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20 Dec 2017
Hong Kong, December 20, 2017 -- Moody's Investors Service says that China's (A1 stable) plan to set up
a national carbon emissions trading platform will likely affect the profitability
of coal-dependent power producers with high emission rates in the
long run because of rising emission costs and lower power generation.
However, the platform will likely improve the profitability of renewable
energy producers and coal-dependent power producers with low emission
rates in the long run driven by higher power generation and carbon credit
revenue.
The new platform will have no immediate impact on the ratings and outlooks
of power producers rated by Moody's because any meaningful effects will
likely come in 2020 or after when the platform becomes fully functional.
But power producers may increase future capital expenditures if the government
sets higher emission reduction targets, which will accordingly raise
their leverage.
On 19 December, China's National Development and Reform Commission
(NDRC) announced its "National Carbon Emission Trading Market Development
Plan for Power Producers".
Based on the plan and the press conference hosted by the NDRC:
(1) The national carbon emission trading platform will be set up in Shanghai
and Hubei Province.
(2) The NDRC has set a three-stage plan to develop the emission
market, comprising: (a) Fundamental Development Stage (to
take a year) for building up the infrastructure on emission trading,
(b) Pilot Run Stage (to take a year) for conducting trial emission trading,
and (c) Perfection Stage (no specified timing) for elevating the platform
to the required standards.
(3) The NDRC has not set any hard emission reduction targets so far,
but will likely set the target at a low level in initial years.
(4) The power sector will be the starting point. Power producers
with more than 26,000 tons of annual carbon emissions will be subject
to the plan's requirements. About 1,700 entities will
be included with total annual emissions of over 3 billion tons,
amounting to about 30% of China's total emissions in 2016.
The NDRC will include more sectors in the plan in the future.
(5) In principle, power producers with higher emission rates will
have to reduce power generation or acquire more emissions permits.
But power producers with lower emissions rates will be eligible to generate
more power or sell surplus emissions permits for additional revenue.
(6) The national platform will complement the development of the Green
Power Certificate program.
In the longer run, Moody's expects the plan will encourage
power producers to adjust power generation mix to optimize profitability
based on prevailing emission levels of their coal-fired generation
units. This will lead to lower carbon emissions for the entire
sector.
Also, Moody's expects trading among coal-dependent
power producers will likely be more active than trading between renewable
energy producers and coal-dependent power producers because the
relatively sizable demand and supply of carbon quota.
Moody's will monitor the implementation of the national emissions trading
platform and assess the potential impact on rated power companies as more
details (including emission targets and definitions of high and low emission
rates) become available.
Coal-dependent power producers rated by Moody's include the following:
(1) Beijing Energy Holding Co., Ltd. (A3 negative),
(2) China Resources Power Holdings Co., Ltd (Baa2 stable),
(3) China Shenhua Energy Co., Ltd. (A1 stable),
(4) Guangdong Hengjian Investment Holding Co Ltd (A3 stable),
(5) Huachen Energy Co., Ltd. (B1 stable),
(6) Shanghai Electric Power Company Limited (Baa2 negative),
(7) State Power Investment Corporation (A2 stable), and
(8) Zhejiang Provincial Energy Group Co. Ltd (A2 stable)
Renewable energy producers rated by Moody's include China Longyuan Power
Group Corporation Ltd. (A3 stable) and Panda Green Energy Group
Limited (B1 stable).
This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com
for the most updated credit rating action information and rating history.
Ivy Poon
Vice President - Senior Analyst
Project & Infrastructure Finance
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Vivian Tsang
Associate Managing Director
Project & Infrastructure Finance
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
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