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Announcement:

Moody's: China's release of 7th batch of Renewable Energy Subsidy Catalogue is credit positive for renewable operators

 The document has been translated in other languages

20 Jun 2018

Hong Kong, June 20, 2018 -- Moody's Investors Service says that China's (A1 stable) announcement of the 7th batch of its Renewable Energy Subsidy Catalogue (RESC) is credit positive for rated renewable energy operators as it will accelerate collection of subsidies receivables and relieve liquidity pressure.

"The 7th Batch Catalogue will relieve liquidity pressure on the rated renewable operators where projects under the 7th Batch Catalogue accounted for about 30-50% of their outstanding subsidies receivables as of end-2017. " says Boris Kan, a Moody's Vice President and Senior Credit Officer.

"The announcement of the 7th Batch Catalogue indicates the government's commitment to addressing the delay in subsidy collection, which is a key challenge of the renewable sector, with a view to support the sector's healthy long-term development," adds Kan.

On 15 June, China's Ministry of Finance, the National Development and Reform Commission and the National Energy Administration jointly announced the 7th batch of its RESC, covering total installed capacity of about 55.8 gigawatts.

Moody's believes the announcement of the 7th Batch Catalogue will provide relief for the working capital needs and leverage positions of renewable operators.

Moody's observes a history of delays in the distribution of subsidies and prolonged registration process for the RESC. The 6th batch of RESC was announced 21 months ago in September 2016, and the 5th batch of RESC was announced in August 2014. Such delays in renewable subsidies collection have weakened the operators' operating cash flow and increased their leverage.

In addition, Moody's expects the solar power operators will benefit more than their wind power counterparts, given that renewable subsidies account for 34%-52% of the feed-in tariffs of solar power across different resource zones in 2018 compared with 10%-36% of wind power tariffs, based on Moody's estimations.

China's feed-in tariffs for wind and solar power typically comprise (1) a benchmark tariff for local coal-fired tariffs, and (2) a renewable energy subsidy from the government.

Such subsidies are sourced from a renewable energy fund set up by the Ministry of Finance, which in turn is funded through the collection of surcharges on renewable energy development, currently set at RMB0.019 per kWh, within the retail power tariff.

However, the rapid expansion in renewable capacity has strained the capacity of the fund to meet all of the government's obligations on subsidy payments.

According to the Ministry of Finance, the accumulated shortfall of the fund was over RMB52 billion at the end of 2016, the latest official public data. The shortfall will further widen because of ongoing expansion of wind and solar power during 2018-19.

Moody's believes that the government will have to look for alternatives, including making further cuts on renewable energy tariffs for new projects to achieve the long-term goal of grid parity. It is because the long-standing funding shortfall for renewable subsidies remains unresolved.

Moody's will continue to monitor the status of the receipt of subsidies for renewable projects under the 7th Batch Catalogue and assess the working capital positions of rated renewable power companies.

The projects in the 7th Batch Catalogue include 33.9 gigawatts of wind power (or 61% of the total), 17.3 gigawatts of ground-mounted solar (31%), 3.2 gigawatts of distributed solar(6%), and 1.5 gigawatts of waste-to-energy and biomass (3%). The catalogue mainly comprises renewable projects connected to grid between March 2015 and March 2016.

Renewable energy operators rated by Moody's include:

(1) China Longyuan Power Group Corporation Ltd. (A3 stable),

(2) GCL New Energy Holdings Limited (Ba2 review for downgrade),

(3) Panda Green Energy Group Limited (B2 negative)

(4) China Jinjiang Environment Holding Co. Ltd. (Ba2 negative)

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.

Boris Kan
VP - Senior Credit Officer
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

Terry Fanous
MD-Public Proj & Infstr Fin
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
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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