articles Ratings /ratings/en/research/articles/230913-profit-turnaround-will-support-china-ipps-ambitious-transition-plans-12849353 content esgSubNav
In This List

Profit Turnaround Will Support China IPPs' Ambitious Transition Plans


Credit FAQ: What's Behind Our Recent Actions On Investor-Owned Utilities In Connecticut?


Instant Insights: Key Takeaways From Our Research


Evolving Term Loan B Market For U.S. Merchant Power Industry


Research Update: New Zealand Post Outlook Revised To Negative On Operating Headwinds, Kiwibank Divestment; 'A/A-1' Ratings Affirmed

Profit Turnaround Will Support China IPPs' Ambitious Transition Plans

HONG KONG (S&P Global Ratings) Sept. 13, 2023--The profit recovery of China's coal-fired independent power producers (IPP) will likely last into the second half of 2023. The continued moderation of coal prices coupled with upward adjusted coal-fired power tariffs since last year underpin the earnings improvement.

"Longer-term, we expect the thermal coal price to return to the government-guided range and the market-based on-grid tariffs to better reflect power supply and demand dynamics," said S&P Global Ratings credit analyst Scott Chui.

From Jan. 1, 2023 to Aug. 30, 2023, spot thermal coal prices have fallen by about 20% compared with the average in 2022. The moderating trend mainly stems from the expansion of domestic coal production as well as cheaper coal imports.

On the demand side, national power consumption grew by 5.2% in the first seven months compared with the same period of last year. Full-year power consumption will grow at about 6% this year, according to forecasts by the China Electricity Council (CEC), indicating a growth rate for the second half of about 6%-7%.

"IPPs' coal power tariffs will hold up for the remainder of 2023. A chief source of support for this is their high proportion of power tariffs already locked in annual sales contracts," Mr. Chui said.

In the first half of 2023, rated issuers reported an average of 2% coal power tariff hike from last year, corresponding to about a 20% premium to the coal-fired benchmark rates. Nonetheless, with the softening of coal prices, potential risk of tariff cut may pile up for 2024 and onward.

Ancillary services market may also create more opportunities for the IPPs, as coal-fired power plants assume the responsibility of maintaining power grid stability. In the first half of 2023, China Resources Power Holdings Co. Ltd. (CRP; BBB+/Stable/--) and Huaneng Power International Inc. (HPI; A-/Stable/--) earned HK$0.8 billion and Chinese renminbi (RMB) 1.5 billion from ancillary services such as peak shaving--leveling out peaks in electricity use by industrial and commercial power consumers. We expect secular growth in the ancillary services in China, and this should compensate the coal-power units for the likely lower utilization in the future.


Higher marketization increases earnings volatility for renewable energy operators. Cross-provincial or regional market-based trading tariffs are usually lower than the local coal-fired base-tariffs, adding volatility to the earnings of renewable operators. In the first half of 2023, CRP and China Longyuan Power Group Corp. Ltd.'s (A-/Stable/--) sold about 31% and 49%, respectively, in renewable power via market-based trading. As a result, their average tariffs fell by 4% and EBITDA margin from the segment dropped by 2 percentage points.

Green electricity trading, as a form of market-based trading, could partly compensate the loss of tariff subsidies because it usually trades at a premium over the local base-tariff--despite the current small scale. More policy incentives may be necessary to further develop the market. This could include a tightening of carbon emission standards or the inclusion of more industry sectors into carbon trading.

Revamping old wind projects may also bolster the profits of renewable energy operators. The National Energy Administration in June 2023 announced plans to replace wind turbines that are more than 15 years old or that have less than 1.5 megawatts (MW) in capacity compared with newer models. Longyuan could be the key beneficiary of this new initiative because about 70% of the company's wind turbines are at or below 1.5MW. Longyuan expects these old projects--once upgraded--could double its existing capacities.

Renewable energy subsidy collections, on the other hand, remained subdued. This is despite the fact most of our rated IPPs have indicated that more than 70% of their projects are within the tariff subsidy verification list published by the National Development Reform Commission. In the first half, CRP and Longyuan only received RMB0.1 billion and RMB500 million in tariff subsidies, respectively; whereas last year they received RMB0.02 billion and RMB11 billion. Some companies have started provisioning the ageing receivables for impairment, despite the risk of non-payment remaining remote for now.


Capital expenditure (capex) will accelerate and constrain financial profiles. Despite a slow first half of 2023, we believe our rated IPPs should be able to catch up on their renewable construction plan for the full-year 2023. In the first half of 2023, HPI, CRP, and Longyuan added 0.5GW-2.9GW of new capacities, accounting for only 8%-36% of their full-year targets. We estimate their capex level will rise to RMB32 billion-RMB93 billion over 2023-2024, compared with RMB18 billion-RMB57 billion in 2021-2022.

"We believe our rated peers still have sufficient headroom to withstand the capex pressure," said Mr. Chui. Most of the IPPs had a funds-from-operations interest coverage ratio of above 2.0x for 2022, which will improve to above 3.0x over 2023-2024 given the turnaround of operating cash flow from their coal-power segment. We also believe state-owned IPPs will maintain sufficient liquidity and diversified funding channels for their investment plans. Low interest rates in China will also help. We expect most state-owned IPPs' average funding costs to stay at about 3%.

Table 1

Rated issuer (listed) Rating Tariff change (%) Coal unit fuel cost change (%) Renewables market trading proportion (%) Renewables capacity additions (GW)
Coal-fired Wind 1H2023 2023 guidance 2025 target

Huaneng Power International Inc.

A-/Stable/-- 1.90 N.A. -11.30 N.A. 2.90 8.10 44GW of renewables

China Resources Power Holdings Co. Ltd.

BBB+/Stable/-- 1.80 -3.10 -8.10 31.00 2.00 7.00 50% of total capacity

China Longyuan Power Group Corp. Ltd.

A-/Stable/-- -1.90 -3.50 N.A. 48.70 0.50 6.00 At least doubling capacity by end-2020
GW--Gigawatt. N.A.--Not available.

Editor: Lex Hall

Related Research

This report does not constitute a rating action.

S&P Global Ratings, part of S&P Global Inc. (NYSE: SPGI), is the world's leading provider of independent credit risk research. We publish more than a million credit ratings on debt issued by sovereign, municipal, corporate and financial sector entities. With over 1,400 credit analysts in 26 countries, and more than 150 years' experience of assessing credit risk, we offer a unique combination of global coverage and local insight. Our research and opinions about relative credit risk provide market participants with information that helps to support the growth of transparent, liquid debt markets worldwide.

Primary Credit Analyst:Scott Chui, Hong Kong 25328068;
Secondary Contact:Apple Li, CPA, Hong Kong + 852 2533 3512;

No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, (free of charge), and (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at

Register with S&P Global Ratings

Register now to access exclusive content, events, tools, and more.

Go Back