China's gencos eye European investments over profit crunch

Capex is high as renewable capacities expand through new builds or acquisitions.

The large state-owned gencos in China are expected to look out for investment opportunities for clean energy assets outside the country like in Europe and South America, according to S&P Global Ratings.

The capital expenditure for China's major gencos is expected to remain elevated in 2019-2020 relates to fast expansion of their renewable capacities, especially wind power, either through new builds or acquisitions. Plans to remove the renewable subsidies are also accelerating spending.

The State Grid Corp. of China is expected to spend less than its average level due to decreasing returns, whilst China Southern Power Group is expected to heavily invest in upgrading distribution and rural power networks, as well as supporting key infrastructure projects.

“We expect large gas utilities to keep a stable capex in pipeline construction to accommodate organic growth. In the meantime, they will also deploy capital to expand into the integrated energy business as a new growth driver,” the report wrote.

On the other hand, due to constraints from stretched liquidity and limited finances, private renewable developers are expected to stick with lower capex and investment plans, and may even look to sell some capacity to state-owned buyers or earn income from building or operating the plants rather owning them.