Hong Kong/China Utilities &Alternative Energy:Back from trip:Insights on renewables and gas

Green Certificates, subsidies, carbon trading. Given aggressive solar installationthis year (2016: +34GW; 8M17: 38GW; 2017e: 50GW), the current RMB60bn deficitat the Renewable Energy Fund will likely widen, putting at risk the predictability of thesettlement cycle of subsidies to renewable energy operators. The Green Certificateprogramme (GC) is the proposed solution, as it creates incentive alternatives to thefixed subsidies. We understand the government is preparing an elaborate GC policy,but the final launch (mandatory application) is likely to be delayed from the originalstart date (Jan 2018) given some political obstacles. Both the National Development& Reform Commission (NDRC) and State Grid (unlisted) believe it will be a challengefor nationwide GC trading to gain popularity. The China Emission Exchange inShenzhen, on the other hand, is confident about a national launch of a carbon tradingscheme in 2018, which could eventually replace GC, as the two schemes servesimilar purposes. Although the policy outlook remains unclear, we are optimistic onrenewable energy (e.g. wind operators) given current valuations and year-to-dateunderperformance. On this trip, we learned that GC is likely to be applicable only tonew installations while existing capacity should enjoy the grandfather law