Recently, the National Development and Reform Commission (NDRC) released new onshore wind power feed-in tariffs in China. The benchmark feed-in tariffs for onshore wind farms in Class I, Class II, and Class III resource areas were reduced by 2 cents per kWh, adjusted to CNY0.49/kWh, CNY0.52/kWh, and CNY0.56/kWh, respectively. The benchmark feed-in tariff for Class IV wind farms remains unchanged at CNY0.61/kWh. These prices apply to projects approved after 2015-1-1, and to projects approved before 2015-1-1 but commissioned after 2016-1-1. Bloomberg New Energy Finance provides an analysis of this development.

We believe the main impacts of this price adjustment are as follows:

Impact on project IRR: Based on our calculations for 17 projects distributed across different provinces, the adjusted feed-in tariffs will reduce the after-tax equity IRR of these wind farms by approximately 0.9% to 2.3% (average value). In contrast, the price reduction draft from 2014-9 would have reduced the after-tax equity IRR of these wind farms by approximately 1.5% to 6.2% (average value). Clearly, the impact of this scheme on project profitability falls within the range that most developers can absorb.

Rush installation will continue: According to our statistics, currently, approved but unbuilt projects in areas with price reductions account for 60% of all unbuilt projects. Since projects approved before 2015 can still enjoy the current feed-in tariffs if they are commissioned by the end of the year, a large number of reserve projects affected by the price reduction will still drive developers to initiate a new round of rush installations. Unlike the rush installation in the second half of last year, the rush installation in 2015 will be limited to areas with feed-in tariff reductions (i.e., Class I, II, and III wind resource areas), and the pace of installation will be more rational.

In 2015, the focus of wind power project development shifts to the north: Since the areas with price reductions are mainly northern provinces, we believe that in 2015, developers will temporarily shift their project development focus from low-wind-speed areas in the south to the north. Due to constraints in the supply chain and project development budgets, projects in low-wind-speed areas may be temporarily shelved this year.