Chinese thermal power gencos' strong H1 boosts deleveraging

Meanwhile, renewable generation companies are facing hurdles.

Chinese thermal power generation companies (gencos) are well-positioned to reduce their debt levels in 2024, thanks to their strong financial performance in the first half of the year, according to Fitch Ratings.

In its analysis, Fitch said all Chinese thermal power gencos it rates experienced increased profits and higher margins in the first half of 2024. In the second quarter alone, operating profits for these companies averaged 11% higher compared to the previous quarter and 28% higher year-over-year.

This positive performance was driven by locked-in tariffs from annual sales contracts and a decline in fuel costs. 

Declining coal prices have boosted the profitability of Chinese thermal gencos, Fitch said. The average Qinhuangdao 5,500Kcal price moderated to $127 per tonne (CNY902 per tonne) in the first quarter in 2024 and $117 per tonne (CNY830 per tonne) the following quarter from $136 (CNY965 per tonne) in 2023.

For the remainder of 2024, coal prices are expected to remain relatively stable. This is due to a balanced market, with renewable energy meeting most of China's incremental power demand, Fitch said.

Electricity tariffs, meanwhile, have remained stable due to annual contracts, except in Guangdong, where hydropower supply has increased.

Fitch also said Chinese thermal power gencos' capital expenditures remained stable in the first half of 2024. Factors contributing to lower capex include a decline in thermal power capacity construction, slower growth in solar and wind installations, and falling equipment prices. 

Meanwhile, Fitch said renewable gencos in China face challenges from increased wind and solar capacities that challenge the grid. 

“China’s average utilisation hours of wind and solar power dropped by 8.3% and 4.9% yoy, respectively, in [the first half of 2024]. Realised tariffs are affected by a rising proportion of market-traded volume, more supply and intra-day pricing, which designates noon hours as trough-price periods,” Fitch added.

$1 = CNY7.09