Simon.Lee@morganstanley.comEva.Hou@morganstanley.comAttractiveMORGANSTANLEYASIALIMITED+SimonH.Y.Lee,CFAEQUITYANALYST+8522848-1985EvaHouEQUITYANALYST+8522848-6964ChinaUtilitiesAsiaPacificIndustryViewChinaCleanEnergyChinaCleanEnergy||AsiaPacificAsiaPacificWhatifanewsubsidypaymentsystemisimplemented?Webelieveanewsystemwouldlikelyslowdownsubsidypaymentstowind,butspeeduppaymentstosolar.WHAT'SCHANGEDChinaSuntienGreenEnergyCo.,Ltd.(0956.HK)FromToPriceTargetHK$2.98HK$2.75CGNNewEnergyHoldings(1811.HK)PriceTargetHK$1.75HK$1.20HuanengRenewables(0958.HK)PriceTargetHK$2.80HK$2.10ChinaLongyuanPowerGroup(0916.HK)PriceTargetHK$6.60HK$5.00Potentialchangesinpaymentsystem:WebelievetheChinesegovernmentisconsideringpotentialchangestothesubsidypaymentsystem.Currently,allwindandsolarfarmsareeligibletoreceivesubsidiesonlyafterinclusionintheMinistryofFinance'scatalogsystem.Sofar,thefirstsevenbatchesofprojectshavebeenannounced.Whatifithappens–why,whenandhow?Thecurrentsystemusescommissioningdatesascut-offpoints;forexample,batches1-7includedwind/solarprojectscommissionedbeforeMarch2016.Weestimatethatonly69%ofwindand25%ofsolarcapacityasof2018wasincluded.Ifthenewsystemisimplemented,withremovalofthecatalog,wecanseeallinstalledcapacitybecomingequallyeligible,whichwouldlikelyspeedupsolarpayments,butslowdownwindpayments.Thenewpolicymaybeannouncedin2H19.WindIPPswilllikelyreportincreasedsubsidyreceivablesinthefuture:In1Q19,windIPPsreported32-47%yoyincreasesinaccountsreceivablebalance,duetothedeficitinChina'sRenewableEnergyFund(REF).Coupledwithremovalofthecatalog,existingwindcapacitymayseeafurtherslowdowninsubsidypayments.Peakofrenewablessubsidiestohappenonlyin2025:Contrarytothemarket'sexpectationthatsubsidiesforrenewableswillpeakin2021,duetotherushininstallationofonshorewindin2019/20andoffshorewindin2019-21(withunitsubsidies3xhigherthanforonshore),wedonotexpectsubsidiestopeakuntilatleast2025.Mostnegativespricedin,butcuttingPTsduetoprolongedA/R;Suntienshiftsfromwindtogas:WecutourPTsforallwindIPPs,d...
