China Weighs Bond Issue to Help Pay Clean Energy Subsidies

(Bloomberg) -- Chinese officials are considering a proposal to sell bonds to pay renewable energy subsidies owed to developers, according to people familiar with the matter.

Officials have reached out to renewable industry representatives for input on the plan, said the people, who asked not to be identified because the information isn't public. State Grid Corp. of China could be the bond issuer, the people said. A decision on the proposal hasn't been reached, they said.

The inquiries come as concern grows over a mounting debt pile caused by years of not budgeting enough money to pay renewable energy subsidies in full.

The total amount owed is about 260 billion to 300 billion yuan ($37 billion to $43 billion), and the initial bond issuance under discussion would cover about half of that, one of the people said, who added the details are subject to change. An initial bond sale might be around 140 billion to 150 billion yuan, industry publication Pvmen.com reported earlier without saying where it got the information. The story was later removed from its website.

State Grid didn't immediately reply to requests seeking comment. The Ministry of Finance, which is responsible for allocating subsidies, and the National Development & Reform Commission, China's top economic planning agency, also didn't immediately respond to requests seeking comment.

Efforts to pay back renewable developers have been kicked around before.

China Wind Energy Association Secretary General Qin Haiyan last month called for a bond issue in a statement posted on the association's WeChat account. He added that state-owned State Grid should be the first choice to sell the bonds because it has a good credit rating. The company is also responsible for purchasing renewable power and collecting electricity bills, including a surcharge that's used to fund renewable subsidies, he said.

A similar plan to issue special government bonds was rejected by the finance ministry last year.

China's central government said in January it would stop subsidies for new offshore wind power and solar thermal projects that will come online from 2022, while local government can continue support. That followed an announcement last year from the National Development & Reform Commission, which said China would stop providing financial support to new onshore wind farms from 2021 as it pushes for renewable energy to compete with fossil fuels such as coal.

China has for years offered developers of renewable energy generous payouts for their power over 20-year contracts. The subsidized rates helped give investors and financiers confidence to back the projects, and it helped China become the world's leading renewable market.

But the finance ministry, which controls the purse strings for the subsidies, never expanded its budget as fast as new projects were approved. Cumulative subsidies owed by the government to wind and solar developers reached 293 billion yuan at the end of 2019, according to Tony Fei, an analyst with BOCI Research Ltd.

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With assistance from Bloomberg