China Sets $63 Billion to Pay Subsidies Owed to Renewables Firms – EQ Mag Pro
China will use most or all of 400 billion yuan ($63 billion) added to a major government fund toward paying off debt subsidies this year owed to the country’s renewable power generators, according to people familiar with the matter.
The plan is to completely pay off the arrears this year to help strengthen renewable developers’ balance sheets and give a boost to the country’s efforts to peak and eventually zero out emissions, according to the people, who asked not to be named because the information isn’t public. Some preparation has already begun, including work to calculate total debt due to specific developers, one of the people said.
Renewable companies have been on a tear in recent years, installing record levels of wind and solar as costs fell and to take advantage of government subsidies before they expired. But overdue payments have put a big strain on the financials and shares of the country’s biggest renewable developers.
The market for the past week has been speculating that the added funds would be used for subsidies, after the Ministry of Finance put the extra money in the budget just days after saying on March 5 it would address renewable subsidy shortfalls.
Ministry officials didn’t immediately respond to a faxed request for comment.
The size of the central government-managed fund, which is used for everything from developing the national film industry to building port and railway projects, has been kept under 510 billion yuan in the past decade, except in 2020 when 700 billion yuan in Covid relief was introduced. This year, the budget nearly doubled to 807 billion yuan from 406 billion in 2021. The increase is a close match to the total subsidy debt, which by the end of 2020 had reached 373 billion yuan, according to Citigroup.
“We think it likely that China will resolve the issue of overdue renewable subsidies, with substantial new funding allocated to Central Governmental Funds,” Morgan Stanley analysts including Simon Lee said in a research note on Sunday. “Industry players need the overdue subsidies to fund future renewable installations.”
The problem with China’s renewable subsidies dates back to the mid-2010s, when new wind and solar developments started growing faster than the pool of money the government set aside every year to pay the fees it promised them.
The last deadline to be included in the subsidies for major new projects was the end of 2021. Payments typically last for 20 years after the wind and solar plants start generating.
The impact has been significant for the developers. The amount of subsidies owed to China Datang Corp. Renewable Power Co. is equivalent to 71% of its market cap, according to Morgan Stanley. Subsidy debts are equivalent to 39% of the market cap for China Suntien Green Energy Corp. and 22% for China Longyuan Power Group Corp.
Despite the phasing out of subsidies, the government continues to strongly support wind and solar projects at it seeks to meet aggressive climate targets. A report from the state planning agency earlier this month confirmed that China’s massive desert renewables program will grow to at least 450 gigawatts in size, while offshore wind was singled out for “vigorous” backing.
Source: Bloomberg
