Hong Kong’s VPower taps into China’s move towards cleaner electric grid

PUBLISHED : Monday, 19 December, 2016, 4:31pm
UPDATED : Monday, 19 December, 2016, 9:54pm

VPower Group International, which raised HK$1.51 billion late last month by going public in Hong Kong, is in talks with state-backed mainland Chinese power generators on co-investing in the emerging industry of “distributed” power generation.

The Hong Kong-based company aims to tap business opportunities arising from the nation’s gradual reduction in reliance on coal and rising power generation from renewable energy such as wind and solar.

To cope with the intermittent and weather dependent nature of wind and solar power generation, more natural gas-fired power will be needed tomaintain stability of the distribution infrastructure.

Cleaner-burning gas-fired power output can be ramped up or reduced more flexibly than the mainstay coal-fired power, which was blamed for much of the nation’s chronic air pollution problem.

“We are in talks with some large state-backed power generation firms on possible cooperation on building gas-fired distributed power projects,” VPower co-chief executive Rorce Au-yeung Tai-hong said in an interview with the Post.

He would not disclose the names of the potential partners since the discussions are at an early stage.

The so-called “distributed power” projects entail localised energy generation and consumption and recycling of energy, which also does not require long-distance power grid distribution that leads to energy losses.

The features make it a more efficient form of energy consumption compared to conventional coal-fired power, and is hence more environmentally-friendly.

Au-yeung said the potential partners can use such projects to meet their annual emission reduction targets.

Beijing is expected to imposed carbon emission targets on the power industry in the next few years when it will roll out a carbon trading scheme for industries.

Internet and telecommunication data centres, hotels, hospitals and industrial zones will be prime users of distributed energy, since they have other energy needs like heating, cooling or hot water besides power, Au-yeung said.

In the five year development plan for 2016-2020 unveiled early last month, the National Energy Administration said it will make a big push on so-called “distributed power” generation fuelled by natural gas.

It aims for the nation to have 110 giga-watt (GW) of annual natural gas-fired power generation capacity by 2020, amounting to 5.5 per cent of 2,000 GW of the nation’s total power generation capacity projected.

About 15 GW will be so-called co-generation plants that can meet the heating and cooling needs of industrial and commercial customers besides supplying them electricity, via the recycling of steam and heat released in the power generation process.

Au-yeung said many industry players, including city natural gas distributors and power producers, are making preparations to enter the business and are awaiting Beijing to issue policies to support the nascent industry.

“We expect the government to finalise the support policy framework, including regulated gas and power prices for the industry late next year or early 2018,” he said, adding pilots have been rolled out in various regions.

VPower last year sourced 80 per cent of its revenues from engine-based natural gas and diesel power generator sales and installations in China and other parts of Asia, and the remainder from charging for power produced by generators it invested and installed in nations suffering from power shortages such as Bangladesh, Indonesia and Myanmar.

In China, which has major excess power capacity, it hopes to tap into the growth of cleaner and more-efficient power generation as pollution prone plants are shut down.

It has a five-year cooperation agreement with China’s largest rolling stock maker, state-backed CRRC, under which CRRC helps VPower procure engines for distributed power projects at a slight discount and provides a longer payment terms than direct purchases by VPower.

The two firms would also co-invest on such projects in Southeast Asia, Africa and Latin America.

CRRC May last year bought shares in VPower equivalent to a 3 per cent stake after its listing at an equivalent cost of HK$2.02 per share, while Nature Elements Asia Renewable Energy and Cleantech Fund a year ago bought a 2.5 per cent stake at an equivalent of HK$2.43 each.

Nature Elements is run by Chan Ka-keung, a former renewable energy head of Hong Kong utility CLP Holdings.

VPower’s shares Friday closed at HK$3.29, 14.2 per cent higher than its initial public offering price of HK$2.88, which was close to the lower end of the HK$2.78 to HK$3.47 price range sought.

Still, Au-yeung said the firm needs to do more for investor education.

“Many investors in Hong Kong do not understand our business since there is not much of our kind of business here,” he said. “It will take time to educated them.”

Its Hong Kong public shares offering were 18.8 per cent under-subscribed, while the institutional offering was “moderately over-subscribed,” VPower said last month.