Huadian Fuxin dances to Beijing’s tune with a targeted 50pc surge in cleaner energy production by 2020
Hong Kong-listed company is targeting 22 gigawatts of total installed energy generation capacity by the end of that year, up from 15.47GW at the end of last year
Fuxin Huadian Energy, a unit of state-owned power generation major China Huadian Group, aims to raise its cleaner energy generating capacity nearly 50 per cent by 2020, as part of China’s goal of cutting its dependence on highly polluting coal-generated energy.
The Hong Kong-listed company is targeting 22 gigawatts (GW) of total installed energy generation capacity by the end of that year, up from 15.47GW at the end of last year, chairman Huang Shaoxiong has told South China Morning Post.
“Our ultimate target is to have over 80 per cent of our total capacity powered by cleaner energy sources,” he said. “Wind, gas and solar will be our main expansion focus.”
The ratio stood at 75.8 per cent at the end of June, with 44 per cent from wind farms, 12 per cent hydro plants, 8.2 per cent nuclear units, 6.4 per cent solar farms, 4.9 per cent natural gas-fired projects and 0.3 per cent other energy like biomass. The remaining 24.2 per cent came from coal-fired plants.
Beijing wants coal-fired plants to account for 55 per cent of national generation capacity by 2020, down from 65 per cent in 2015.
The Fujian-based firm has one 0.66GW coal-fired project expected to be commissioned next year, and approval for more new projects will depend on economic growth of the province, Huang said, adding cleaner energy projects will see much faster growth.
It posted a 5.9 per cent year growth in power output in the third quarter, with a 13 per cent fall in hydro output more than offset mostly by a 37 per cent jump in wind power production. Total output for the first nine months decreased 0.8 per cent year on year.
Huang put the wind power growth down to windier weather, commissioning of ultra-high capacity power grids, Beijing’s orders for grid operators to raise absorption of renewable energy, and a ban on new wind farms built in regions that cannot meet minimum utilisation rates due to excess capacity.
Deployment of new technology allowing better wind forecasts has also improved the “grid-friendliness” of wind power, notorious for its output intermittency – something of a headache for grid operators in the past.
Greater effort by Fuxin’s sales team also boosted dispatch volume, as power market liberalisation allowed some 30 per cent of its sales in the year’s first half to be sold via direct negotiations with major power users.
Before reforms allowed partial free market competition, power sales were controlled by monopoly grid operators that allocated dispatch quotas to each power plant.
Fuxin’s direct wind power sales were at an average discount of 25 per cent to the subsidised state-stipulated prices – a trade-off for extra sales volume against lower prices, amid the worst excess capacity in China’s power industry in half a century.
This partly helped the firm reduce its wind “curtailment rate” – output wasted due to grid constraints – to 10 per cent in the third quarter, from 16 per cent in the first half, and 23 per cent in last year’s first half.
Huang said curtailment in the fourth quarter will rebound due to the grid’s need to cope with higher winter demand from heat and power cogeneration plants.
“It would be good if we can keep it at the first half’s 16 per cent level,” Huang said. √
The company was owed 4.9 billion yuan (US$740 million) in government renewable energy production subsidies at the end of September, due to the authorities’ reluctance to raise end users’ surcharges to fund consumption of more expensive but cleaner energy. No interest is paid on debt in arrears.
Huang said it takes Fuxin on average three months to receive wind power subsidies after they are due, while for solar power that averaged six months.
Dennis Ip, Daiwa Capital Markets’ head of Hong Kong and China utilities, renewables and environmental research, estimated in a note that Fuxin may see year on year net profit growth of around 20 per cent in the year’s second half, up from 0.6 per cent in the first half.
He forecast its net debt to shareholders’ equity ratio to ease to 303 per cent by the end of the year from 311.5 per cent at the end of last year, and slide further to 290 per cent by the end of next year, on the back of higher profit and lower capital expenditure.
Fuxin’s share price closed 3.5 per cent higher at HK$2.05 (US 62.7 cents) on Friday. It has risen 14.4 per cent year to date, compared to the Hang Seng Index’s 29.5 per cent gain.