The potential impact of the sixth batch of renewable energy tariff subsidies
It is expected that the list of renewable energy tariff subsidies will be updated in the second half of 2016. Unless the renewable energy surcharge or the green certificate market is added, the deficit of renewable energy subsidy funds may expand, and subsidies can alleviate the debt pressure of wind power operators. What impact will these have on our country?
The government is reviewing the projects in the sixth batch of catalogues
The next batch of renewable energy tariff subsidies has been in place for five months since it began accepting applications in January 2016. We believe that the government is currently considering renewable energy projects. The sixth batch of renewable energy tariff subsidies (hereinafter referred to as the “catalog”) will be finalized in the second half of 2016, which may be an increase in the valuation of renewable energy sectors in the coming months. Catalyst. We forecast the sixth batch of renewable energy power generation subsidies totaling RMB 46 billion, which will be mainly paid to operators of wind and solar power fields (wind energy: 42%; solar energy: 40%; biomass and others: 18%) ).
Renewable energy surcharges may rise further
We believe that the catalogue delay update is mainly due to financial pressure on renewable energy subsidy funds. We estimate that the deficit will reach approximately RMB 35 billion by the end of 2015. Although the government has raised surcharges and reduced subsidies for renewable energy, considering the rapid growth of renewable energy generation, especially in the next few years, support policies will be introduced to increase the utilization hours of renewable energy. Still not enough to meet the 2016 expenditure (so the deficit will expand). Although the green certificate will become another source of income for renewable energy generators, leaving room for reduction of subsidies, as the green certificate mechanism is still in its infancy, raising the renewable energy surcharge will become the main factor for narrowing the fund deficit in the short term. tool.
Wind farm operators' liquidity will improve
Although receiving subsidies does not directly affect the profitability of wind farm operators, it will strengthen the liquidity of the latter, thereby alleviating debt pressure. We estimate that Huaneng New Energy (958 HK, our top pick in China's wind power industry) will receive the most subsidies in 2014-15, followed by Longyuan Power (916 HK) and Datang New Energy (1798 HK). We believe that Huaneng New Energy is the biggest beneficiary of subsidies, as its net gearing ratio will be the most reduced (-11.2%), followed by Longyuan Power (-4.6%) and Datang New Energy (-1.9%). We believe this may reduce the demand for Huaneng New Energy's equity financing in a short period of time.