China nuclear power shares fall on Fujian tariff cuts, analysts say cuts may spread
The price cuts are aimed at allowing nuclear power generators to compete better with coal-fired power generators, amid Beijing’s push for greater use of clean energy
Shares of mainland Chinese nuclear power projects investors CGN Power and Huadian Fuxin Energy tumbled after they said Beijing has slashed their Fujian projects’ tariffs for the first time in four years to reflect lower prices competitive to coal-fired power.
The price cuts on operating nuclear plants reflects Beijing’s challenge in balancing the need to promote clean energy by allowing nuclear generators to charge more than coal-fired power generators, and the reality of falling power prices across all power industry segments due to over-capacity and rising competition.
“We believe the news came as a negative surprise to the market as it is a very unusual practice to cut tariff of existing nuclear projects,” ICBC International analyst Nelson Lee wrote in a note on Monday.
“This would harm market sentiment and reduce investment incentives of operators and
is therefore negative to industry’s long-term growth.”
CGN said last Friday the tariff of the first two generating units of its nuclear plant in Ningde, Fujian province would remain at 43 fen per kilo-watt-hour, but that of the third unit had been slashed by 5.7 per cent to 40.55 fen and that of the fourth one cut by 13.6 per cent to 37.17 fen.
The new tariffs would be accounted for retrospectively from the third unit’s commission date in Jun 2015 and the fourth unit in July last year, Citi’s head of Asia-Pacific utilities research Pierre Lau wrote in a note.
“The change was a surprise as these two units were supposed to have the same tariff as the first unit of the same plant,” he noted.
Fuxin said on Sunday the first unit of its plant in Fuqing city of Fujian would remain at 43 fen, but that of the second unit had been reduced to 40.55 fen and the third unit to 37.17 fen, also retrospectively on their respective commission dates.
CGN Monday closed 4 per cent lower at HK$2.14 to its lowest since December last year, while Fuxin slid 3.9 per cent to a three-month low of HK$1.73, bucking the Hang Seng Index’s 1.3 per cent gain. Both are listed units of state-owned power majors.
Industry regulator National Development and Reform Commission issued a circular in June 2013 saying for the first time that power prices for newly completed reactors would in the long term be benchmarked to coal-fired power prices.
It had set a price of 43 fen per kWh for nuclear power at the time based on its production cost and the then prevailing demand and supply conditions of the entire domestic power market.
It said at the time the price would remain “relatively steady” but would be subject to changes according to technology advancement, changes in operating costs and market demand and supply.
The tariff cut in Fujian alone could lead to a 2 per cent net profit reduction for CGN this year, while that of Fuxin could fall by 8 per cent, UBS’ analysts said in a note.
“We think there are risks that this move may be followed by other provinces, where on-grid tariff for nuclear power plants is higher than that for coal-fired plants,” they added.
Fuxin had 1,274 mega-watt (MW) of nuclear power generating capacity at the end of last year, up 50 per cent from a year earlier.
It accounted for 8.3 per cent of its total capacity, which was mostly coal and wind-powered.
Fuxin’s nuclear capacity is set to increase further this year as its Fuqing plant’s fourth generating unit will enter commercial production this year.
CGN has operating reactors in Guangdong, Fujian and Liaoning provinces and Guangxi Zhuang autonomous regions.