PDF《China Solar Sector》

6 th batch of the renewable energy tariff subsidy catalogue, in line with market expectation of announcement in 3Q16, and the industry is expecting a collection of related FiT receivables by the end of this year, and at the same time the

7 th patch would open for application. To recall, MoF opened the application for the

6 th batch of subsidy on Jan 30, 2016, with application deadline on Feb 29, and eligible projects must achieve grid-connection by Feb-2015;

the preliminary examination was completed in early May. Projects registered in the catalogue would initially receive the delayed FiT receivables and collect future subsidies on a regular basis, which would improve the cash flow and liquidity positions of solar farm operators, especially pure operators. We view United PV (686 HK, NR) to be the biggest beneficiary among the HK-listed solar operators, as it has 630MW installed capacity included in the latest catalogue with accrued subsidy receivables amounting to c.Rmb1.3bn as of Aug 2016. Meanwhile, GNE (451 HK, BUY) has c.400-500MW registered projects with c. Rmb523mn receivables as of Jun, and Xinyi Solar (968 HK, NR) has c.250MW registered projects. Continuous FiT cuts inevitable;

cut-off date affects installations According to local news report, the NDRC has been considering revising down the FiT subsidies in

2017 by over Rmb0.05/kWh among all regions, and the system costs used for project return calculation would be set at c.Rmb7.0/watt (vs. Rmb8.0/watt for

2016 and Rmb10.0/watt for 2014-15), resulting in a minimum 5.1%-6.3% tariff decline among all regions. We believe the Chinese government would follow the global practice of reducing the FiT subsidies for renewable energy. In addition, it faces significant shortage of renewable fund, which urges a change of the subsidy-driven growth model, and its long-term target of achieving grid-parity for solar power by 2020. While the actual cuts would affect the return on projects, the cut-off date might arouse another round of rush installations next year. Figure 1: National FiT for utility-scale solar projects (Rmb/kWh, including tax) Resources Regions 2014-15

2016 YoY% 2017E YoY% Category I Ningxia, Qinghai (Haixi), Gansu (Jiayuguan, Wuwei, Zhangye, Jiuquan, Dunhuang, Jinchang), Xinjiang (Hami, Tacheng, Alatai, Kelamayi), Inner Mongolia (except Chifeng, Tongliao, Hinggan, Hulun Buir) 0.90 0.80 -11.1% <

0.75 -6.3% Category II Beijing, Tianjin, Heilongjiang, Jilin, Sichuan, Yunnan, Inner Mongolia (except Chifeng, Tongliao, Hinggan, Hulun Buir), Hebei (Chengde, Zhangjiakou, Tangshan, Qinhuangdao), Shanxi (Datong, Suzhou, Xinzhou), Shaanxii (Yulin, Yanan), and other regions in Qinghai, Gansu and Xinjiang 0.95 0.88 -7.4% <

0.83 -5.7% Category III Other regions 1.00 0.98 -2.0% <

0.93 -5.1% Source: News, CSCI Research estimates Spreading adoption of competitive bidding among provinces In response to the draft guidance on competitive bidding released by NEA in Jan 2016, increasing numbers of provinces such as Hebei, Guangxi, Heilongjiang, and Inner Mongolia have published their competition mechanism on solar project quota allocation, with bidding tariff weighting of 20-30% in the selection criteria. Referring to the most recent open tender results in Anhui and Jiangsu, the bidding behaviours among solar farm developers were rather rational, as bidding tariffs have ranged from Rmb0.92/kWh to Rmb0.96/kWh, translating into 2-6% discount to the benchmark tariff of Rmb0.98/kWh. And based on our sensitivity analysis, projects could still deliver IRR returns of 8-19% with the tariff cuts, depending on their system costs (project China Solar Sector: Shifting dynamics, follow the leaders Please read the disclaimer on the last page.