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Announcement:

Moody's: China's renewables sector faces continuing growth, but challenges ahead

 The document has been translated in other languages

20 Jun 2018

Hong Kong, June 20, 2018 -- Moody's Investors Service says that China's renewable energy sector will continue its growth in the next five years, benefiting from favorable government policies to support its development.

"China expects renewable energy capacity to reach at least 660 gigawatts (GW) in 2020, with wind and solar power accounting for most of this growth. Accordingly, wind and solar power capacity expansion is expected to continue, and in a controlled way," says Ivy Poon, a Moody's Vice President and Senior Analyst.

"That said, the financial profiles of the solar and wind power companies are being negatively affected by delays in the payment of government subsidies, which is in turn driven by the fact that the sector's rapid expansion has resulted in a shortfall in the government's renewable energy fund," says Poon. "Potential grid parity will also reduce the profit margins of renewable companies, while the exact impact on margins will depend on how successful companies are in improving cost structures."

Moody's conclusions are contained in its just-released report, "Renewable Energy -- China Policies support renewable sector's growth, but challenges ahead".

Given the issues facing subsidy distributions, including delays of up to two years after connecting with the grid, the potential exists for volatility in companies' cash flows, with solar power producers more heavily reliant on subsidies than wind power.

Such subsidies account for 34%-52% of the feed-in tariffs of solar power across different resource zones throughout China, compared with 10%-36% of wind power tariffs, for projects commencing operation starting January 2018, based on Moody's estimations.

Many solar power companies have a shorter operating history with substantial investments after 2014, resulting in sizable subsidy receivables under a long collection period.

The subsidies are funded through the collection of surcharges for renewable energy development, currently set at RMB0.019 per kWh, within retail power tariffs.

Moody's further expects falling tariffs in wind and solar power to continue for the next three years, driven by lowering equipment costs and the national target of grid parity in 2020.

At the same time, the government has been keen in promoting technology driven solar projects at competitive pricing to accelerate the development of grid parity.

The report also says that margin compression risks for the renewable companies are partly mitigated by a lower marginal generation cost for their energy in the absence of fuel costs.

Such a situation leads to potential incremental cash inflows when renewable companies conduct direct power sales beyond the minimum utilization hours set by the government.

However, since such sales are at a discount, renewable companies also tend to be cautious in expanding direct sales to avoid margin erosion, especially when securing their utilization hours.

Finally, despite the strong growth in recent years, the government is introducing more directives to rationalize overheated investments, in particular, in solar power. This is because the huge growth in the solar power sector could lead to overcapacity and curtailment rebound in addition to a bigger shortfall in the funding of subsidies for renewable companies.

Subscribers can read the full report at:

http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1115576

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

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

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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