations such as Pakistan and Africa. Some rely on diesel to generate power, which is costlier than using coal, while others have many remote villages without access to grid-transmitted power. “In China, project developers complain of low plant utilisation due to power grid bottlenecks and major arrears in subsidy payments from the government,” she said. “But in some nations, power shortages and high energy costs offer some of the best reasons for us to venture abroad.” However, Cui pointed out that developing nations also have higher risks and challenges, such as complex and lengthy regulatory approval procedures, higher credit risks, cultural differences and sometimes higher incidences of land ownership disputes. “One of the problems with some Chinese firms is their lack of understanding and preparation to comply with foreign regulations such as customs clearance procedures and technical standards,” she said. “An infamous example is that a certain firm’s solar panels shipment was stuck at a port for so long that the warehousing fees exceeded the panels’ price.” Zonergy has built over 900 MW of solar farms in China and abroad. It has committed to a US$1.5 billion, 900 MW project in Pakistan’s Punjab province, of which a third has been completed and is generating power. Zonergy began its venture into renewable energy by building solar farms at telecoms base stations that are not connected to the power grid. It has built small off-grid solar projects in poor nations like Ethiopia, Nepal, Chad, Namibia and Tajikistan, as part of its parent company’s social responsibility initiatives.