Foreign Exchange Risks
The Group principally operates its businesses in Mainland China with most of its transactions settled in RMB. Apart from certain bank borrowings, borrowings from related parties as well as cash and cash equivalents, the Group’s assets and liabilities are mainly denominated in RMB. The Group held borrowings denominated in Japanese Yen (“JPY”) and United States Dollars (“USD”) during the year. Volatility of RMB exchange rate against JPY and USD may increase the exchange risks of the Group, thus affecting its financial position and operating results. As at 31 December 2023, the Group’s borrowings denominated in foreign currencies amounted to RMB926,998,000 (31 December 2022: RMB702,940,000), which accounted for 0.55% (31 December 2022: 0.60%) of the total debts of the Group.
The Group will continue to keep track on the movements of exchange rate and, if necessary, take responsive measures to avoid excessive foreign exchange rate risks.
Funding Risks
With the Group’s strengthened efforts in developing all kinds of new energy and innovative technology projects, funding adequacy has become an important issue for the Group. The financing market is affected by a number of factors such as the liquidity of the lending market, interest rates and the economic environment, which in turn may also affect the effectiveness and costs of the Group’s borrowing. Financing from SPIC in the form of perpetual debt instruments has significantly increased the financial resources available to the Group. In addition, the Group has always leveraged its capability of accessing the Mainland China and overseas markets to optimize its funding sources, increase the credit facilities and lower its financing costs. Moreover, the financial services framework agreement with SPIC Financial also facilitates the mitigation of funding risks.
As at 31 December 2023, the Group had sufficient available unutilized financing facilities amounting to RMB42,848,259,000 and will refinance and restructure the existing loan terms when appropriate to safeguard against funding risks.
Risks of Policy Changes
Impact on coal-fired power business
At the beginning of 2023, the NDRC held a special press conference on stabilization of prices, at which it was proposed that all means should be sought to stabilize the price of energy and other commodities with coal as an “anchor”. It aimed to limit the market prices of coal within a reasonable range by innovating and improving the market price formation mechanism for coal, proposing a reasonable range of market prices for coal, specifying the criteria for determining price gouging behavior in the coal industry and expediting the release of advanced coal production capacity. A stable coal price would lay a solid foundation for stabilizing power tariff and energy consumption cost. This policy is conducive to stabilizing coal price, and hence will facilitate the development of the Group’s coal-fired power business with a positive effect on the profitability of the thermal power segment.
In November 2023, the NDRC and the NEA issued the “Notice Concerning the Establishment of the Coal-fired Power Capacity Tariff Mechanism (《關於建立煤電容量電價機制的通知》)” , which affirmed that the coal-fired power capacity tariff mechanism would be established with effect from 1 January 2024 and that the “two-part system” tariff policy would be implemented for coal-fired power. The “two-part system” affirmed that the cost recovery of coal-fired power would no longer be fully dependent on power generation, giving it the incentive and room to participate in system regulation. It is expected that the introduction of the mechanism can reduce the risk of cost diversion for coal-fired power enterprises, further enhance the flexibility of coal-fired power generating units and their supporting role in regulation, and safeguard the adequacy of power generating capacity in the mid to long term, thereby facilitating the development of new energy and the green and low-carbon transformation of energy.
Impact on energy storage business
The NEA issued the “Technical Guidelines on Planning of Developing Novel Energy Storage for Power Transmission by New Energy Bases (《新能源基地送電配置新型儲能規劃技術導則》)” in June 2023. These guidelines have been used to guide the planning of developing novel energy storage for power transmission across provinces and districts by new energy bases. It affirmed that while novel energy storage would primarily be used for peak shaving and enhancing the reliability of power transmission of bases, it would also be considered for other purposes, including modulation of system frequency and backup in case of accident, based on the needs of dispatching and operation. Serving as a reference for works related to developing novel energy storage for other types of new energy projects, these guidelines have provided a strong support for planning and developing novel energy system and accelerating the establishment of a novel power system.
In September 2023, the Central China Energy Regulatory Bureau of the NEA issued the “Implementation Rules for the Management of Power Auxiliary Services in Central China Region (《華中區域電力輔助服務管理實施細則》)” and the “Implementation Rules for the Management of Grid-connected Operation of Power in Central China Region (《華中區域電力併網運行管理實施細則》)”, which specified the compensation standards for the participation of novel energy storage projects in, among others, peak shaving and frequency modulation; as such, the revenue channels for energy storage projects are expected to be broadened. On the other hand, Shandong Province and Guangdong Province have successively promulgated policies to encourage the conversion of supporting energy storage into independent energy storage, whilst independent energy storage will enter the electricity spot market by way of quantity and price quotation, which is expected to further expand the business model of energy storage.
Impact on the Electricity Spot Market
In October 2023, the Office of the NDRC and the General Affairs Department of the NEA jointly issued the “Notice on Further Accelerating the Development of the Electricity Spot Market (《關於進一步加快電力現貨市場建設工作的通知》)”. On the premise of ensuring the facilitation of a safe and stable power supply, it shall realize the full coverage of the electricity spot market in an orderly manner, and explore the new modes such as “new energy + energy storage” to enter the spot market. In regions where the installed capacity of distributed new energy accounts for a relatively high proportion, it will promote the participation of the on-grid power generation capacity of distributed new energy in the market, and explore effective mechanisms for their participation in the market. Besides, new types of entities will be encouraged to participate in the electricity market. Through the market-oriented approach, time-varying price signals will be obtained, thereby promoting energy storage, virtual power plants, load aggregators and other new entities to play an active role in peak-load shifting, and optimizing the quality of power and energy.
In recent years, the Group has been actively expanding its energy storage business and participating in market-oriented trading. Benefited from the continuous optimization of various relevant domestic policies, the market has continued to grow, which is conducive to the future development of various businesses of the Group and will contribute a new source of profit growth.