Hydropower is the cheapest form of large-scaled clean energy. China with its vast amount of water resources available for the production of hydropower. The generation of hydropower does not consume or pollute water nor does it produce greenhouse gases. At present, the total installed capacity of hydropower in the world is 800 GW, satisfying 20% of the world’s power demand.
China’s electricity industry is still in its early stages. The per capita installed capacity in China amounts to only 0.5 KW, one-sixth of the US level. At the same time, China is rich in hydropower resources. With a technically exploitable capacity of 542 GW and annual potential output capacity of 2.47 trillion KWH, China ranks number one in the world in the potential of hydraulic resources. However, by the end of 2007, the installed capacity of hydropower amounted to only 145.26 GW and the utilization level of hydropower resources was about 26.8%, much lower than the 65%-85% in developed countries such as the U.S., Japan, and European countries. The Chinese government has rated the development of hydropower as a top priority and plans to increase the utilization level to 55% by 2020. This will requires hundreds of billions of capital investment.
The total installed capacity in China reached 710 million KW in 2007, increased from 622 million KW in 2006. Of which, the installed capacity of hydropower was 145 million KW, or 20.36% of the total; the installed capacity of thermal power was 550 million KW, or 77.73% of the total.
Based on the PRC’s “2006-2020 Plan”for the electric power industry and 2020 development plan, by 2010 total installed capacity is projected to be 850 GW, of which 190 GW or 21.2% will be hydropower. By 2020, total installed capacity is projected to be 1,000 GW, of which 280 GW or 29% will be hydropower. Therefore, during the next 10-15 years, 13 GW of hydropower installed capacity will be newly constructed every year, which would save 420 million tons of standard coal, reduce emissions of 1.17 billion tons of carbon dioxide and 7.5 million tons of sulfur dioxide as well as other toxic gases, largely decreasing pollution and the greenhouse effect.
Source: www. ica.gov.cn
The various policies issued by the central government in the past 2 years are testament to the government’s intention to encourage and support the small – medium hydropower stations in the country. For example, grid operators are required to purchase hydropower as a priority. Operators of new hydropower stations are exempt from income tax for the first two years and pay only half the standard income tax rate for the next three years. The government is gradually implementing the “Same price for same power” policy, giving hydropower producers substantial room for revenue increase.
At the same time, the Central Government of the PRC is encouraging local governments to sell their operating hydroelectric power assets in an attempt to rationalize the sector and encourage private investment in hydroelectric sites. This will reduce competition in the industry and create many acquisition opportunities for us.
Local liquidity has tightened since mid 2007. Many small to medium hydropower companies which are highly-leveraged with short term private loans are having difficulty servicing their existing debt and are unable to source additional funding from local sources. Companies that are currently in the construction process are suffering from rising construction costs. Based on this current market environment, the Company recognized the potential for acquisition opportunities within the hydro sector. Currently, the Company is in negotiations with a number of small to medium hydro power companies.