Beijing’s power tariff cut proposal hammers Chinese renewable energy stocks

Shares of Chinese developers of wind and solar power projects sank after Beijing proposed substantial cuts to their subsidised power tariffs to plug the growing deficit in the state-financed renewable energy subsidy fund.

The cuts also reflect lower power production and equipment costs for renewable energy projects amid technological advancement and savings from greater production scale, as the renewable energy industry is fast closing the cost gap with pollution-prone coal-fired power.

“Renewable power project returns are relatively high even as tariffs have been falling in recent years, thanks to technological progress and growing operating scale,” Liu Shunxing, chairman of Beijing-based Hong Kong-listed wind and solar farms developer Concord New Energy Group told the Post.

“As the cost reductions have far exceeded the government’s earlier projections, it is natural that subsidies need to come down to avoid excessive returns.”

He noted power tariffs of new projects tendered by local governments on a competitive basis have attracted significantly lower power tariff offers from developers compared to state-set benchmarket tariffs, which further justifies the proposed cuts for projects with regulated subsidised tariffs.

By forcing developers to bid for new projects in an increasing number of regions, Beijing has been gradually shifting away from the current mainstay model of fixed subsidies for renewable projects, so as to reduce its financial burden from surging subsidies owed.