[ET Net News Agency, 25 September 2019] Citi Research cited Caixin reporting that
China's benchmark on-grid coal-fired tariffs will be abolished on 1 January 2020, and will
be replaced by a new mechanism so that on-grid tariffs will be equal to the sum of "base
tariffs" and "floating adjustment".
The research house thinks the new mechanism looks negative for China's coal-fired IPPs
with tariff downside risk as (1) their on-grid tariffs under market mechanism were on
average 9% below benchmark ones in 1H, and (2) their tariffs decided by market mechanism
would be raised from 51.5% in 1H to 100% from 2020 onwards.
But Citi expects the tariff downside probably to be mild based on the existing tariff
discount of direct power sales versus benchmark on-grid tariffs, and such discount will
likely be narrowed with rising sales mix at market-based tariffs.
Citi is positive on coal-fired IPPs, expecting more return upside from the coal price
drop amid ample supply, despite part of the benefit being offset by a possible tariff cut.
In the China coal-fired power sector, it prefers Huaneng Power (00902) and Huadian Power
(01071) with high net profit sensitivity to coal cost cuts. (KL)