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00916 CHINA LONGYUAN
RTNominal up5.480 +0.090 (+1.670%)
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20/06/2018 14:28

New subsidy catalog credit positive for renewable operators

[ET Net News Agency, 20 June 2018] Moody's Investors Service said that China's (A1
stable) announcement of the 7th batch of its Renewable Energy Subsidy Catalogue (RESC) is
credit positive for rated renewable energy operators as it will accelerate collection of
subsidies receivables and relieve liquidity pressure.
"The 7th Batch Catalogue will relieve liquidity pressure on the rated renewable
operators where projects under the 7th Batch Catalogue accounted for about 30-50% of their
outstanding subsidies receivables as of end-2017. " said Boris Kan, a Moody's Vice
President and Senior Credit Officer.
"The announcement of the 7th Batch Catalogue indicates the government's commitment to
addressing the delay in subsidy collection, which is a key challenge of the renewable
sector, with a view to support the sector's healthy long-term development," added Kan.
On 15 June, China's Ministry of Finance, the National Development and Reform Commission
and the National Energy Administration jointly announced the 7th batch of its RESC,
covering total installed capacity of about 55.8 gigawatts.
Moody's believes the announcement of the 7th Batch Catalogue will provide relief for the
working capital needs and leverage positions of renewable operators.
Moody's observes a history of delays in the distribution of subsidies and prolonged
registration process for the RESC. The 6th batch of RESC was announced 21 months ago in
September 2016, and the 5th batch of RESC was announced in August 2014. Such delays in
renewable subsidies collection have weakened the operators' operating cash flow and
increased their leverage.
In addition, Moody's expects the solar power operators will benefit more than their wind
power counterparts, given that renewable subsidies account for 34%-52% of the feed-in
tariffs of solar power across different resource zones in 2018 compared with 10%-36% of
wind power tariffs, based on Moody's estimations.
China's feed-in tariffs for wind and solar power typically comprise (1) a benchmark
tariff for local coal-fired tariffs, and (2) a renewable energy subsidy from the
government.
Such subsidies are sourced from a renewable energy fund set up by the Ministry of
Finance, which in turn is funded through the collection of surcharges on renewable energy
development, currently set at RMB0.019 per kWh, within the retail power tariff.
However, the rapid expansion in renewable capacity has strained the capacity of the fund
to meet all of the government's obligations on subsidy payments.
According to the Ministry of Finance, the accumulated shortfall of the fund was over
RMB52 billion at the end of 2016, the latest official public data. The shortfall will
further widen because of ongoing expansion of wind and solar power during 2018-19.
Moody's believes that the government will have to look for alternatives, including
making further cuts on renewable energy tariffs for new projects to achieve the long-term
goal of grid parity. It is because the long-standing funding shortfall for renewable
subsidies remains unresolved.
Moody's will continue to monitor the status of the receipt of subsidies for renewable
projects under the 7th Batch Catalogue and assess the working capital positions of rated
renewable power companies.
The projects in the 7th Batch Catalogue include 33.9 gigawatts of wind power (or 61% of
the total), 17.3 gigawatts of ground-mounted solar (31%), 3.2 gigawatts of distributed
solar(6%), and 1.5 gigawatts of waste-to-energy and biomass (3%). The catalogue mainly
comprises renewable projects connected to grid between March 2015 and March 2016.
Renewable energy operators rated by Moody's include:
(1) China Longyuan Power Group Corporation Ltd. (A3 stable)(00916),
(2) GCL New Energy Holdings Limited (Ba2 review for downgrade)(00451),
(3) Panda Green Energy Group Limited (B2 negative)(00686),
(4) China Jinjiang Environment Holding Co. Ltd. (Ba2 negative).

(KL)

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