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China

China

Laying the financial foundations

"The China cake is big and promises a good return." This was the message conveyed to delegates at the Beijing Renewable Energy Finance Forum by Zhu Junsheng, director of the China Renewable Energy Industry Association (CREIA). As at the previous day's wind industry summit, also in Beijing, government officials at the forum were forced to defend a market structure based on government concessions. This article is linked to the story Change in the Air for China Concessions.

"The China cake is big and promises a good return." This was the message conveyed to delegates at the Beijing Renewable Energy Finance Forum by Zhu Junsheng, director of the China Renewable Energy Industry Association (CREIA). The sector could really "make money," he said.

As at the previous day's wind industry summit (main story), also in Beijing, government officials at the forum were forced to defend a market structure based on government concessions. Deputy director of the energy bureau at the National Development & Reform Commission, Wu Guihui, said competitive tendering handed responsibility for deciding power purchase prices to investors. Experience with tenders so far shows companies are becoming rational in casting bids, he said. China's market is open to all investors, he assured, regardless of who or what they are or countries of origin: "Government sponsored tendering treats all players fairly."

Various finance issues were discussed. Zhang Yuan of the National Longyuan Electric Power Corporation, China's largest wind power developer, called for taxation on wind plant to be lifted completely. It is currently charged at 50% of normal rates. Ka Keung Chan of CLP Renewables said he is worried that China's domestic banks are not ready to grant loans to renewables projects. The reason international investors go to Hong Kong banks first, he said, is because they are more internationalised than mainland banks and more experienced in supporting renewables development.

Li Peng of China Industrial & Commercial Bank explained that banks prefer to lend to large state-owned companies in order to reduce risk, but said projects or items included in the State Renewable Energy Industry Development Guidance Catalogue also gave banks confidence. Meanwhile, Pan Weiping of Garrad Hassan's Beijing office called for attention to the fact that the actual production of many Chinese wind power stations is not living up to expectations which could explain the caution of some investors. Research is needed to find out why plant are performing below par, he said.

CREIA's Li Junfeng urged companies to make greater use of resources offered by the World Bank. The World Bank is not playing a bigger role in China's renewables development because processing of financing applications is complicated and slow and companies often miss the boat. Chinese companies wanting to apply for projects under the Kyoto Protocol's Clean Development Mechanism (CDM) should act quickly, he said.

Laurent Segalen, vice president of Investment Bank of Groupe, warned companies that it was essential to do their ground work properly. China's CDM projects are currently being sold cheaply on the international market, he said, because their preparation is not good enough. Rumours are that Huarui, the only private company awarded a wind project construction concession so far, has found a CDM buyer for the carbon credits from its first 100 MW wind plant endeavour. This could add 10% to the power purchase price, sources said. Huarui won the concession three years ago after bidding a much criticized low price.

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