Foreign Exchange Risks
The Group principally operates its businesses in Mainland China with most of its transactions settled in RMB. Apart from certain bank borrowings as well as cash and cash equivalents, the Group’s assets and liabilities are mainly denominated in RMB. The Group held borrowings denominated in JPY and USD during the year. Volatility of RMB exchange rate against JPY and USD may increase the exchange risks of the Group, thus affecting its financial position and operating results. As at 31 December 2022, the Group’s borrowings denominated in foreign currencies amounted to RMB702,940,000 (31 December 2021: RMB281,747,000).
The Group will continue to keep track on the movements of exchange rate and, if necessary, take responsive measures to avoid excessive foreign exchange rate risks.
Funding Risks
With the Group’s stepped-up efforts in developing various new power projects, funding adequacy will have an increasing impact on the Group’s operations and development. The financing market is affected by a number of factors such as liquidity of the lending market and the economic environment, which in turn may also affect the effectiveness and costs of the Group’s borrowings. The Group has been leveraging its ability to access markets at home and abroad to optimize the sources of fund, increase credit facilities and reduce financing costs.
Various cost-saving and efficiency enhancement initiatives have also been adopted in the Group’s business management to reduce administrative and operating expenses. Moreover, the financial services framework agreement with SPIC Financial also facilitates the mitigation of funding risks.
As at 31 December 2022, the Group had sufficient available undrawn financing facilities amounting to RMB35,092,730,000, and will refinance and restructure existing loan terms when appropriate to safeguard against funding risks.
At the beginning of each year, the management reports to the Board on the working capital budget for the year and estimates the credit facilities and facilities reserves required for the year to ensure the Group has adequate financial resources to support the continued operation and development of projects in the foreseeable future. The management will also review the situation regularly to take contingency measures.
Risks of Policy Changes
Impact on coal-fired power business
During the year, the NDRC further improved the market price formation mechanism for coal. Firstly, it proposed a reasonable range of market prices for coal. Secondly, it specified the reasonable range of market prices for coal and that coal prices and power tariffs can be effectively correlated within the reasonable range. At the same time, the NDRC also specified that coal-fired power generation enterprises can timely and reasonably pass on changes in fuel costs within the floating band of no more than 20% above or below the benchmark on-grid tariffs. By improving the market price formation mechanism for coal, the market can be directed to develop a reasonable coal price expectation, so as to curtail malicious and speculative capital operations and prevent huge fluctuations in coal prices. Benefitting from such policy and coupled with the increase in on-grid tariffs of coal-fired power as a result of increased marketing efforts for electricity sales of the Company, the average on-grid tariffs of coal-fired power increased by 20.11% year-on-year during the year.
Impact on energy storage business
The Chinese Government launched a series of policies in relation to energy storage during the year, including, among other things, the “Development and Implementation Plan of New Energy Storage under the “14th Five-Year” Plan (《「十四五」新型儲能發展實施方案》)” published in January 2022, and the “Notice Regarding the Further Promotion of the Participation of New Energy Storage in the Power Market and its Allocation and Use (《關於進一步推動新型儲能參與電力市場和調度運用的通知》)” published in June 2022. Such policies aim to drive the overall deployment of large-scale, industrialized and market-oriented development of new energy storage under the “14th Five-Year” Plan, further specify the market positioning of new energy storage, establish and optimize the relevant market, pricing and operational mechanisms, innovate power grid structure and operating mode, strengthen the coordination, optimization and operational capability of power sources, enhance the level of utilization of new energy storage and provide guidance for the healthy development of the industry. It is expected that the Chinese Government will continue to promote the integrated development of new energy storage with various aspects of the power system. The Company will closely monitor the implementation of these policies in various provinces and expedite the research on the transaction strategy for new energy equipped with energy storage, with a view to further securing the leading market position of the energy storage business of the Company.
Impact on clean energy business
During the year under review, the NDRC, the Ministry of Finance and the National Energy Administration jointly issued the “Notice Concerning the Interpretation of Policies on the Verification and Certification of Renewable Energy Power Generation Subsidies (《關於明確可再生能源發電補貼核查認定有關政策解釋的通知》)”. The notice clarified several ambiguities in subsidy verification, including the determination of on-grid tariffs for certain special photovoltaic and wind power projects, the certification of installed capacity for entitled subsidized projects and the certification standards of installed capacity for project filing, etc. It is expected that subsidies will be granted at a faster pace going forward, which shall greatly improve the cash flows of the renewable energy segment of the Group.
Impact on governance system
In recent years, the Chinese Government has been focusing on promoting the in-depth and solid progress of the high-quality development of listed companies controlled by central enterprises. During the year, the SASAC formulated the “Task Plan on Enhancing the Quality of Listed Companies Controlled by Central Enterprises (《提高央企控股上市公司品質工作方案》)” (the “Task Plan”). By making deployments for tasks in relation to the enhancement of the quality of listed companies controlled by central enterprises, it aims to implement the new concept of development, explore and establish sound environmental, social and governance (“ESG”) systems, and encourage more listed companies controlled by central enterprises to disclose their ESG reports, striving for the “full coverage” disclosure of the relevant reports by 2023. The Task Plan proposed 14 specific tasks and initiatives, which covered various key aspects of the reform and development of listed companies such as promoting the development of listing platforms, optimizing the shareholding structures, developing robust ESG mechanisms, and enhancing independent innovation capabilities, hence showing the commitment of the SASAC to enhance the quality of listed companies controlled by central enterprises. The Company will continue to conform with national policies, and proactively perform its corporate responsibilities and obligations to promote the sustainable development of both the society and economy. Furthermore, the Company will continue to make high-quality disclosure of its ESG information and enrich the contents of its ESG report.
