China’s Power Companies: Renewable Targets in the 14th Five-Year Plan

key research data of this article

Chinese power companies’ renewable targets between 2021-2025 is covered in the update of this article.

  • The article was originally published on 2020/03/11, covering the energy profile of the Chinese power firms in 2019.
  • The first update is on 2021/06/01, renewing the 2020 profile of these companies.

China’s power generation companies have carried out a phenomenal renewable capacity expansion in the past 2019 and 2020. 

China’s renewable developers—most of which are state-owned companies—rushed to connect their projects in the pipeline, as subsidy sunset for most renewable projects from 2021 onward. 

The capacity building competition has produced to two results: 

  • Firstly, China continues to lead global renewable construction. It is even more difficult for any other regions to catch up with China’s pace of ramping up wind and solar units. 
  • Then, the state-owned power companies continue to increase their renewable exposure. Their position in China’s renewable power market has been further cemented in the past years. 

Both trends will continue in the next five years during China’s 14th Five-Year Plan (2021-2020.) 

Power Companies Renewable Portfolio 2020

By the end of 2020, the five major power utilities (tier-1 player) have built up a 145GW cumulative wind installed capacity and 47GW solar photovoltaic capacity. 

[READ MORE: All you need to know about the hierarchy and market structure of the Chinese power companies–the tier-1, 2, 3 players and their 2018 power portfolio.]

The five alone contribute most of China’s renewable capacity—over 51% and 18% of the total wind and solar capacities. 

Power Companies’ Renewable Targets in 14th FYP 

Chinese power companies have announced bullish figures as their renewable targets for 2025.

According to our research, the nine largest renewable developers alone have set targets to add collectively 400-500 GW wind and solar power capacity from now to 2025. 

Tier-1, Tier-2 Power Companies Renewable Target for 2021-2025 (Energy Iceberg Collected)

The nine are China’s tier-1 renewable developers, including the five power generation conglomerate (“Big Five” 五大) and four smaller power developers (“Noble Four” 四小). 

CEIC, SPIC, Huaneng, CTG, CGN, and CNNC are the most noteworthy players for their active involvement in renewable, energy storage, and the hydrogen economy.

New Renewable Capacity Exceed 1 Terawatt?

What does the 400-500GW figure mean? The key conclusion that we draw: 

China is very likely to build much more renewable power capacity than what the regulators previously predicted for 14th FYP. 

The previous expected incremental wind and solar capacity would be around 570GW, suggested by State Grid’s policy research for the 14th FY Electricity Plan.  

[READ MORE: China’s Renewable Power Target 2025/2030/2050. State Grid’s exact prediction was that China’s wind and solar cumulative installed capacity would be around 1100GW.]  

While the tier-1 and 2 players already eye on adding 400-500GW capacities, there are many other power generation companies in China shown growing interest in acquiring renewable power assets. 

These players include:

  • Tier-3 or the regional energy and power companies: the most well-known players are Zhejiang Energy (浙能), Guangdong Energy (广东能源 formerly Yuedian), Shenergy (申能). 
  • Manufacturers and engineers in the power sectors: such as power engineering-majored CEEC (中能建) and PowerChina (中电建), manufacturers like Shanghai Electric(上海电气).
  • State-owned companies majored in other energy sectors: such as the three national oil companies Sinopec, CNPC and CNOOC, or coal miner Yanking Group (兖矿). 
  • Private renewable companies, some are manufacturers moving into power project development, including GCL, Goldwind and Ming Yang;  

Many—if not most—of these companies would strive to pursue more renewable power assets in the next five years, as under major pressure to cap emission. 

These players are entirely capable of adding some 300-500GW solar and wind capacity in the next five years. If so, China’s incremental wind and solar capacity would be over 1,000 GW, instead of over 500GW.  

Nevertheless, whether that number could materialize does not solely depend on the investment intention of these companies. It will also depend on the energy regulator’s vision of the renewable market in 2025. 

Chinese Power Companies’ Portfolio 2019  

The “Big-Five” remain the most dominant players in the Chinese market in terms of their “size”— both of their power installed capacity and power production volume.

China Energy Investment Corp (CEIC) has been sitting on top among the five since 2017. By the end of 2019, the firm’s cumulative installed capacity reached 246.4GW by the end of 2019.  

It is followed by China Huaneng (182GW), China Huadian (153GW), and State Power Investment (151GW). 

In fact, CEIC has become much larger compared to its peers, mostly due to 2017 merger between China Guodian and China Shenhua, which give birth to the gigantic firm.  

Guodian previously had been a smaller player among the “Big Five,” while Shenhua’s power asset granted it a spot among the tier-2 players. (Shenhua is also China’s largest coal mining firm. )

The consolidation of the dup, thus, created the world’s largest power generation conglomerate in size, overtaking the former No.1 Huaneng in China and surpassing EDF of France from a global scale.  

However, whether the merger leads to efficient improvement across CEIC’s assets is another question. Energy Iceberg notices, in the past two years, some of China Guodian’s subsidiaries show signs of slow-down in development. [China Longyuan and Guodian United Power—the wind power and turbine making subsidiaries of the firms are two examples.] 

Among the five, State Power Investment Corp (SPIC) stands out with the highest growth for its power asset and the production yields. 

The firm reported a 7.6% capacity growth and over 11% generation increase, while its peers mostly saw capacity climbed 3% and generation up 2-4%. Moreover, SPIC also harvested double-digit generation growth in 2018. 

SPIC shows some unique progress in the past two years since its current chairman Qian Zhimin was appointed and relocated from nuclear firm CNNC. 

The result reflects SPIC’s reformative strategies under Qian, including new internal management measures and a greater emphasis on renewable power development. The internal reform may help to increase production yields, while a higher renewable power portfolio is an advantage now as Beijing inclines to limit coal power consumption.  

We have yet to obtain the data of the cumulative power capacity of China Datang. But its reported power generation data shows some minor decrease compared to 2018 figure. 

The firm is known to face many challenges in terms of its business development, due to poor performance (even bankruptcies) of several coal-fired power assets. 

Power Companies’s Renewable Portfolio 2019

Overall the five are in a collective and slow transition to embrace a higher renewable penetration in their power mix. 

The most recent data of the percentages of clean power in the “big five’s” total power mix: 

  • CEIC: 24.9%, up 0.5%
  • Huaneng: 34%, with 61GW installed capacity 
  • Huadian: 40.4%
  • SPIC: 50.5% 
  • China Datang: 35.57% (2019 Q1 data)

Clearly, SPIC is way ahead of its peers, as the first among its peers o achieve over 50% of its power capacity mix from clean power sources—hydro, nuclear, and renewable. 

The leading position in renewable mostly thanks to SPIC’s world-class solar capacity—of almost 20GW by the end of 2019. And it is also due to SPIC’s well-rounded clean power portfolio across hydro, wind, and nuclear. Among the “big five”, SPIC is the sole developer owning commercial reactors (in operational phase). 

While China Huaneng remains a coal-fired heavyweight, the firm has been trying to catch up in renewable investment and to improve its power asset structure. Notably, its clean power portion in 2019 has leap 7% compared to that in 2018. 

In an absolute sense, CEIC remains the most significant renewable developers in terms of cumulative installed capacity. The position is backed by its 38.3GW installed wind capacity (2018 data), which is the largest in the world.  

Nevertheless, CEIC has limited solar portfolio and remains the largest coal miner and coal-fired developer. It has the highest thermal power penetration, a legacy of its merger with China Shenhua.

Financial Performance of the Chinese Power Companies

There is a clear correlation between the renewable portion of the power utilities and their financial performance in 2019. 

Four of the “Big Five” have disclosed their 2019 revenues. 

  • CEIC: ¥555.6bn, 2.4% YoY growth (profit increased by 6.3%)
  • Huaneng: ¥299.1bn, 8.9% YoY 
  • SPIC: ¥272.5bn, 20.4% (profit increased by 49.2%)
  • Huadian: ¥234.7bn, 9.4% (profit increased by 37.1%)

As expected, SPIC shows a stronger momentum than its peers. Its profit margin rose 49.2%, especially, compared to 2018’s result. 

China Huadian is another player that registered double-digit profit growth. 

The increase is likely related to Beijing’s policy to support renewable consumption and reduce renewable curtailment, which helps SPIC to secure higher power sales. 

The gross margin of new energy power has outperformed that of coal-fired power, against a background of rising coal prices. The high raw material cost is positive news to the coal mining business of the “big five” but a heavy blow to their power production units.  

A comparison of the five’s revenue and profit growths speak loud and clear the importance for the utilities to diversify into investing in renewable and new energy sectors. 

It also explains the struggle of China Datang. Without providing any data of its financial performance yet, the firm is known to struggle due to its massive and less efficient coal-fired plants.  

COVID-19 Impacts on the Power Companies Performance

In the past years, China’s state-owned asset authority, Sasac, has put the “big 5” on a tighter leash, requiring them to limit their borrowing activities or shelving the inefficient investment. The “deleveraging” pressure from Beijing has resulted in the continuous decline of the debt to asset ratios of the utilities in China.

As of 2019, CEIC, SPIC and China Huadian announced their new results in terms of reducing leverages:

  • CEIC: 59.6% (-1.18%)
  • SPIC: 75.61% (-3%)
  • Huadian 72.8% (-4.75%) 

While Huaneng and Datang have not announced their figures. Energy Iceberg expect similar ranges of debt ratio reductions.

Among the five, CEIC has done well in terms of curbing its debt portion. The merger between China Guodian and China Shenhua, as well as the following asset restructuring, has help CEIC to achieve a substantially lower figure. 

SPIC, on the other hand, took a lot of heat from Beijing last year, as the party authority critzed and urged the firm to be more “focused on its key mission”— an political expression pushing for lower debt ratio. 

The firm is likely to continue seeking to sell off assets, especially in coal mining and aluminium production businesses in China, to cope with the political pressure. It may also seek external financial investors in its power projects to improve the financial structure. 

Beijing’s pressure on the state-owned power players to reduce debt could be good news to oversea investors, who may find more invetment opportunities opened up as the Chinese players seek to sell or become more open for partnerships.

Nevertheless, we believes that Beijing may have already loosened its pressure. And following the Covid-19 coronavirus outbreak, the central government would re-focus on boosting investment activities. That means an ease-up of control over state-owned enterprises’ borrowing activities.  

[READ MORE on our analysis regarding the impact of Covid-19 on China’s clean-tech market]

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