China's recent minimum renewable energy utilization hour policy in selected localities is likely to alleviate curtailment in wind and solar power sectors.
Earlier in June, China's top economic planner - National Development and Reform Commission (NDRC) unveiled a circular setting a floor for annual utilization of wind and solar power farms in selected cities in eight provinces and three autonomous regions to restore capacity.
According to the document, quotas for annual minimum utilization hour of renewable energy will be set for selected cities in those provinces and autonomous regions, with the guaranteed purchasing price taking reference from cost and reasonable returns, adjustable pursuant to on-grid operation for new energy power and cost changes.
Moody's Investors Service said that the measure is credit positive for wind and solar power companies because it will help alleviate the current high levels of curtailment. Curtailment refers to the reduction in power generation compared to the optimal utilization of wind and solar power capacity.
"Among the related power companies, China Longyuan Power Group Corporation Ltd. will benefit most from the new quota owing to it being China's largest wind power company. China Three Gorges Corporation and China General Nuclear Power Corporation will also benefit through their wind and solar power portfolios," according to a report released by Moody's recently.
Analysts said the minimum annual utilization hour quotas would basically guarantee reasonable returns for the present wind and solar power generating programs and the entire wind and solar power industry would benefit from the measure from downstream to upstream.
Moreover, power grid operators are required to sign prioritized power generation and dispatch agreements with qualified wind and solar power companies by June 30, 2016 and before each end of the following years, prioritized power generation and dispatch agreements for the next year.
"However, companies that invest heavily in coal-fired power, such as China Resources Power Holdings Co., Ltd. and Beijing Energy Holding Co. Ltd., will be negatively affected by the quota given the likely increasing dispatch of wind power over coal-fired power in the eight provinces and three autonomous regions," says the Moody's report.
The followings are two charts about NDRC's minimum annual wind and solar power utilization hour quotas for the selected cities in eight Chinese provinces and autonomous regions:
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