China’s ballooning renewables subsidy deficit is putting huge pressure on the finances of some of the country’s biggest clean-power developers, which are having to borrow more or even sell assets to plug ever-growing black holes on their balance sheets, Recharge can reveal.
The Renewable Energy Development Fund (REDF) hit a record deficit of 140bn yuan ($20.8bn) last year, and has become “the primary bottleneck of renewable development in China”, Li Junfeng, director general of the National Center for Climate Change Strategy Research told local media, amid growing calls to sort the situation out.
Faced with the massive deficit, the REDF – which relies on consumer and industrial power bill payers to fill its coffers – is sitting on payments due under the country’s feed-in tariff (FIT) scheme, leading to ever-growing accounts receivable totals on balance sheets.
As the key wind developers in the country, the renewable subsidiaries of China's major power utilities have felt the most significant impact, Recharge analysis of company filings shows.
The accounts receivables of China Longyuan Power, Huaneng Renewable, China Power Clean Energy Development, Huadian Fuxin Energy, and Datang Renewable Power have collectively grown more than threefold since 2015, registering over 37.8bn yuan by mid-2018.
The five are renewable subsidiaries of the country's five largest power generation utilities — China Energy Investment Corp (CEIC), China Huaneng Power Corp, State Power Investment Corp (SPIC), China Huadian Corp, and China Datang Corp, respectively.
The leading wind player in China, Longyuan Power, part of CEIC, showed accounts receivable exceeding 10.5bn yuan by the third quarter last year. Longyuan is closely followed by Huaneng Renewable, whose unpaid revenue also reached 10bn yuan last year, company filings show.
The growing accounts receivables mean increasing financial risks, as companies struggle with unstable cash flows and may need to operate at high leverage rates, potentially making finance more expensive.
Datang Renewable, which has an 8.8GW wind power fleet, witnessed the sharpest increase, with accounts receivable growing by a factor of six since 2015 – a situation it has explicitly linked to unpaid government subsidies in corporate filings.
The firm has faced difficulties in lowering its debt-to-equity ratio, currently at over 80%, according to a prospectus released last year to raise cash from the bond market. In the release, the company said it plans to continue selling off assets to keep the business afloat.
The unpaid revenue squeeze comes as developers face huge new pressures caused by an abrupt shift to zero-subsidy, competitive allocation – a policy shift hurried through by the Chinese government in a bid to tackle the deficit problem in a way that avoids the politically toxic choice of raising power bills.
Legislators gathered in Beijing for China’s annual National People’s Congress (NPC) meeting, which will end tomorrow, have heard calls to sort out the issue, which is blamed on factors ranging from failure to keep the fund's income in line with China’s runaway renewable growth, to bypassing of the system altogether by industrial users who generate their own power.
“Future solar and wind projects are heading to the zero-subsidy scheme,” Nan Cunhui, a lawmaker on the NPC and the chairman of solar firm Chint Group said during the meeting. “There will be no new projects adding to the [renewable energy development fund’s] deficit.
“Therefore, the national [regulators] have no excuse but to solve the delayed payment once for all,” he said.