China Three Gorges Renewables: the big green bet

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When Beijing puts its support behind a sector, investors take note. Its backing for renewable energy projects means that the initial public offering for China Three Gorges (CTG) Renewables, the largest one this year, was always going to attract attention.

That it did. The new Shanghai listing performed well on its first trading day on Thursday. Its share price rose by the daily limit of 44 per cent. CTG Renewables raised Rmb22.7bn ($3.5bn), giving it a market value of Rmb109bn, making it one of the largest mainland green energy groups.

Chinese president Xi Jinping plans to nearly triple local wind and solar power capacity by 2030. Parent China Three Gorges, which retains 60 per cent, is best known for its huge hydropower dam in central China. CTG Renewables operates wind and solar plants.

These generate more than energy. Sales and net profit grew more than a quarter last year, with the top line reaching Rmb11.3bn. The pace accelerated in the first quarter with profits rising 51 per cent. Gross margins are high for the sector at 58 per cent. After its debut, it trades at 21 times trailing earnings, about a third higher than listed solar and wind power peers.

There are risks to such a capital-intensive business. Regular upgrades to facilities will be required, though subsidies should rise to offset the cost. In a fragmented market, CTG Renewables has about 3 per cent of the local wind power production market and 2 per cent of solar.

But costs keep falling, especially in the production of solar cells. Globally these fell 82 per cent in the decade to 2019, according to the International Renewable Energy Agency. China, the world’s largest generator of photovoltaic energy, accounts for a third of total installed solar power capacity.

Beijing aims to hit a 2030 target of more than doubling the share of wind and solar in local power generation to 25 per cent. This means demand should not flag. Added urgency comes from rising coal prices, due to a local shortage of coal amid booming industrial activity.

Another positive note: renewable energy will probably not face many regulatory risks. Contrast that with the antitrust crackdowns the local tech sector faces. Given Beijing’s carbon-neutrality plan runs to 2060, CTG Renewables offers long-term promise.

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