China wind power: big fan

China wind power: big fan

China wind power: big fan

Not even the all-powerful Chinese Communist party can make the wind blow

China’s wind farms have long had a cloud hanging over them: not enough of their clean energy is consumed. That seems odd; a combination of rapid urbanisation and thousands of coal-fired power stations makes for severe pollution problems, which the state is desperate to reduce. A change in government regulations should improve matters for hard-pressed renewable generators but it will not solve all their problems. 

The National Energy Administration has done its bit for pollution reduction by encouraging renewable energy, mostly wind power, through favourable tariff structures. Last year, wind accounted for about 4 per cent of total generation and is due to more than double by 2020.

But the NEA faces two big challenges. One is obvious: not even the all-powerful Chinese Communist party can make the wind blow. The other is that while regional networks are required to accept power produced from wind farms, some regional grids nevertheless refuse. In the north-western provinces of Xinjiang and Gansu, almost half of the wind power offered by generators was rejected (or “curtailed”) in the first three months of this year. Wind power specialists such as China Longyuan Power and Huaneng Renewables, which have borrowed heavily to invest in construction, complained bitterly. Their shares have trailed broader market indices for years. 

After repeated warnings, the NEA this week required nine provinces with the highest curtailment rates to use an average of a fifth more wind power than last year. That matters; these areas contain at least 60 per cent of the two companies’ wind capacity. Shares in all the listed wind farms bounced sharply on Wednesday. Reducing curtailments should improve their earnings. And they need the cash flow — net debt levels look scary at more than 5 times earnings before interest, tax, depreciation and amortisation, partly explaining very low valuations. 

But remember that the curtailments occur for a reason. Coal-fired generators, too, do not run at full capacity because the economic slowdown has reduced demand for power. And exporting wind power to populous coastal regions, as Xinjiang requires, just means competing with the wind farm projects over there. China’s government cannot simply wave away its wind industry’s problems.

Email the Lex team at lex@ft.com

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China wind power: big fan

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China wind power: big fan
BDC 282. July 2021

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China wind power: big fan