By Kevin Guo - Deloitte China Energy & Resources, Managing Partner;
Xu Sitao - Deloitte China, Chief Economist
This report provides deeply risk analysis and development trend about China participate in Belt and Road project, helping power enterprises developing an overall planning for the “going global” strategy, promote innovation on financing models, and enhance the level and capability of internationalized operation.
Viewpoints / key findings
- Coal power remains dominant with increased risks
As many B&R countries still suffer from power shortage, considering resource endowment, demand growth, and price factor, coal power will remain the dominant source of power supply in some B&R countries for some time to come. But coal power projects are expected to face increased risks mainly for two reasons: 1) potential risk of coal power projects being put on-hold; 2) local policy changes.
- "New reality" of renewable energy
In the future, investors will need to conduct more thorough and detailed assessments in local markets on new or substitution demands for renewable energy, the degree of financing difficulty, power sales agreements, and local political, economic, and business environments. In addition to renewable energy greenfield projects, renewable energy has always been an important target asset for overseas M&As by Chinese power enterprises.
- A long way to go for grid interconnectivity
International power cooperation can firstly focus on cross-border power grid connection and transmission projects with neighbouring countries to realize cross-border power consumption. In underdeveloped B&R regions, Chinese power enterprises may promote power grid interconnectivity projects and expand EPC and BOT markets with an aim to develop holistic solutions integrating “Chinese technologies + Chinese standards + Chinese equipment + Chinese construction”.
- Develop overall “going global” plans
To tap the potentials of B&R markets, power enterprises need to develop overall plans and innovate new patterns with focuses on packaged integration, localization and interconnectivity of standards. In certain underdeveloped regions, we have seen some successful cases of packaged business undertaking by groups of enterprises, and cooperates with experienced companies in different projects to build a mutually beneficial community of interests.
- Innovative financing models
As financing for overseas power projects involves multiple parties and complicated structures, engagement of financial consultants with suitable experience in financing, industry and the target investment country is often required to assist enterprises in respect of business architecture design, financial model development, financing plan design, financial model building, and financing negotiations till the completion of project financing.
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