Ontario acquisition extends Longyuan's global reach

CANADA: The $259 million investment is part of a cautious expansionist strategy and evidence of the Chinese firm's global ambitions.

The signing ceremony of the Longyuan deal with Farm Owned Power
The signing ceremony of the Longyuan deal with Farm Owned Power

China’s state-owned wind-power developer Longyuan Power has given an indication of its global ambitions with the acquisition of part of a Canadian wind farm for CNY 1.68 billion ($260 million). The move is part of the world’s fifth largest wind operator’s aim to break into the top three in the next three years.

Under the agreement, Longyuan Canada Renewables, a subsidiary of Longyuan Power, will purchase stocks of a 100MW wind farm from Farm Owned Power in Ontario. Longyuan was unable to give details of the size of the stake but said it would be a major shareholder in the 100MW wind farm. The company said the project would be completed in about two years.

Xie Changjun, general manager of Longyuan Power, had previously stated the company’s overseas strategy would consist of acquiring wind-farm projects, developing wind farms and investing in potential resources for future development.

Speaking about the Ontario deal, Xie said it would take seven to eight years for Longyuan to recover the investment. "We are very cautious about developing overseas projects. We chose to develop the Canadian project because of the country’s rich wind-power resources, reasonable land leases, feed-in tariffs, power transmission system and smooth government examination and approval. We have managed to minimise project risk," he said.

Exchange-rate stability

He also highlighted the need for stable government and the continuity of its policies when buying projects. "Exchange-rate risk also deserves high attention. These days, exchange rates change too much. If the currency of the destination country depreciates heavily, we will be affected greatly in the return on investment."

Caitlan Pollack, a senior analyst for Asia at market analysts IHS Emerging Energy Research, said it was a concrete demonstration of the emerging ambition of Chinese wind-power developers to diversify out of their home market.
So far, she explained, there have been a number of tentative memorandums of understanding and development goals, but this is the first attached to a specific project. "They’re a first mover. They’ve done this before anyone else at this point," she said.

The project has a 20-year feed-in tariff contract with the Ontario Power Authority. Pollock thought Longyuan had been enticed by the attractive C$0.135/kWh ($0.14/kWh) rate and the chance to enter the North American market. How it fits into Longyuan’s broader approach to the market, though, remains to be seen. However, the company has both the resources and experience to take any number of paths to entering a new market.

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