Fitch: Big Five IPPs Remain Key Policy Vehicles for China's Clean Energy Goal

Fitch Ratings says in a new report that China's big five state-owned independent power plant operator groups (Big Five IPPs) will remain important policy vehicles that the state will use to meet its goal of shifting the national energy mix towards clean energy. 

The Big Five IPPs have benefitted consistently from direct and indirect state support over the last decade, including equity injections, fiscal subsidies, policy incentives, and tax rebates, due to their important role in the strategic energy sector. 

As of end-2014, they controlled about half of China's total installed generation capacity with a similar market share held by each. 

Fitch expects the Chinese government to continue to use the Big Five IPPs to add new clean energy capacity and improve the emission standards of existing coal-fired plants because of their large scale and better-than-industry-average operating efficiency.

The Big Five IPPs have used their balance sheets to fund a large amount of China's generation capacity growth. Their aggregate installed capacity increased by 3.4x from 2003 to 2014, compared with industry-wide growth of 2.5x.

Persistently high capex resulted in the Big Five's total debt doubling between 2008 and 2013, with median adjusted net leverage reaching 7.2x at end-2013. 

While strong state support will underpin the Big Five IPPs' creditworthiness, Fitch sees a low likelihood of any de-leveraging in the next five years in the absence of major equity infusions.  This is due to capex remaining high, as large capacity additions continue, even though year-on-year growth will be slower, and investments in clean power with high average unit costs accelerate. 

The full report, titled "China Big Five IPPs: Playing a Critical Role in Meeting State Energy Goals" is available on www.fitchratings.com or by clicking on the link in this media release.