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China Energy Infrastructure REITs: A Blazing Opportunity

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China Energy Infrastructure REITs: A Blazing Opportunity

In many countries, a new round of global energy transformation and technology innovation is required as a major national strategy to cope with global energy crisis and climate change. In 2021, China pledged to reach “carbon emission peak” by 2030 to grow clean energy consumption up to 25% of the total energy consumption, and total installed capacity of wind power and solar power to reach more than 1.2 terawatt. 
Recently, the “14th Five-Year Plan for Renewable Energy Development” (《 “十四五” 可再生能源发展规划》) and the "Implementation Plan for Promoting the High-quality Development of New Energy in the New Era" (《关于促进新时代新能源高质量发展的实施方案》) were released to promote and accelerate the development of renewable energy. The Plan proposes more financing tools, including REITs, shall be used to empower green energy projects. 

Key development goals for renewable energy

The “14th Five-Year Plan for Renewable Energy Development” (14 FYP) outlined the country’s renewable energy roadmap for the five years 2021-2025 and laid out a framework with a series of targets and actions.
Specifically, this covers renewable energy production in million tons of coal equivalent (Mtce), renewable electricity generation in terawatt hours (TWh); and renewable energy share in the grid (%), overall and for non-hydro sources. The details for each of the targets are shown in the table below.

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The Layout Map of Clean Energy Bases in the “14th Five-Year Plan” Period

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Source: The 14th Five-Year Plan”, Colliers

Energy structure optimizing with wind and solar energy taking the lead

In 2021, China's total installed capacity of full-scale power generation reached 2.4 terawatts, increased by 7.9% YOY, of which the installed capacity of renewable energy achieved 1.1 terawatts, with CAGR reaching over 13% since 2017. The percentage of renewable energy in the total installed capacity increased from 36.6% to 44.8%, achieving significant increase over the past 5 years. 

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Wind and solar power take the lead in renewable energy development in recent years. The installed capacity of wind power and solar power have both exceeded 300 million kilowatts in 2021, with CAGR reaching 20% and 60% respectively in the past ten years. The installed capacity of offshore wind power ranks first in the world.

CAGR of the installed capacity of wind power exceeds 20%     CAGR of the installed capacity of solar power reached 60%

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New energy REITs can help expand funding resources and improve operating efficiency

REITs as equity investment provide more diversified funding resources and investment exit channels for shareholders of infrastructure projects. Besides, REITs can help to improve the operating efficiency of infrastructure projects. As REITs are listed publicly, the underlying asset operation will be optimized by introducing professional management teams.

New energy REITs are emerging

Currently there are three types of new energy infrastructure REITs, including non-fossil energy power generation infrastructure, such as wind power, hydropower, nuclear power, etc; alternative energy power generation infrastructure, such as hydrogen energy-related infrastructure; as well as smart grids and energy storage devices. These new energy infrastructures will become the major incremental sources for the expansion of China REITs market.
REITs market is currently emerging in China. On June 21, 2022, Penghua Shenzhen Energy Clean Energy REITs (鹏华深圳能源清洁能源REITs), the first infrastructure REITs in the clean energy field in China, was successfully listed on SZSE. During the offering period, the initial subscription ratio of offline investors is over 109, and that of public investors is over 86, reflecting investors’ full recognition of REITs from the clean energy industry and the assets of the program. Many listed companies such as Goldwind (金风科技), Harbin Investment Group (哈投股份), Beijing Energy International (北京能源国际), TBEA (特变电工), and Shanghai Power (上海电力), etc, have also announced to raise funds through REITs to finance their wind power, solar power and heating projects. 
Under the strategic background of the carbon goal and the new normal of the macro economy, REITs can effectively promote green energy infrastructure and the optimization of energy structure. It is expected that China REITs expansion will be expedited, and the energy REITs market are presenting a blazing opportunity.

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