More Chinese firms seek green energy investment overseas

A growing number of Chinese companies are involved in renewable energy investment overseas, said energy finance directors at Societe Generale, a French multinational financial services group headquartered in Paris.

"We see a clear acceleration of the trend over the last two years with some of the large Chinese power companies really looking to acquire renewable energy assets in a variety of jurisdictions outside China, such as Western Europe, Latin America and Australia," Daniel Mallo, Societe Generale Asia Pacific head of natural resources & energy project finance and metals & mining finance, said on Tuesday.

The trend has been largely dominated by State-owned enterprises, including China General Nuclear Power Corporation, China Huadian Corporation and China Three Gorges Corporation. Mallo said he expects that to continue in the near future.

The desire to build a platform of international assets is one of the factors driving investment. For example, State Power Investment Corporation agreed to buy Pacific Hydro, a renewable energy company headquartered in Melbourne, Australia, for more than AU$3 billion, including debt, in December.

"This acquisition gives SPIC nice footprints in the wind farm and hydropower market and offers future development opportunities," he said.

"The other thing that comes with those assets is a development pipeline. The company acquired was working on other projects – more wind farms in Brazil and more hydropower in Chile, so SPIC also gets access to that pipeline and to the ability to grow its portfolio."

Unlike an energy or mining project that is tied to the price of oil, assets in the power sector are stable in terms of the revenue profile and the return profile. Most of those assets benefit from a long economic life of 20 or 25 years. The returns are lower than corporate bonds but also less volatile.

"When you look at what bonds are yielding today, which can be single digit, getting an asset that has a 20-year return of 8 to 9 percent per annum and has low risk is not very bad in the current economic environment," he said.

Societe Generale is looking out for a trend of growth of overseas investment by Chinese companies in the offshore wind industry, which allows for larger facilities and more productions than onshore wind farms.

"Given the size of the country, its population concentration along the coasts and the way the demand is shaped around the coasts, developing offshore wind farms could be an opportunity for China in the future, as costs continue to come down and technologies continue to evolve," he said.

Technology is a factor driving investments in offshore wind power overseas. Countries like the UK, Germany and France have built sizable offshore wind power projects, so for any Chinese company, to make an investment of that nature in one of those jurisdictions, to access to those technologies, and to be able to operate a facility of that nature could be very valuable for them to build a business domestically, he said.

For some of those companies that are becoming champions in their sector in China, corporate strategy is another reason behind such investments, as they are getting to a stage where they want to have a more global portfolio of assets.

Zhang Lei, Societe Generale Asia Pacific director of energy finance and advisory, said if an offshore wind power project is not too far away from the coast and if it has a very good wind resource, it can be as competitive as an onshore project in terms of costs.

He said an onshore wind farm may cost $1.5 million or so for a megawatt installed on average, but it may only produce during 20 to 25 percent of the time. An offshore wind farm may cost nearly twice that amount, but it may produce during 60 percent of the time because there is a lot more wind along the coast.

Compared to most onshore wind farms using 2 megawatt and 2.5 megawatt turbines, offshore wind farms have much larger turbines and will produce a lot more power.

Moreover, as the power production center is far away from demand centers, the owner of an onshore wind farm needs to build a lengthy transmission line that may extend several thousand kilometers. That also increases the costs.