RECAI: Country focus
Done it again. The Chinese Government has announced plans to install 70GW of solar capacity by 2017, double the previously announced 35GW by 2015. In the context of a current installed capacity of almost 20GW (at the end of 2013), this would be near impossible for most countries, but China’s track record tells us different.
The smog factor. The main impetus is a war on smog, fast becoming a Government top priority as pollution becomes an increasing cause of social unrest. According to World Bank estimates, China has 16 of the world’s 20 most polluted cities, and earlier this year the Government warned children and the elderly to stay indoors. From 1 March 2014, the Ministry of Environment will assign credit ratings to companies in heavily-polluting industries and advise banks not to offer new loans to companies with red ratings until they are upgraded.
Taking stock. This pollution reduction program has increased demand for solar, helping return a number of Chinese solar companies to profit after a challenging 18 months, with stock market performance expected to recover further this year as the Government targets 14GW of new capacity.
But other factors are also driving this recovery. A major consolidation program is reducing oversupply and increasing efficiencies, favoring a smaller number of leading solar companies. In January, the Government published a list of 109 companies (from over 500 applications) that will stay eligible for state support, such as favorable financing terms and participation in public tenders. It is also making a list of solar projects across the value chain that will qualify for China Development Bank Corp. funding, following recommendations by individual provinces in early April.
A new approach. This consolidation also highlights a shift to a more market-based approach. Suntech’s bankruptcy in 2013, and China’s first domestic corporate bond default by Shanghai Chaori Solar Energy Science & Technology Co. in March 2014, show the Government is now less willing to prop up failing companies. It is also reported to be opening up 80 renewables projects in eight state-run industries to private and foreign investors, as part of efforts to let market forces play a bigger role.
China’s renewable energy industry faces a record US$7.7b in bonds maturing this year, at a time when the Government is letting corporate borrowing costs rise in order to slow a buildup of debt in the economy and reduce capacity expansion. This is part of its broader economic reform program launched in November 2013, which includes plans to liberalize interest rates as early as 2015 and allow China’s first official privately owned banks.
Making connections. The Government’s latest energy market ambitions also show a new focus on both expanding installed capacity and increasing its use. To bridge the gap between consumers and high resource areas, State Grid Corporation of China plans to spend more than CNY1 t (US$162.8b) between 2013 and 2021 to build eight ultrahigh voltage (UHV) transmission lines across the nation. With high curtailment rates and transmission bottlenecks jeopardizing wind power developments, this will be welcome news. At the end of 2013, an estimated 19% of cumulative installations were still not connected to the grid.
Trading debt. In May China’s first carbon-linked financial product – a debt note linked to the performance of carbon offsets on the Shenzhen Emissions Exchange – was launched. Issued by China General Nuclear Power Group, the sale could spark similar financial derivatives and boost liquidity in China’s fledging emissions-trading market. Shenzhen is one of six cities and provinces to launch carbon markets under the Government’s pilot emissions reduction program, and a seventh will follow.
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