Returns in Chinese hydropower to grow as coal prices heat up

Hydropower producers benefit from above-average cash flow.

China’s industry players in hydropower could gain positive returns as usage of the resource has increased after a supply side reform in 2016 pushed up the costs of harnessing power from baseload power coal, according to insights from CLSA.

Compared to alternative power sources, hydroelectricity generates above average cash flow. Between 2017 and 2018, China Three Gorges (CTG) alone raised $2.25b to finance its Jinsha River cascade projects, including the Baihetan and Wudongde hydropower projects.

“The low variable cost of hydropower enables independent power producers (IPPs) to generate good cash profit without the worry of the cost of raw materials,” CLSA said

According to the International Hydropower Association (IHA), China’s hydropower sector has grown twenty-fold to a total capacity of 352GW in 2018. A further 8.54 GW capacity was added, including 1.5 GW of pumped storage.

“In the long term, hydropower’s fast responsiveness and flexibility is seen to facilitate the integration of power sources, as more wind and solar power connects to the domestic grid in China,” CLSA said.