South China Morning Post Article: China’s clean-energy giants on an overseas shopping spree

The South China Morning Post recently interviewed Modern Energy Management’s Managing Director, Aaron Daniels,
on the support Modern Energy management is providing to Chinese investors interested in our unique project de-risking services in emerging markets:

China’s clean-energy giants on an overseas shopping spree

With ample government resources at their disposal China General Nuclear Power and Three Gorges lead the charge on solar, wind and hydro international investment targets

Chinese state-funded renewable energy firms are spreading the net overseas, as quality new projects become harder to come by at home, and have already been successful in snapping up some prime operational projects, while bidding for others, both in developed and emerging markets.

The two most active are China General Nuclear Power Group, the nation’s largest nuclear reactor developer, and China Three Gorges, the country’s biggest hydro power projects developer.

The former has stuck at least eight deals in the past twelve month, while the latter has completed two major acquisitions.

“We are seeing a lot of interest from Chinese power companies in acquiring renewable energy assets including on- and offshore wind projects, large-scale solar farms and hydro projects,” said Daniel Mallo, head of Asia Pacific energy, infrastructure, metals and mining finance at French bank Societe Generale who have been working the Chinese firms on deals, told the South China Morning Post.

He said Western Europe has been a prime target for wind and solar power assets for Chinese companies, while Latin America is the major destination for hydro-electric projects.

The flurry of overseas activity comes as the domestic energy market remains oversupplies due largely to excessive construction of coal-fired power plants and a major slowdown in power demand growth as the economy becomes reliant less on energy-intensive industries.

Wind turbines in the North Sea near Helgoland, Germany. China Three Gorges in June bought an 80 per cent stake in an 288 MW offshore German wind farm operator, WindMW from Blackstone Group for around US$1.8 billion.

China’s renewables sector, although still backed up by favourable government subsidies, currently suffers from low plant utilisation, due to ongoing power grid bottlenecks and oversupply of energy.

A rise in the deficit of a state-run fund to subsidise renewable energy consumption also saw Beijing cut wind and solar power tariffs, which has reduced return rates, despite this being partly mitigated by falling project installation costs.

The ample liquidity available to Chinese firms from state banks has also allowed firms to be more aggressive than many international renewable energy competitors, Mallo noted.

China Three Gorges, operator of the world’s largest hydro power project along the Yangtze river, in June bought an 80 per cent stake in an 288 MW offshore German wind farm operator, WindMW from Blackstone Group for around US$1.8 billion.

We are seeing a lot of interest from Chinese power companies in acquiring renewable energy assets including on- and offshore wind projects, large-scale solar farms and hydro projects

Three Gorges said it had generated more than 20 billion kilowatt-hours (kWh) of renewable (hydro, wind and solar) energy overseas in the year to October 18, including in Brazil, Germany, Greece, Pakistan and Laos. Last year the firm’s total output, including in China, was 201 billion kWh, according to its annual report.
Also in October, the Beijing-based company struck a deal to buy all of US-based Duke Energy’s hydro power assets in Brazil worth US$1.2 billion.

Three Gorges said the deal would raise its clean energy generation assets under its management in Brazil by 2,270 MW to 8,270 MW. The hydro power giant controls at least 66,988 MW of generating capacity.
Not to be outdone, meanwhile, state-owned China General Nuclear Power Corp (CGN), the nation’s largest developer of nuclear reactors, has clinched an even-longer list of deals.

The most recent came last week when it agreed to buy 14 wind farms in Ireland with combined capacity of 230 megawatts – enough to power 120,000 homes – from the Dublin-based renewable energy firm Gaelectric, for an undisclosed sum that helped the latter pay down its debt and fund new projects.

And early last month it unveiled its first foray into Africa’s solar power sector, buying a 90 per cent stake into a 44 mega-watt (MW) solar farm project in Senegal, West Africa from Italy’s Chemtech Solar.

Those two came just over a month after another deal to acquire 100 per cent of the 81 MW Esperance project – the largest onshore operating wind farm in Belgium from renewable energy projects developer Windvision, for an undisclosed sum.

China General Nuclear Power last week agreed to buy 14 wind farms in Ireland with combined capacity of 230 megawatts – enough to power 120,000 homes – from the Dublin-based renewable energy firm Gaelectric, for an undisclosed sum.

“Establishing a strong overseas wind and solar power presence is a key component of [our] business strategy to become a world-class clean energy group,” CGN said in response to the Post’s query on its highly acquisitive overseas moves, adding it sees “tremendous potential” in Latin America, Europe and Africa, too, as well as Southeast Asia.

In late July the firm also won a joint bid with French new-energy firm Eolfi to build a 24 MW floating offshore wind farm off the coast of France, the first industrial-scale tender of such kind of project in Europe, and the first time a Chinese firm has become involved in a major floating wind power project.

Mallo said Chinese firms have become especially interested in the technically more challenging offshore wind projects of Europe because they want to acquire knowhow and experience of their operations with the aim of expanding their presence in the less-developed domestic offshore wind market.

CGN set up a European subsidiary in France known as CGN European Energy in 2014, focusing on investment in renewables, mainly wind and solar.

If you are a mergers and acquisitions banker seeking to sell renewable energy assets, Chinese buyers will certainly be top of your potential target list

In December that year, the company also bought 80 per cent of the 72 MW Clover wind farm project in Britain, and two months later secured a bid to buy the onshore Fujin wind farm project in France from Eolfi.
In the solar segment, CGN a year ago inked a preliminary agreement to co-develop 500 MW of solar and wind power projects in Namibia, in south-western Africa, with French utility Electricite de France (EDF)’s new energy unit and French solar farms developer InnoSun.

EDF is a close partner of CNG in the nuclear business.

At the end of October, CGN’s overseas new energy installed capacity reached 8,700 MW, the company said. It controls around 35,000 MW of power plants in China and abroad.

“There is no sign liquidity levels are becoming stretched so far,” Mallo said of the financing made available by the state banks.

“If you are a mergers and acquisitions banker seeking to sell renewable energy assets, Chinese buyers will certainly be top of your potential target list.”

Unlike the heady days of the energy and metals acquisitions a few years ago, when lofty commodity prices drove many multi-billion US dollar deals, before commodity prices dropped sharply leaving many investors stung, Mallo adds renewable energy assets are generally protected by fairly stable cash flows under long term contractual or regulated agreements.

Floodwater released from the Three Gorges Dam, the gigantic hydropower project on the Yangtze river. Photo:
“Of course, there are is risk that regulation and energy policies may change, and new market entrants are especially exposed,” he said, citing the example of retroactive reductions in guaranteed power tariffs in the wake of the Southern Europe sovereign debt crisis, which caught some developers by surprise, denting profits.
Aaron Daniels, the Bangkok-based managing director and founding partner of renewable energy consultancy Modern Energy Management, who has project development and consulting experience in both China and Southeast Asia, told the Post he considers Thailand to be one of the most attractive markets in Asia in terms of risk and reward, with investors generally “unfairly discounting” the nation due to concerns about its political stability.

But he noted it is not an easy market for outsiders to crack with a few companies with strong financial and technical capabilities holding the majority of its renewable project development rights.

He also said some Chinese firms he worked with have failed to sufficiently identify their own risk tolerance.
“The other common issue is local partners want majority control … and in some areas it is difficult to get a hold of land and project development permits without a local partner,” he added.

Mallo also expects Chinese firms to be lured by fast-growing economies such as the Philippines, India, Pakistan and Indonesia which face current power shortages, as well as markets with major policy goals that drive renewable energy production growth, such as parts of Australia.

He noted the Queensland state government has a target to have renewable energy contribute half its total electricity production by 2030, while the Australian Capital Territory has the goal of net zero emissions by 2020.

This article appeared in the South China Morning Post print edition as:
Taking renewables overseas

Link to the original article: http://www.scmp.com/business/companies/article/2053910/chinas-clean-energy-giants-overseas-shopping-spree