Friday, March 29, 2024
 
Columnist
Martin Hennecke
 
CHINA LONGYUAN
HKEx Stock Code : 00916 
 
Corporate Profile
Principally engaged in the design, development, construction, management and operation of wind farms in areas with abundant wind resources in the PRC and the sales of electricity to the local grid companies.

Business Review - For the year ended December 31, 2012

1. Continuous Optimisation in Investment Strategy and More Reasonable Layout of Development

In 2012, the wind power industry faced with obvious conflict of grid connection, serious problem of grid curtailment, increased approval formalities and heightened standard of review. The Group made adjustments to the “Development Plan For The Twelfth Five-year Period”, reduced the scale of wind power development in regions where the grid curtailment issue was serious. The risk of investment was controlled strategically and systemically so as to secure investment return. During the reporting period, 50 projects of the Group were listed under the second batch of plans for wind power projects to be approved (supplemented projects included) during the “Twelfth Five-Year Period” issued by the National Energy Administration, with aggregate installed capacity of 2,824.8 MW, of which projects in regions not subject to grid curtailment accounted for 89.4%. The aggregate installed capacity of the Group's projects included in the first and second batch of projects to be approved under the plan of the PRC was 6,354.8 MW, which ranked the first among the development enterprises. Approvals for preliminary work from the National Energy Administration were received for three projects with aggregate installed capacity of 790 MW, all of which are located in regions not subject to grid curtailment. The layout of project development was optimised and the foundation of the preliminary works was further reinforced.

In 2012, the Group obtained approvals for its wind power projects with 2,231.8 MW. The projects are located in Yunnan, Guizhou, Fujian, Jiangsu etc., of which 73.3% of the projects are in the regions not subject to grid curtailment. As at the end of 2012, wind power projects of the Group which were approved but had not yet been commissioned exceeded 3,000 MW. The Group's accumulated pipeline capacity of wind power projects reached 63.10 GW, providing more flexibility in further screening of projects and optimising the Group's investment layout.

2. Largest Offshore Wind Farm Developed and Leading Position in the Development of Offshore Wind Power in the PRC Maintained

In 2012, the Group implemented the principal strategy of “small scale trial first, medium scale demonstration second, large scale development last” and proceeded with the development of offshore wind power in a proactive and steady manner. In 2012, the Group's offshore wind power projects with an additional installed capacity of 100 MW have commenced operation, and the accumulated operating installed capacity has reached 232 MW. As at the end of 2012, the Group entered into development agreements for offshore wind power projects with an aggregated installed capacity of 5,900 MW, which covers areas such as Jiangsu, Fujian, Liaoning, Hebei and Tianjin.

Whilst completing the construction of its projects, the Group emphasised on technological innovation. The construction technology of the Group reached a standard that is leading in the PRC and advanced in the world, which enabled the Group to effectively lower the construction costs of its projects whilst improving its efficiency. With relentless exploration and successful implementation, the Group made a number of technological breakthroughs in the development of offshore wind power businesses. It has 35 patents under application, of which 22 inventions and utility model patents were authorised by the State Intellectual Property Office. The Group has also undertaken 3 projects of the National 863 Projects (國家863課題). During the year, the Group was awarded one First Prize of Science and Technology from China Association of Construction Enterprise Management (中國施工企業管理協會科學技術一等獎), one Third Prize of Science and Technology from China Water Transportation Construction Association (中國水運建設行業協會科學技術三等獎), one First Prize of Science and Technology Achievement for China Electric Power Construction (中 國電力建設科學技術成果一等獎), one First Prize of Enterprise Management Innovation Achievement for China Electricity Power Industry (全國電力行業 企業管理創新成果一等獎), one Technology Achievement Award for National Power Industry Staff (全國電力職工技術成果獎) and one Method of Power Construction of China (中國電力建設工法). The Group's development and construction technology in offshore wind power projects has become more mature, and more experienced while the pipeline capacity of its projects has become more reasonable.

During the “Twelfth Five-Year Period”, the Group will gradually develop the offshore wind power projects in such areas as Liaoning, Tianjin, Hebei, Shandong, Zhejiang and Guangdong, whilst focusing on the development in Jiangsu and Fujian where the condition for resources and construction are satisfactory.

3. Construction Objectives Achieved with Satisfactory Quality and Quantity, and Wind Power Installed Capacity Exceeded 10 GW

In 2012, the Group comprehensively enhanced the control over its project construction process and persisted in refined management. It further improved the safety supervision and control system for its project construction, and completed the mission of its annual project construction with satisfactory quality and quantity. The Group's projects, namely the 300 MW Large-scale Self-developed Pilot Wind Farm in Guazhou, Gansu (甘肅瓜州300兆瓦大型自主化示範風電場), the 150 MW Longyuan Wind Farm Project in Shangyi, Hebei (河北尚義龍源 風電場(150兆瓦)工程), the 4×49.5 MW Longyuan Laian Wind Farm Project in Anhui (安徽龍源來安4×49.5兆瓦風電場) and the Phase II 49.5 MW Wind Farm Project of Alashankou(阿拉山口風電二期49.5兆瓦風電場)were honoured as Premium Quality Power Construction in China (中國電力優質工程獎). Among these projects, the project in Guazhou, Gansu and the Longyuan Laian project in Anhui were granted National Premium Quality Construction Award (國家優質 工程獎), while the project in Shangyi, Hebei was granted the most prestigious award of project quality in the construction industry in China ---Luban Award (魯 班獎), which was the first wind power project in wind power industry in the PRC to have obtained this honour.

In 2012, the Group had 30 wind power projects and 4 photovoltaic power generation projects newly put into operation, with installed capacity of 1,598.9 MW and 59 MW, respectively. The Group completed the acquisition of 7 wind power projects and 4 biomass power generation projects, with installed capacity of 346.5 MW and 120 MW, respectively. As at 31 December 2012, the consolidated installed capacity of the Group was 12,698 MW, of which the consolidated installed capacity of our wind power, coal power and other renewable power businesses were 10,544 MW, 1,875 MW and 279 MW respectively.

4. Management on Safe Production Continuously Deepened and the Leading Position in the Wind Power Generation Industry Maintained

2012 was the Year of Safe Production and Operation Management (安全生產 與經營管理年) for the Group. The Group fully tapped the space and efficiency for the potential improvement of its power plants through formulating a series of implementation measures and prudently implementing all these rules and measures, and endeavoured to ensure the safety, stability and efficiency in its power generation. The Group introduced the establishment of safety standards for power generation and commenced assessment and evaluation on 30 wind farms, further enhancing the foundation for safe production. In addition, the Group further pressed on the special research and transformation on the optimisation of operation and adopted an optimised pilot mode of operation and control for its generating units in 36 wind farms located at such areas as Tianjin, Inner Mongolia, Jilin, Xinjiang, Hebei and Gansu, so as to improve their generating capacity. The Group also commenced benchmarking management on wind power enterprises, conducted in-depth analysis on the underlying reasons and took measures to boost the electricity output. The Group took initiative to organize activities of star-rated enterprise among the wind power enterprises of Guodian Group, leading to improvement of its management on safe production. The operation and supervision centre, having developed the function of statistical analysis as well as defect and failure tracking and handling, supervised and provided guidance to deal with defects of the wind power companies in a timely manner to ensure the normal operation of generating units. A provincial regional supervision centre was preliminarily established in each of Jiangsu, Heilongjiang and Liaoning. The Group comprehensively promoted the checking of equipment, so as to ensure the reliability of the power generating units.

During the year, the Group generated a cumulative gross electricity output of 28,638 GWh, of which electricity generated from our wind power business amounted to 16,820 GWh, representing an increase of 25.95% over last year. The increase in the Group's wind power electricity output was attributable to (i) the growth in wind power installed capacity and (ii) the improvement of management which to some extent offset the adverse impact of grid curtailment. The Group maintained a high availability factor of its equipment, with an average availability factor of its wind power generating units at 98.43%. The average utilisation hours of wind power business was 1,985 hours in 2012, representing a decrease of 41 hours from the corresponding period in 2011. The decrease was primarily due to the worsening of grid curtailment in certain regions.

During the year, the power generation from coal power business of the Group was 11,232 GWh, representing a decrease of 4.40% as compared with 11,749 GWh of last year. This was primarily attributable to the slowdown in the growth of the electricity consumption of the society. The average number of utilisation hours of the Group's coal power business for 2012 was 5,990 hours, representing a decrease of 276 hours as compared with 6,266 hours for 2011.

5. Steady Increase in Tariffs

In 2012, the average on-grid tariffs for wind power of the Group amounted to RMB582 per MWh (value-added tax (VAT) inclusive), representing an increase of RMB4 per MWh as compared with the average on-grid tariffs for wind power of RMB578 per MWh (VAT inclusive) for 2011. The annual increase in the wind power tariffs was mainly due to the fact that the additional wind power projects of the Group are located in regions not subject to grid curtailment and regions with higher tariffs. The average on-grid tariffs for the Group's coal power amounted to RMB452 per MWh (VAT inclusive), representing an increase of RMB19 per MWh (VAT inclusive) as compared with the average on-grid tariffs for coal power of RMB433 per MWh (VAT inclusive) for 2011. The annual increase in the coal power tariffs was mainly due to the increase of RMB25 per MWh in the benchmark tariff of electricity generated from desulphurisation coalfired power generating units located in Jiangsu Province since 1 December 2011.

6. Optimisation on Designs, Stringent Control on Budget and Stable Construction Cost Maintained

The Group effectively lowered the procurement price of its equipment by means of centralised procurement and joint invitation to tender. In 2012, the Group increased the proportion of wind turbine units with larger installed capacity in its procurement. With average installed capacity of a single unit increased by 8.87%, the average procurement costs of wind turbines only increased by 2.5% as compared to 2011. In 2012, staff expenses and prices of such construction materials as steel and cement grew rapidly, and environment protection and land use expenses also increased. Meanwhile, more construction works occurred in newly developed sites of the construction projects during the year, resulting in an increase in the construction costs of the ancillary segment. In spite of these, the Group brought construction costs for wind power projects under effective control throughout the process by optimising design proposals, as well as other management practices such as exercising stringent control over changes in design during the construction process. In 2012, the average construction cost per kW of wind power projects was substantially in line with that of 2011.

7. Overall Enhancement of Financing Capability and Continued Rise in Credit Standing

In 2012, the Company successfully completed a private issue of debt financing instruments of RMB4,000 million and received a short-term loan of RMB3,500 million from Guodian Group. The Group also issued short-term debentures of RMB1,000 million and Hero Asia Investment Limited, a subsidiary of the Company, issued senior perpetual securities of USD400 million overseas. Through all of these, the Group has established diversified financing channels both domestically and overseas with financing costs lower than the industry average. In 2012, the Group entered into strategic financial cooperation agreements with a number of major domestic and foreign financial institutions with total amount exceeding RMB150,000 million, and successfully registered private debt financing instruments of RMB10,000 million with the National Association of Financial Market Institutional Investors, thereby significantly improved the subsequent financing capacity of the Company. In November, the Company was assigned a BBB+ rating by Standard and Poor's Rating Services and its credit standing is continuously rising.

8. Rapid Increase in the Number of Registered Clean Development Mechanism (“CDM”) Projects

During the reporting period, the development of the Group's CDM projects proceeded smoothly, with rapid increase in the number of registered projects. As of 31 December 2012, an aggregate of 190 CDM projects of the Group were successfully registered with the CDM Executive Board, involving a cumulative installed capacity of 9,878 MW. Those projects were comprised of 181 wind power projects with a cumulative installed capacity of 9,660 MW, 5 biomass projects with installed capacity of 138 MW and 4 solar power projects with installed capacity of 80MW. In 2012, additional 83 CDM projects were successfully registered with total installed capacity of 3,826 MW. The Group's net income from sales of CERs and VERs for 2012 amounted to RMB742 million in total.

9. S trengthened Technological Research and Development and Enhanced Contribution by Technological Advance to the Development of the Company

In 2012, the Group commenced 33 science and technology projects in total (comprising of 7 subsisting projects and 26 newly commenced projects), including one project under the National Science and Technology Support Program (國家 科技支撐計劃項目), six National 863 Planned Projects (國家863計劃項目), two National 973 Planned Projects (國家973計劃項目) and one National Oceanic Renewable Energy Fund Project (國家海洋可再生能源專項基金項目). In 2012, one project under the National Science and Technology Support Program and two National 863 Planned Projects were successfully completed and passed the review by the PRC. The National Oceanic Renewable Energy Fund Project provided financial support for the research and development of new tidal generating units and renovation of existing power stations. The Group worked out three basic industry standards for safety regulations, operation regulations and inspection and maintenance regulations of wind farms. Those regulations were promulgated and implemented after they passed the review by the National Energy Administration. The Company successfully convened the Advanced Seminar on Critical Technology of Offshore Wind Power Businesses (海上風電關鍵技術高級研討 會), thereby facilitated the exchange of wind power technology between the PRC and the other countries and improved the technological skills of the offshore wind power professionals of the Group and the PRC.

10. Coordinated Development of Other Renewable Energy Sources

In addition to wind power development, the Group has been actively expanding solar and other renewable energy projects. During the reporting period, four solar photovoltaic power generation stations with an installed capacity of 59 MW were put into operation. As at 31 December 2012, the cumulative installed capacity of the Group's solar energy projects was 129 MW. Five solar energy projects were approved during the year, with installed capacity of 57.4 MW, located in such regions as Qinghai, Gansu, Beijing and Xinjiang. The project in Turpan, Xinjiang was the first project among the 100 new locations mentioned in the Notice of the National Energy Administration on the Reporting of Pilot Cities and Industrial Parks of New Energy (《國家能源局關於申報新能源示範城市和產業園區 的通知》) issued by the National Energy Administration in August 2012. As at 31 December 2012, the pipeline installed capacity of the Group's solar energy projects amounted to 2,000 MW, located in such regions as Tibet, Qinghai, Gansu, Xinjiang, Inner Mongolia and Yunnan. In 2012, the Group was the first power corporation to undertake the project of “sending electricity to households” for the households with no access to electricity in the Tibet Autonomous Region and put that into production, thereby solved the problem of the 160,000 households having no access to electricity in the whole Tibet. In 2013, the Group will base its development on the large scale ground power station projects that are equipped with better conditions in those western regions with abundant resources, focus on “distributed photovoltaic power generation” projects and continue to push forward the power supply projects for those households with no access to electricity in such regions as Xinjiang and Qinghai.

Business Outlook - For the year ended December 31, 2012

In 2013, the general working guidelines of the Group are, in profound adherence to the implementation of the spirits of “promoting scientific development as main theme, expediting adjustment to economic development roadmap as major principle, improving quality and efficiency of economic growth as key focus” introduced by the 18th National Congress of the Communist Party of China and the Central Economic Work Conference. Under the strong leadership of the Board of the Company, with an emphasis on economic efficiency, the Group will foster corporate transformation and development, comprehensively activate the third start of business for the Company and undertake the planning and deployment on various tasks according to the mindset of “six insistences and six improvements” in order to ensure sound and sustainable development of the Company.

In 2013, the Group will strive to achieve the following goals:

1. To insist on strategic transformation and improve sustainability

The Group will continuously optimise the development layout of wind power business to lay foundation for ongoing large scale development; adhere to the implementation of the “outbound” strategy and push forward overseas business in a proactive and steady manner; step up the development of offshore wind power business and accelerate the construction of offshore wind power projects in Jiangsu and Fujian; bolster its efforts in the development of solar photovoltaic projects and closely track the solar energy policies of the PRC; speed up preliminary and construction work for the “developing large units to replace small ones” project of Nantong Tianshenggang power plant; and explore new industry domain in conjunction of the Company's principal business and seek new focal point for profit growth.

2. To insist on exploring potentials and increasing efficiency and improve corporate profitability

The Group will strive to reduce the cost of capital, explore the profitability of stock assets of the Company and make vigorous efforts to develop the independent financing capability of subsidiaries; strengthen marketing efforts and solicit policy support for electricity output and tariffs by various means; reinforce capital operation and acquire projects with strong profitability through acquisitions, mergers and reorganization; comprehensively push forward CDM work in the second commitment period of Kyoto Protocol by broadening the domestic sale channels; and lower enterprise management costs, reinforce corporate internal integration and improve working efficiency.

3. To insist on professional management and improve corporate core competitiveness

The Group will reinforce operation and management to effectively improve the standardisation, institutionalisation and structuralisation of management; improve technological standards of preliminary work and place emphasis on the quality of preliminary work; strengthen management over the whole process of safe production, perfect the management mechanism, consolidate safety foundation, optimise equipment operation management and minimise loss arising from grid curtailment; reinforce streamlined management on infrastructure, focus on optimised designs, improve safety management system and mechanism and ensure construction safety and quality; reinforce financial management, boost intensive control standard and pioneer enterprise production and operation through budget management; and enhance management on investor relationship and improve information disclosure mechanism.

4. To insist on the stable operation and improve risk control capability of the enterprise

The Group will reinforce the investment control by stringently executing investment plans and fiscal budgets, seriously adhering to the decision making procedures and mastering investment frequency in a scientific and reasonable manner; further develop preliminary operations in depth by adequately considering external conditions such as grid connection; prevent political and exchange rate risks of overseas projects and ensure project profitability; improve operations of other new energies by improving the management on other new energy operations such as biomass, tidal and geothermal power; strengthen the enforcement on systems and establish the legal risks consulting mechanism; push forward the establishment of a penalty and prevention system and refine the supervision and inspection on the major decisions as well as significant projects of the Company.

5. To insist on science and technology innovation and improve the technical support

The Group will improve the research and development on wind power operation technology and expedite the hardware and software development in new energy laboratories; actively coordinate efforts in research and development of the National 863 Projects and other technological projects and facilitate technological improvement of the enterprise through project research and development; refine and promote the Company's technology standards with a view to promote the Company's standards to the new energy industry; and place great emphasis on the development of technology innovation by promoting equipment optimisation and grasping advanced control technologies on wind power equipment, and continuously perfect the supporting system for the top ten technologies to polish Longyuan's brand as a project technology provider.

6. To insist on harmony development and improve the corporate soft power

The leaders of the Group will further enhance and improve their ideological and working style by apprehending the spirits suggested in the 18th National Congress of the Communist Party of China. The Group will strengthen its talent pipeline, establish a more competitive appointment and employment system and perfect the leadership management system; improve the performance review and assessment and talent incentive measures; provide security to people's livelihood and their living standards, implement the “Public Welfare Projects” (惠民工程) with more efforts and at a higher level, raise the subsidies for less developed regions and improve the living quality of staffs. Aiming at promoting corporate harmony throughout the company, predominance management will be enhanced, so that a harmonious employee relationship could be nourished and maintained and corporate culture could be promoted. Promotion and branding will also be emphasised when perfecting the promotion system, so as to safeguard the Company's image as a highly reputable brand in the new energy industry.

Source: China Longyuan Power (00916) Annual Results Announcement
Chairman Qiao Baoping Issued Capital (shares) 3,340M
Par Value RMB 1 Market Capitalisation (HKD) 26,987M
 
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