Huadian Fuxin looks to buy parent’s assets and invest overseas amid overcapacity at home

Huadian Fuxin Energy, the renewable energy unit of one of the nation’s top five state-owned power generators China Huadian Group, is in talks to buy its parent’s solar and wind farms and is seeking to invest overseas, according to its new chairman.

“Fuxin is the sole renewable energy listing platform of Huadian Group, so suitable assets will certainly be injected from the parent,” Huang Shaoxiong, who took the helm last Friday as Fuxin’s chairman while continuing his role as president of the parent’s Fujian branch, said in an interview.

“Both wind and solar farms are among assets being considered to be injected either before year end or in the first half of next year.”

Fuxin, which listed in Hong Kong five years ago, had 15,474 megawatt (MW) of power generating capacity at the end of June, roughly 1 per cent of the national total.

Some 49 per cent are from wind farms, 23.9 per cent is coal fired, 16.7 per cent from hydro plants, 6.8 per cent is solar farms and 2.2 per cent is generated by nuclear and others.

Some 35 per cent of its wind farms are located in Gansu province and Xinjiang Uygur autonomous region, which suffer from some of the nation’s worst wind wastage – the portion of power generated but not dispatched due to grid bottlenecks.

This meant 16 per cent of its wind farm output was wasted, down from 23 per cent in the same period last year when the problem was at its most acute.

Huang said the declining trend will continue in the second half.

He noted Gansu’s wastage ratio has already fallen to 30 per cent from 43 per cent a year ago, partly thanks to the commissioning of an “ultra high” capacity power line sending power from the northern Gansu province to Hunan province in Central China.

“The construction of more ultra high capacity lines has been sped up, but the commissioning timetable is not entirely clear,” he said.

Fuxin last Friday posted a 0.6 per cent year on year net profit rise to 1.45 billion yuan (US$218 million), as higher wind and solar farm profits offset weaker hydro power profit due to lower rainfall, and after a sharp profit dive from its coal fired plants due to surging coal costs.

Fuxin plans to commission between 426 and 526MW of wind farms in the second half, after adding 33.5MW in the first half.

Over the next few years it plans to add 600 to 700MW annually, said vice president Sun Tao.

Besides building 1,300MW of hydro capacity, Fuxin also expects to commission the first of two 660MW coal fired units being built in Fujian early next year.

Amid ongoing overcapacity and rising competition in the domestic power market, Fuxin has invested in two small hydro power plants in Indonesia and is in talks on a solar farm project in Bangladesh, as Beijing encourages Chinese businesses to venture into nations along the New Silk Road and maritime Silk Road.

“Project returns in some of these emerging markets look fairly attractive relative to those in China at the moment,” Sun said, adding that domestic projects normally can make an return rate – before debt leverage – of 8 per cent for wind farms and 10 per cent for solar farms.