Analysis of key companies in the power industry
Developed economies are still the dominant force in the global power industry. In the 2022 ranking of the world's top 2000 companies listed by Forbes based on indicators such as revenue, profit, assets and market value of listed companies, there are more than 80 power companies from more than 20 countries on the list. The list of the top ten power companies is shown in Table 2-4-10. The number of Chinese companies on the list is second only to the United States. But overall, developed economies are still the dominant force in the global power industry. The top 10 power companies are all from developed economies in Europe and the United States, showing their strong comprehensive competitiveness.
1. Enel
Enel is Italy's largest electricity supplier, with 68,253 employees worldwide. Its business covers power generation, transmission, distribution, and natural gas supply and distribution. It maintains a leading position in clean energy technology, hydropower plant design and construction technology, and thermal power plant environmental protection technology. By the end of 2022, the company's installed capacity totaled 82.9 GW, with hydropower as the largest power source, accounting for 34% of installed capacity.
In November 2020, Enel announced that it would accelerate its exit from the coal energy sector, accelerate the decarbonization of global power generation, and go all out in clean energy. In addition to solar and wind power, it will also develop green hydrogen. It will spend 160 billion euros in the next 10 years to make the company a green "super giant" and achieve zero carbon emissions by 2050. As of the end of 2022, the company's installed capacity of renewable energy (including hydropower) has reached 64% (see Figure 2-4-42). In terms of regional distribution, Enel's business is distributed in 34 countries on five continents. Its current strategy is to focus on six core countries, including Italy, Spain, the United States, Brazil, Chile and Colombia.
In recent years, Enel has promoted asset streamlining and reduced debt levels. In April 2023, Enel announced that its Peruvian subsidiary had signed an agreement with China Southern Power Grid International (Hong Kong) Co., Ltd. to sell all the shares of two Peruvian subsidiaries of Enel that provide power distribution business and advanced energy services. The sale price is expected to be approximately US$2.9 billion, and the total value of the assets sold is approximately US$4 billion. The transaction is part of the asset streamlining plan announced by the Enel Group in November 2022, and is expected to reduce the group's consolidated net debt by approximately 3.1 billion euros in 2023 and have a positive impact of approximately 500 million euros on the net income reported in 2023.
2. Electricité de France
Electricité de France (EDF) was founded in 1946 and is headquartered in Paris, France. EDF is the largest power company in France and the world's largest nuclear power operator. Its power business covers all aspects of power generation, transmission, distribution and sales, with 3.47 million power users worldwide. In July 2022, the French government announced that it would pay 9.7 billion euros (approximately RMB 67 billion) to acquire all shares of EDF. In May 2023, the plan was approved by the court. From June 8, 2023, the French government holds 100% of EDF's shares. EDF owns all nuclear power plants in France, and its hydropower installed capacity accounts for more than 75% of all hydropower plants in France. It has a high market share in the power generation sector in France. From a regional distribution perspective, France, the United Kingdom, Italy, Belgium and other European countries are EDF's main power markets. In addition, EDF also has business distribution in the United States, Canada, Brazil, China, Turkey and some African countries and regions.
3. Iberdrola
Iberdrola is the largest energy company in Spain and one of the world's leading power providers, with 35,107 direct employees. Its business is concentrated in the power industry, covering power production and supply, grid construction and operation, and renewable energy technology.
By the end of 2022, Iberdrola has a total installed capacity of 60,761 MW. The power structure is mainly renewable energy represented by hydropower and onshore wind power, with a total installed capacity of 40,066 MW, accounting for 65.9% of the total installed capacity. Among traditional energy sources, gas cycle power stations have a large installed capacity, and there are also some nuclear power and coal-fired power installed capacity (see Figure 2-4-43). In 2022, Iberdrola's power generation will be 163,031 GWh, serving 36.4 million consumers: In the energy transformation strategy, Iberdrola regards offshore wind power as the company's strategic pillar area and strives to become a world-class renewable energy company. From a geographical distribution perspective, Iberdrola mainly focuses on the power markets on both sides of the Atlantic, with Spain, the United Kingdom, the United States, Brazil, Mexico, etc. as its key operating areas.
4. ENGIE
ENGIE Group was formerly Suez Energia, which was established after the merger of French Gas Group and Suez Group. It was officially renamed ENGIE in April 2015 and is headquartered in Paris, France. The group is the world's largest independent power producer and the largest clean electricity provider in France. The entire group is divided into 23 business units and 5 core business support units, engaged in three core businesses: power, energy infrastructure and consumer services, with 160,000 employees worldwide. As of the end of 2021, ENGIE has a total installed capacity of 100.3 GW. From the perspective of energy structure, ENGIE is mainly based on natural gas and renewable energy. In 2019, natural gas and renewable energy power generation accounted for 85% of the total installed capacity (see Figure 2-4-44). ENGIE Group's business is widely spread in 70 countries around the world, with 15 overseas business units covering Europe, Latin America, North America, Asia, Oceania, Africa and other regions.
In recent years, ENGIE has been committed to the transformation of new energy and has put forward the strategic goal of achieving net zero carbon by 2045. In January 2021, ENGIE and independent power producer Neoen announced plans to build Europe's largest solar and energy storage power station in Nouvelle-Aquitaine, southwestern France. The project is expected to cost 1 billion euros and will also include a green hydrogen production unit, an agricultural power plant and a data center. In February 2021, ENGIE and Equinor reached a partnership to jointly develop low-carbon hydrogen projects to pave the way for zero emissions by 2050. In addition, ENGIE is also working with another oil and gas giant, France's Total, to design, develop, build and operate France's largest renewable hydrogen production base. In January 2022, ENGIE, Fertiglobe and Masdar will jointly develop a green hydrogen center in the UAE, dedicated to the development, design, financing, procurement, construction, operation and maintenance of green hydrogen projects.
5. Duke Energy
Duke Energy was founded in 1904 and is headquartered in North Carolina, USA. The company's main business is electricity and natural gas distribution, which is mainly managed by subsidiaries such as Carolina Duke Energy, Duke Energy Progress, Florida Duke Energy, and Indiana Duke Energy. Duke Energy released its first quarter report for 2023 on May 9, 2023. As of March 31, 2023, Duke Energy's operating income was US$7.276 billion, a year-on-year increase of 3.78%, net profit was US$761 million, and basic earnings per share was US$1.01. On June 23, Morgan Stanley maintained Duke Energy's "hold and wait" rating with a target price of US$102.
In June 2023, Duke Energy reached an agreement with Brookfield Renewable Investment Company (Brookfield Renewable) to sell its commercial wind and solar energy business for US$280 million. Duke Energy said that in the future, the company decided to focus on utilities in the Carolinas, Florida and the Midwest of the United States, so it made the decision to resell the above business.
6. E.ON Group
E.ON Group (E.ON) was founded in 2000 and is headquartered in Essen, North Rhine-Westphalia, Germany. In recent years, with the advancement of Germany's energy transformation, the traditional energy power generation market has been struggling, but the rapid expansion of renewable energy power generation has caused industry subsidies to continue to decline and revenue risks to increase. Against this background, E.ON Group's business focus has been adjusted accordingly. In 2016, the company divested traditional power generation assets such as fossil energy power generation, nuclear power, and hydropower, retaining the renewable energy part; in 2018, E.ON Group reached an asset swap agreement with another German power giant Rheinland Group. The group will take over the power grid and power sales business of Rheinland's Innogy, and exchange renewable energy power generation and nuclear power assets.
In 2022, E.ON will work with the quantum computing division of IBM to study the decarbonization of the power grid.
Explore the use of quantum computing to optimize the transmission of renewable energy, with the goal of reducing its emissions by 55% by 2030. E.ON envisions that in the future, energy will no longer be transmitted to consumers unilaterally from power generation companies, and many small companies and households can also transmit energy to the power grid through their photovoltaic systems or electric vehicles.
7. Southern Power
The Southern Company is one of the major energy companies in the United States. It was founded in 1945 and is headquartered in Atlanta, the capital of Georgia. Southern Company is engaged in power generation and sales, natural gas distribution, distributed energy infrastructure, communication services, etc. through about 10 subsidiaries. Among them, there are 6 companies involved in power business, including Alabama Power, Georgia Power, Mississippi Power, Southern Power, Power-Secure, Southern Nuclear Energy, etc. Energy diversification and low carbonization are one of the goals of Southern Power Company. Renewable energy such as hydropower, wind power, solar energy and cutting-edge technologies such as fuel cells, nuclear power, carbon capture, energy storage, and grid modernization are the company's strategic priorities. Southern Power Company mainly serves the local power market, with 4.685 million power users in Alabama, California, Georgia, Kansas, Maine, Mississippi, Minnesota, New Mexico, Nevada, North Carolina, Oklahoma, Texas and other regions. In the first quarter of fiscal year 2023, Southern Power Company's revenue was US$6.48 billion, a year-on-year decrease of 2.53%: net profit was US$799 million, a year-on-year decrease of 19.37%: basic earnings per share was US$0.79, compared with US$0.97 in the same period last year.
8. Exelon
Exelon was founded in 1999 and is headquartered in Chicago, the capital of Illinois. The company is a leading energy supplier in the United States, with businesses covering all aspects of the energy industry chain, including power generation, energy and power transmission, distribution, etc.
Exelon is one of the largest power suppliers in the United States, and power generation, transmission and sales are its most important core businesses. Among them, power generation is mainly completed through Exelon Power Generation Company, with a wide service area (see Table 2-4-11), and nuclear power is the main type of energy. Power transmission is completed through 7 major subsidiaries (see Table 2-4-12)
9. NextEra Energy
Founded in 1984, NextEra Energy (NEE) is the world's largest solar and wind power supplier and the largest power and energy infrastructure operator in North America. It is headquartered in Juno Beach, Florida, USA. According to NEE's annual report, as of December 31, 2022, NEE's annual profit was US$4.15 billion, a year-on-year increase of 16.1%; total revenue was US$20.96 billion, a year-on-year increase of 22.8%; net assets per share were US$19.7, a year-on-year increase of 4.2%.
NEE's business is mainly managed by two wholly-owned subsidiaries, Florida Power & Lighting Company (FPL) and NextEra Energy Resources (NEER).
FPL is the largest power company in Florida and one of the most important power suppliers in the United States. Its business covers all aspects such as generation, transmission, distribution and sales. As of December 31, 2022, FPL has 32,100 MW of installed capacity, including natural gas power generation, nuclear power, and solar power generation (see Figure 2-4-45), with approximately 88,000 miles of transmission and distribution lines and 696 substations. The user group is approximately 12 million, concentrated in eastern and southwestern Florida, mainly residential electricity (54% of revenue) and commercial electricity (32% of revenue).
Founded in 1998, NEER focuses on renewable energy (see Figure 2-4-46) and is the world's largest supplier of solar and wind power. As of December 31, 2022, NEER's installed capacity is approximately 27,410 MW. Among them, NEER has an installed capacity of 26,890 MW in the United States, distributed in 40 states in the United States: 520 MW in Canada, distributed in 4 provinces in Canada. In addition, NEER also has 290 substations and 3,420 miles of transmission lines.
10. National Grid Corporation of the United Kingdom
Founded in 1999, National Grid Corporation of the United Kingdom is the largest energy and utility company in the United Kingdom. Its business is mainly in transmission networks, power system operations and natural gas transmission, and its service markets are concentrated in the United Kingdom and the United States (see Figure 2-4-47). Among them, the transmission business in the United Kingdom is concentrated in England and Wales, with a total length of 7,212 kilometers of overhead transmission lines and 2,280 kilometers of underground cables; the transmission business in the United States is concentrated in northern New York, Massachusetts, New Hampshire, Rhode Island and Vermont. In the first quarter of 2023, the operating income of National Grid Corporation of the United Kingdom was 21.659 billion pounds, of which the operating income in the United States accounted for 55.63%, and the operating income in the United Kingdom accounted for 44.37%; the operating profit was 4.879 billion pounds, a year-on-year increase of 16.67%.
Risk Analysis of Global Power Industry
This section will provide an outlook on the risk situation of the global power industry, focusing on the analysis of investment risks in specific countries.
(I) Global Power Industry Risk Outlook
1. Macroeconomic Risks
The power industry is closely related to economic conditions. The global macroeconomic fundamentals and policies of major economies will have an impact on the operation of industry enterprises.
The risk of power supply shortage caused by the European energy crisis has increased. Although the COVID-19 situation has stabilized and the global economic recovery has led to increased energy demand, the conflict between Russia and Ukraine has triggered a global energy crisis. The prices of energy products such as natural gas and coal have soared, and electricity prices have also risen sharply. The electricity prices in many countries have "exploded". According to the "2023 Electricity Market Report" released by the IEA, the global electricity price increase in 2022 will be most obvious in Europe. Both spot prices and futures prices in Europe have doubled. The continuous rise in electricity prices continues to push up inflation, and also triggers a power outage crisis. The power supply has affected daily production and life. The warm winter in Europe in 2022-2023 will help to curb electricity prices, but compared with the previous period, European electricity prices are still high. The rise in natural gas futures prices in the winter of 2023-2024 reflects the uncertainty of natural gas supply in Europe in the coming year, and there is still a risk of power supply shortage.
The privatization policies of some countries have been repeated. According to a BBC report on March 20, 2023, the Kazakh government canceled the full privatization process of the Ust-Kamenogorsk Hydropower Station and the Shulbinsk Hydropower Station. On February 9, 2021, the Kazakh government passed Resolution No. 37, deciding to sell state-owned shares in the above two hydropower stations to achieve the full privatization of the two nuclear power plants. It is reported that this resolution may have been instructed by Kazakhstan's then-President Nazarbayev and may have attracted the attention of UAE investors. However, the resolution attracted widespread criticism from the society in the fall of 2021. At that time, the Kazakh government's Ministry of Energy stated that the privatization of the hydropower station was to obtain $600 million in funds to boost Kazakhstan's economy. On January 6, 2023, the state-owned shares of the two hydropower stations were transferred to Samruk-Kazyna, Kazakhstan's largest state-owned sovereign wealth fund. Now the Kazakh government has announced the cancellation of the sale of the state-owned shares of the two hydropower stations. On the one hand, it means that the Kazakh society may oppose foreign investors' acquisition of the country's power facilities; on the other hand, it means that the Kazakh government may adjust the asset allocation policy of the power sector in the future and will be conservative about the complete privatization of power facilities.
2. Industry policy risks
Under the background of dual carbon, the risk of national policy changes increases. On the one hand, due to the differences in economic development level, electricity demand, and wind and light resources, the future development direction of each country will be different. At this stage, the major carbon emitters are mainly located in Asia, and they are mainly developing countries. Carbon emissions in the Asia-Pacific region account for more than half of the world's total emissions. In the future, these countries may be indecisive in terms of economic development and emission reduction, development of clean energy and meeting the rigid demand for electricity, which may affect the stability of national policies. For example, India, as the world's third largest greenhouse gas emitter, is also considering a plan to achieve net zero emissions, but the plan has been repeated, and there have been situations such as allowing the extension of coal-fired power generation; Indonesia is the largest exporter of thermal coal, and most of its future power plans will be achieved through coal-fired power. On the other hand, because the implementation of emission reduction is lagging behind the plan, relevant UN agencies have issued a red warning on emission reduction, urging to speed up the emission reduction process. In addition, the European energy crisis is difficult to reverse. Under factors such as the energy crisis, high inflation and the European Central Bank's aggressive interest rate hikes, the economic outlook of the eurozone faces severe challenges. In general, as the pressure to reduce carbon emissions increases, even countries with relatively loose current policies may face policy tightening in the future, and the European energy crisis may disturb Europe's future energy development policy.
The trend of tightening energy policies continues. In November 2021, at the Global Climate Summit held in Glasgow, more than 40 countries agreed to phase out coal power and no longer invest in coal-fired power plants. Countries such as Indonesia, South Korea, Poland, Vietnam and Chile have pledged to phase out coal power. In addition, more than 100 organizations and financial institutions have pledged to stop providing loans for coal-fired power plants. These countries, organizations and financial institutions have signed the "Global Coal to Clean Energy Transition Statement" and/or joined the Powering Past Coal Alliance (PPCA) co-chaired by the United Kingdom. The parties who signed the statement have pledged to withdraw from coal power generation in 2030 or as soon as possible and agreed to accelerate the deployment of clean electricity. At present, most developing countries are gradually reducing production capacity to achieve climate goals. According to data from the independent climate think tank E3G, as of January 2023, only 20 countries in the world have planned more than 100 coal projects. In this context, on the one hand, companies whose main business is coal-fired power will face great pressure to transform; on the other hand, coal-fired power projects in emerging markets and developing economies may be affected. Supply and demand tensions in such regions are still common, and coal-fired power is the first choice for cheap and stable power supply. In the case of insufficient financial capacity and limited international financing channels, the bidding and financing models of coal-fired power projects may become more stringent, and the revenue of bidding companies will face certain risks.
3.环境与气候变化风险
气候变化风险影响电力稳定供应及设施安全。电力行业是将自然资源转换为电能以供消费的行业，受自然环境尤其是气候变化影响较大，且自然灾害多发对电力基础设施的安全性也提出了挑战。一方面，气候变化会影响多种能源电力生产和输配。例如，外界气温变化会影响火力发电厂热电转换效率;部分地区降雨量减少和气温升高将影响水电站正常运行，有研究显示，到2030年气候变化将使非洲赞比西河流域水电容量减少10%，到2050年减少35%;全球气温普遍升高会降低电力输配环节效率等。太阳能、风能发电等也会受到光照、大气流动等天气条件变化的影响。另一方面，极端天气对电力设施及运行影响较大。近年来，非洲地区降水量变小导致部分国家出现电力危机。2023年第一季度，受赞比西河水位下降影响，津巴布韦的主要水电大坝供电能力大幅下降，其公用事业管理单位被迫实施每天长达20小时的轮流停电，邻国赞比亚也因水位下降出现类似的停电问题。
4. Industry Operation Risks
Affected by factors such as the general tightening of global energy policies and sluggish electricity demand in developed economies, the competition risks in the power industry have intensified. On the one hand, competition between different energy types has intensified. Traditional power companies with coal-fired power as their core business lack policy support and are at a disadvantage in the competition. Many companies are forced to relieve financial pressure and accelerate business transformation by divesting assets or laying off employees. On the other hand, power companies in developed economies are still highly competitive. In addition, they have a long history of international operations, high R&D investment, strong technical strength, rich investment and financing experience, and favorable conditions. They still maintain a dominant position in the international power market. For example, despite the gradual tightening of coal-fired power support policies, Japanese companies are still the main providers of high-end coal-fired power technology in the world; South Korea, France and other countries also have strong strength in the export of nuclear power technology, which brings great competitive pressure to power companies in emerging markets and developing economies to open up international markets. In addition, as more Chinese companies "go global", competition in overseas power markets has become increasingly fierce, presenting a pattern of "internationalization of domestic competition". Since most companies have highly similar regional choices and similar project channels, in many projects, especially large projects, there are multiple Chinese companies bidding for the same project.
The transactions in the new energy power retail market are becoming more complex, and the transaction risks are increasing. With the increase in the proportion of new energy power generation, the retail market transaction varieties will become more abundant. In addition to electric energy transactions, there will be more transaction varieties such as demand-side nearby transactions and load mutual assistance transactions, and the distributed power generation market will naturally transition to a retail transaction market with self-balancing characteristics. The resulting retail market transaction varieties, transaction methods, and transaction subject types will undergo structural changes. Correspondingly, the support strength of the market mechanism and the difficulty of risk prevention and control in market operation will also increase exponentially. There is a risk of mismatch between the transaction mechanism, market risk prevention and control mechanism and the new transaction demand on the retail side: First, under the operating characteristics of the new power system, the mismatch of the transaction mechanism will not be able to give full play to the efficient call of the two-way market resources of the source network; second, the market supervision mechanism will not be able to adapt to the current situation of retail market transaction risks caused by the complexity and low transparency of internal transactions of new retail entities under the growth trend of massive retail market entities.
5. Industry technical risks
Chinese power companies "going out" mainly face the risk of inconsistent technical standards in various countries. For example, Russia and Georgia follow the Soviet Union's electricity technical standards, some of which are even lower than China's electricity technical standards. Chinese companies going to Russia to carry out power engineering projects must convert all technical standards into national standards that meet Russian requirements, which is costly and time-consuming. Georgia also follows the Soviet rate standard, and the marketization of the basic accessories used in existing hydropower stations is low, and they are generally processed by workers themselves. For investment and acquisition of existing power station projects, they are limited by the lack of unified technical standards and face greater risks in the supply of spare parts. In addition, power grid companies are currently facing the problem of incompatibility between foreign institutional environments and power grid technical standards, which restricts power grid companies from "going out".
Countries are stepping up the promotion of wind power generation, which poses challenges to the stability of the power grid. Compared with onshore wind power, offshore wind power has the characteristics of rich resources, high power generation hours, no land resources, and proximity to power load centers. It is a frontier field of new energy power generation. Recently, the global promotion of wind power development, especially offshore wind power, has attracted the attention of many countries, but the access of wind power to the grid poses challenges to the stability of power grids in various countries. The United Kingdom is a typical country for the development of offshore wind power. In October 2020, the United Kingdom proposed the goal of "wind power for all", planning to use offshore wind power to power all households in the UK by 2030. However, with the large number of wind power grid-connected, the stability of the UK power grid has been challenged. In January 2021, the UK's offshore cables had a fault, resulting in the inability to send out the power generated by offshore wind farms, and power supply shortages in some areas. The National Grid Company of the United Kingdom paid 30 million pounds for this. As countries promote the development of wind power, the impact of wind power grid-connected on the stability of the power grid needs to attract the attention of all countries. According to Accenture's survey data on more than 200 power industry executives in 28 countries and regions around the world, only nearly a quarter (24%) of the executives surveyed believed that their companies were fully prepared to cope with the impact of extreme weather, and nearly 90% (88%) of the executives said that in order to ensure the flexible operation of the power grid in severe weather, electricity prices may rise sharply.
(II) Investment risk outlook for the power industry in key countries
1. Investment risk outlook for the power industry in Colombia
The Colombian government intends to vigorously develop renewable energy power generation as a supplement to power generation during periods of water shortage. At the same time, the regulatory framework for the power industry in Colombia is relatively mature, with less government intervention, and the successful launch of the electricity wholesale market, all of which bring good opportunities for companies to invest in Colombia. However, there are also a series of problems in investing and operating in Colombia, such as low efficiency in government policy implementation, high social security risks, and difficulties in obtaining long-term work visas, which require companies to pay attention to.
(1) Policy and legal risks
The government policy implementation efficiency is low. After the 2022 general election, the fragmentation of the Colombian Congress is more prominent. There is a certain degree of uncertainty as to whether the various reform policies of the Petro government can gain the support of the Congress. The government faces greater challenges in governing, which has increased the risk of political stability. Colombians are concerned about the increasing social inequality and the continued rise in the cost of living. According to public opinion surveys, 60% of Colombian respondents believe that their income is not enough to make ends meet. People hope that the Petro government can boost employment, curb inflation, and increase investment in public education and health care.
(2) Security risks
The unemployment rate remains high and the income distribution contradiction is more prominent. Colombia has a large population and a huge number of unskilled labor. In October 2020, the Colombian government introduced an economic revitalization plan to protect the economy. One of the goals is to create 775,000 jobs and drive down the unemployment rate by attracting 56.2 trillion Colombian pesos in investment within four years. The above plan has achieved certain results, but due to the repeated outbreaks of the epidemic and the spread of mutant viruses in 2021, Colombia's unemployment rate has fallen slowly. The unemployment rate in 2021 is still 13.8%, and the unemployment rate in 2022 has a downward trend. However, it is still higher than 10%. Colombia's Gini coefficient is 51.3%, and the income distribution contradiction is more prominent. The epidemic and the influx of refugees have a tendency to aggravate the income distribution contradiction, pushing up social security risks.
(3) Business risks
It is still difficult to apply for long-term work visas. Since Colombia implemented immigration-related facilitation measures in 2015 and 2017, the difficulties for corporate personnel to go to Colombia have been alleviated, but it still takes time for staff stationed in Colombia to apply for long-term work visas. my country's Economic and Commercial Office has communicated with the Colombian Ministry of Foreign Affairs and the Ministry of Trade and Industry on this issue many times, and the situation has been actively improved.
Environmental protection pressure is relatively large. The local government strictly enforces environmental protection laws and regulations. When the company's information is fully prepared, the Ministry of Environment and Sustainable Development and other relevant responsible departments need at least 4 months to decide whether to issue an environmental protection license for the project. In actual operation, it takes at least 6 months from applying for a project environmental protection license to finally obtaining the license, and in most cases it takes 1 to 2 years to wait. In recent years, most companies engaged in resource development and infrastructure construction in Colombia have expressed a certain degree of dissatisfaction with the transparency, continuity and operability of Colombia's environmental protection policies. Environmental risks are more common in public-private partnership (PPP) projects.
The new energy market is still in its infancy and needs to be explored and developed in practice. Compared with Latin American countries such as Chile and Brazil, Colombia's new energy industry started late. Currently, the installed capacity of new energy power generation is still at a relatively low level. Local new energy projects are still in the exploratory stage and need to be explored and developed in practice.
2. 澳大利亚电力行业投资风险展望
澳大利亚拥有丰富的风、光资源，近年来大力发展新能源发电，是全球最早提出可再生能源发展目标(RET)的国家。与此同时，澳大利亚完备的法律及政策体系是其国内可再生能源发展的外在动力。但赴澳大利亚开展电力项目投资也面临政策法律、环保压力等风险。
(1) 政策法律风险
新能源发电项目的一个主要法律风险是NEM的设计可能会发生根本性变化。澳大利亚联邦政府能源安全委员会(ESB)对澳大利亚和NEM 覆盖州政府的最终建议中包含了对NEM的重新设计。
在最终建议中，ESB建议进行根本性的市场改革，这将使NEM从纯能源市场转变为能源+装机容量的市场。在该市场下，除了现货电价收入外，发电商还可因为其稳定的发电量而获得部收入。
ESB还提出了一种“拥堵管理模式”，对位于指定可再生能源区(Renewable Energy Zones，REZ)之外的发电项目征收拥堵费，并向位于REZ内的发电项目提供奖励。
此外,《购/售电协议》通常基于项目从AEMO获得其发电的现货价格，并且该现货价格与零售商为客户提供电力所支付给AEMO的现货价格相同。但此种模式的顺利实施或仅为理想情况，因为AEMO支付给发电商的费用和零售商支付给AEMO的费用也分别考虑了发电项目到区域节点以及到客户之间的损耗。如果NEM的设计发生变化，例如AEMO停止公布现货价格或发电商和零售商分别为其发电和客户的消费收到和支付不同的现货价格，《购/售电协议》约定的价格将难以执行。
(2) Operational risks
Environmental protection requirements are strict. Australia attaches great importance to environmental protection, and the relevant legal standards are high and strictly enforced. The environmental costs of mining and infrastructure construction projects are relatively high.
The transparency of Australia's foreign investment policies needs to be improved. In recent years, from the perspective of the Australian government's foreign investment approval and operation practices, potential requirements for investor identity, shareholding ratio, asset nature, transaction structure, etc. have gradually formed. Australia has continuously strengthened foreign investment review in so-called sensitive areas, which has affected the foreign investment business environment.
3. Investment risk outlook for Peru's power industry
Peru's total economic volume ranks at a medium level among Latin American countries. Driven by healthy economic development and the continuous expansion of the middle class population, Peru's demand for electricity has grown rapidly. Peru has abundant wind and solar energy resources, which is conducive to the development of renewable energy power generation. The government focuses its investment in the power sector on its hydropower and non-hydro renewable energy power generation. At this stage, Peru has formed a relatively mature trading mechanism, adopting a unified pricing mechanism, and a relatively complete market. However, it also faces a series of risks such as an unstable political environment, frequent extreme weather, and complex union community issues.
(1) Political risks
Peru's unstable political environment affects the continuity and consistency of policies. For a long time, Peru's frequent political changes and political disputes have continued to increase instability. On December 7, 2022, former Peruvian President Castillo was impeached by Congress and arrested by the judiciary, which triggered a new round of political crisis in Peru. After that, the political situation and social security situation in Peru continued to deteriorate, and the measures taken by the new government to quell the unrest and stabilize the political situation after taking office have not yet achieved obvious results. It is expected that in the future, Peru's political risks will continue to rise, affecting the continuity and consistency of policies.
(2) Climate change risks
Climate change leads to frequent extreme weather. Since March 2023, the northern and central coastal areas of Peru have been continuously damaged by heavy rainfall brought by Tropical Cyclone Yaku, triggering many natural disasters such as mudslides, landslides and floods, causing huge property losses and casualties. According to the forecast of the Peruvian National Disaster Risk Commission, the warming climate of the ocean on the northern and central coasts will continue or even intensify until July. Peru may also face extreme weather such as heavy rainfall and floods and a small-scale "coastal El Niño phenomenon" in the coming months. Extreme weather caused by climate change will affect the development and operation of power projects.
(3) Operational risks
Trade union and community issues are complex. Peruvian trade unions are relatively strong, and strikes are frequent, which is difficult for the government to reconcile, and companies often suffer losses. In addition, Peru's community organizations are relatively strong and can organize various social activities including demonstrations and marches. Sometimes they take actions such as blocking roads and closing doors to disrupt corporate construction, production and operations. The support that the government can provide to investors in this regard is relatively limited.
4. Outlook for investment risks in Vietnam's power industry
Vietnam is the third most populous country in ASEAN and one of the fastest growing economies in ASEAN. With the development of the industrial sector and the improvement of urbanization and electrification levels, Vietnam's electricity demand has grown rapidly. At the same time, the Vietnamese government has continuously promoted market-oriented reforms in the electricity market, opened up the electricity market, actively improved the pricing mechanism to improve corporate profitability, and continuously attracted foreign investment. However, Vietnam's overall national risk is relatively high, and the electricity market is also facing a series of problems such as changes in business models, financing difficulties, and fierce competition, which need to attract investors' attention.
(1) Policy risks
Local power purchase agreement (PPA) recognition issues and risks of changes in new business models for Vietnam power plant projects. At present, to sell electricity to EVN, power generation companies and EVN must sign a purchase agreement. Vietnam requires that the agreement must follow the agreement template issued by the government for each energy source. In addition, Vietnam's power plant projects have new transaction models, such as the direct power purchase agreement mechanism (DPPA). On March 16, 2023, the Vietnamese government held a meeting on the draft DPPA pilot plan and plans to organize a seminar in early April 2023 to solicit opinions from ministries, departments, organizations (domestic and foreign) and experts and scientists in the field of new energy to improve the DPPA pilot mechanism. Under the DPPA mechanism, electricity buyers are private electricity consumers. Private enterprises no longer purchase electricity directly from EVN, but directly from independent power developers (IPPs) under long-term contracts. At present, Vietnam's DPPA mechanism is in principle aimed at renewable energy ground power station projects (including wind and solar power stations). It is another project construction mechanism that project developers can choose after the subsidy price policy expires.
(2) Financing risks
Financial and financial controls are relatively strict, and financing is difficult. At present, Vietnam does not allow foreign banks to operate RMB business. Foreign banks' branches in Vietnam are managed as sub-banks. Branch licenses are not allowed to add new outlets. The loan scale and loan increment are strictly limited. It is difficult for Chinese financial institutions to expand their business in Vietnam. The loan amount for large-scale power projects is generally high. If you want to borrow from Chinese banks, you need to seek joint loans from multiple banks. In addition, Chinese banks are limited in the number of Vietnamese dong they can attract, and it is difficult for them to make loans in Vietnamese dong. They mainly make loans in US dollars. Vietnamese law stipulates that only companies with both import and export qualifications can make loans in US dollars, which further increases the difficulty of financing.
(3) Competition risk
The Vietnamese power market is highly competitive due to the monopoly of state-owned enterprises and the active Japanese and Korean enterprises. The Vietnamese power market is relatively open, and Chinese companies are facing fierce competition from local Vietnamese companies and foreign companies, mainly from South Korea and Japan. On the one hand, state-owned enterprises, mainly the Vietnam Electricity Group, are deeply involved in various fields such as power generation, transmission, distribution and sales, which has squeezed foreign power investors to a certain extent; on the other hand, South Korea has become Vietnam's largest source of foreign investment. South Korea has been deeply involved in Vietnam for many years, especially in the energy field. At the same time, since South Korea and Vietnam have recently signed a free trade agreement, it is expected that the economic and trade cooperation between the two countries will continue to expand in the future, and Vietnam will be more tolerant and open to foreign investment from South Korea. Overall, Chinese companies investing in the Vietnamese power market will face fierce competition from local companies and foreign companies such as South Korea in the future.
(4) Business risks
Vietnam is generally facing the risk of insufficient supply of raw materials. Although Vietnam has been reducing the proportion of coal-fired power, its coal production is still difficult to meet the demand for power production, and it has to import a large amount of coal. In 2022, the Vietnamese government stated that due to the impact of the new crown epidemic on local coal production and the soaring global coal prices, Vietnam is facing a coal shortage. In February 2022, the fulfillment rate of the coal supply contract reached by Vietnam National Electricity Corporation with major mining companies was only 69%. In addition, the rise in coal prices in the international market and the related sanctions caused by the Russian-Ukrainian crisis also affected Vietnam's import of coal. The superposition of multiple factors has led to a tight supply of coal in Vietnam. In addition, although Vietnam has the largest river in Southeast Asia, the Mekong River, it still faces relatively severe periodic droughts, and hydropower generation faces the risk of insufficient water.
Technical standards are not unified, affecting the efficiency of project operations. Vietnam's standards for investment enterprises' design approval, environmental review, fire design review and acceptance, and power capacity application approval are not connected with those in China. Investment enterprises need to entrust the complete set of technologies and designs to relevant Vietnamese institutions for redesign, evaluation and approval, resulting in a significant increase in corporate costs. In addition, during the implementation of international bidding for Vietnamese projects, Vietnamese technical specifications and technical standards of the tender documents were used simultaneously, which extended the approval time of design documents and increased the contractor's additional expenses.
5. Investment risk outlook for Cambodia's power industry
There are many risk factors in Cambodia's power industry, including policy and legal risks, environmental protection risks, and operational risks.
(1) Policy and legal risks
Cambodia's legal and social credit system is not yet sound. In recent years, Cambodia's legal system is still being improved and developed, but at present, Cambodia's investment policies and regulations, intellectual property rights, and related laws and regulations are still imperfect. Although there are relevant policies and regulations in many aspects such as minerals, labor, immigration, and taxation, most of them are principled regulations and lack details, resulting in greater flexibility at the operational level and affecting policy consistency. In addition, Cambodia's market and business order are relatively chaotic, and the legal and judicial protection of foreign investment is weak. If enterprises encounter disputes, it is difficult to defend their rights.
(2) Supply and demand risks
Seasonal fluctuations in hydropower projects affect project revenue. Although Cambodia's electricity supply is in short supply, power projects still have certain revenue risks. Chinese companies have many hydropower projects in Cambodia, with large investment scales and long payback periods. In addition, Cambodia's power grid facilities are backward and there are seasonal fluctuations in power supply, so there is a certain degree of uncertainty in project revenue.
The consumption potential is limited, and cross-border power exports have not yet been implemented. Since the stable power generation of hydropower stations is more concentrated in the flood season, and Cambodia's power shortage in the flood season is much more relaxed than in the dry season, the competition for power consumption of hydropower stations during the flood season is also more intense. From the perspective of Cambodia's power planning, it also plans to develop channels for cross-border power exports and build relevant transmission lines for this purpose, hoping to export surplus power during the flood season and expand the power consumption space during the flood season. However, from the current situation, in addition to the need to strengthen the construction of supporting transmission lines, the realization of this plan still faces certain obstacles and uncertainties in business and bilateral and multilateral relations with neighboring countries. Based on this, it can be judged that the future prospects for Cambodia's domestic consumption of hydropower are not very optimistic.
(3) Business risks
The active opposition parties and non-governmental organizations have an impact on business operations. There are more than a thousand non-governmental organizations active in Cambodia, covering areas such as environmental protection, human rights, and workers' rights. The activeness of non-governmental organizations often affects the normal operation of enterprises. For example, the Sang River Secondary Hydropower Station developed and constructed by Chinese-funded enterprises was reported by Cambodian media to have destroyed the ecology; the Cha Run Hydropower Station was stopped by the Cambodian government under pressure from public opinion due to hype by non-governmental organizations; the Zhongzhong Datai Hydropower Station was maliciously claimed by hotels that were destroyed by heavy rains downstream, and so on. After investigation, many reports were seriously inconsistent with the facts. Although Chinese companies actively eliminated the adverse effects, they also damaged the image of Chinese companies to a certain extent.
Cambodian trade unions are active. Although the cost of hiring local workers in Cambodia is not high, its trade unions are strong. Trade union activities are protected by domestic laws and are strongly supported by Western developed economies and relevant non-governmental organizations in Cambodia. Some trade unions are relatively active and often organize large-scale strikes, marches and demonstrations, affecting the normal operation of enterprises.
Suggestions
Foreign cooperation in the power industry is an important tool for promoting the "Belt and Road" initiative. In response to the above risks, we should strengthen support for Chinese power companies to "go global" at the macro level, and improve risk awareness and optimize investment layout at the micro level to minimize risks and reduce losses.
1. Strengthen policy support and optimize the financing environment
Compared with the preferential financing conditions for overseas projects in Europe, the United States, Japan, South Korea and other countries, the financing interest rate provided by China is relatively high, which is not conducive to enterprises participating in the competition. At the same time, the financing channels for global power projects have shrunk significantly. Strengthening financing support can alleviate the unfavorable external conditions faced by Chinese power projects to a certain extent.
2. Give full play to the role of associations to help power companies invest
Encourage companies to go overseas in groups through joint bidding, forming consortiums to participate in mergers and acquisitions, etc., to give full play to their respective strengths, show collective advantages, and avoid power companies fighting alone and vicious competition.
In addition, when choosing local partners, you should fully seek the opinions of local chambers of commerce, consulting companies, tax consultants and professional lawyers, and choose partners with good reputation, long history and good performance records to cooperate. It is necessary to examine their professional knowledge, as well as whether they have relevant experience in Chinese business and whether they can fully estimate the misunderstandings that may be caused by cultural differences between the two sides.
3. Improve risk awareness and strengthen risk plans
Overseas power construction or investment projects are generally large in scale. They face risks in politics, security, economy, project revenue and other aspects. Enterprises should always be cautious. On the one hand, they should transfer risks by purchasing export credit insurance and overseas investment insurance. On the other hand, they should also improve risk awareness and make plans for risks in specific countries and specific projects.
In terms of political security, enterprises should conduct preliminary research on projects, systematically understand the political situation, diplomatic relations, security situation and other contents of the host country through field visits and third-party consultations, pay close attention to the security warning information issued by our embassies and consulates abroad, and be cautious about areas with high political security risks. If the project is in a high-risk area, the company should take all possible security measures to strengthen the company-level protection, improve employees' self-protection awareness and ability through training and other means, purchase commercial insurance for corporate assets and employees, and seek overseas consular protection.
In terms of economic risks, first, we should actively use hedging tools such as spot and forward swaps to hedge the income losses caused by large fluctuations in exchange rates; second, we should focus on using contracts to protect our own economic interests, including incorporating compensation clauses for unexpected situations such as exchange rate fluctuations, government inability to pay, default, inflation, etc. in the contract, and try to strive for clauses for payment in US dollars to minimize losses.
In terms of project management, project research and management are crucial to power engineering construction. First, enterprises should carefully consider the construction time in the early stage of construction to avoid adverse weather conditions and geological disasters during the period, which will lead to delays in the construction period and cause defaults; at the same time, they should carefully select the construction site in accordance with the specific requirements of the project, conduct a comprehensive survey of the surrounding ecological, hydrological and geological conditions, and avoid accidents during construction or after the project is delivered. Second, strengthen project management awareness. Under the premise of efficient management, we should pay attention to local customs, strengthen two-way exchanges with local communities, people, non-governmental organizations and workers, and avoid strikes and opposition from local people. Third, attach importance to project budgets, anticipate possible risks and possible losses based on the actual situation of the host country, and leave room in the budget.
In terms of industry competition, first, we must strictly control the quality of projects, establish a good image of Chinese companies through high-quality projects, and accumulate intangible assets to win more projects; second, we must avoid being reckless and not excessively use low-price competition to win projects, which can not only avoid unnecessary financial pressure, but also avoid creating a bad impression of low-price and low-end Chinese companies.
4. Grasp the industry trends and optimize investment layout
At present, there is a certain differentiation in the global power industry policy. The support intensity and methods of coal-fired power and renewable energy policies in developed economies, emerging markets and developing economies are different. Enterprises should avoid excessive concentration of overseas investment and projects in a certain country or region to prevent losses caused by sudden changes in industry policies, financing conditions, etc. For example, it is expected that there will be more obstacles to coal-fired power overseas projects. Enterprises may consider opening up investment opportunities in the fields of power transmission and transformation, renewable energy, etc. based on their own advantages; for example, developed economies have a clear tendency to clean up their power structure, but their support policies for renewable energy are shrinking, and they are becoming more cautious about investing in China. Clean energy power investment in emerging markets and developing economies such as Latin America, South Asia, and Southeast Asia may become a new choice for enterprises.
References
[1] China's Overseas Investment and Cooperation Development Report [EB/0L]. China International Contractors Association, 2022.
[2] Xu Dong, Feng Jingxuan, Song Zhen, et al. A review of the research on the integration and development of natural gas power generation and renewable energy [J]. Oil, Gas and New Energy, 2023, 35(1): 17-25.
[3] Wang Sheng, Zhuang Ke, Xu Jingxin. Analysis of global green electricity and my country's low-carbon electricity development [J]. Environmental Protection, 2022.5
