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Huaneng Power International Inc
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[Interpreted] Good afternoon, ladies and gentlemen. On behalf of Huaneng Power International, Inc., I would like to welcome you all to the conference call regarding the interim results announcement of 2021. Now may I introduce the management of the company today. The Director of the Board and the President of the company Mr. Zhao Ping. [Foreign Language]
[Foreign Language]
[Interpreted] The Chief Accountant of the company, Mr. Huang Lixin. [Foreign Language]
[Foreign Language]
[Interpreted] The Vice President and Board Secretary of the company, Mr. Huang Chaoquan. [Foreign Language]
[Foreign Language]
[Interpreted] The Chief Economist of the company, Mr. Fu Qiyang [Foreign Language]
[Foreign Language]
[Interpreted] People in charge of the related departments are also joining us in this meeting.
First of all, the Director of the Board and the President of the company Mr. Zhao Ping will review the business performance for the interim results of 2021, followed by Q&A session. May we have the honor to invite Mr. Zhao to review the business performance? And Ms. [indiscernible] will conduct the English interpretation.
[Foreign Language]
Ladies and gentlemen, good afternoon. Welcome to '21 interim results conference call of Huaneng Power International.
[Foreign Language]
The company has announced its interim operating results. In the first half of the year, the company grabs the opportunity of the economic stable recovery and high power demand and promote key tasks of operation and development. Under Chinese accounting standard, the company achieved consolidated operating revenue of RMB 95.116 billion, increasing by 20.17% year-on-year. The net profit attributable to equity holders of the company amounted to RMB 4.282 billion, decreasing by 25.3% year-on-year. The company's earnings per share was CNY 0.21.
[Foreign Language]
In the first half of the year, domestic power sales of the company was 207.926 billion kilowatt-hour increased by 20.8%. Average utilization hour was 1,980 hours increased by 262 (sic) [ 263 ] hours. The power generation increased significantly due to the rise in the power demand of the whole society. Of the 26 regions in which the company operates, 22 regions have achieved positive year-on-year growth in power generation, among which 10 regions have increased more than 20%. Domestic power sales of the low carbon clean energy increased by 48.8%.
[Foreign Language]
In terms of the fuel, in the first half of the year, the contradiction between supply and demand intensified, and coal prices have risen sharply. The company actively studied and responded to the market trend, made flexible adjustment through our procurement strategy, increased the honor rate of long-term contract coal, used supplementary supply of imported coal, expanded the high-quality coal sources and ensure the safe and stable supply of clean coal. Although the coal price increased sharply, the company procurement cost is at leading level in the industry.
[Foreign Language]
In terms of development, the company accelerates the transformation and upgrading, continues to develop clean energy projects and promote permitting and filing process. In the first half of the year, the company has put 470 megawatts of wind units, 190 megawatts of solar energy and 30 megawatts of biomass units into operation. The company's total controlling installed capacity reached 114 gigawatts. The low carbon clean units account for 21.07%, increased by 2.9 percentage points. At the same time, the company optimized its thermal power generation by promoting flexibility retrofit, super-low emission and heat supply renovation, sludge and biomass coupling generation projects. The company actively promotes technological innovation, construction of smart power plants, transform and upgrade existing coal-fired power assets and help build a new power system.
[Foreign Language]
In terms of financing, in the first half of the year, with the market opportunity of abundant liquidity and the government support in green finance, the company issued China's first batch of carbon neutrality bonds in interbank market, totaling CNY 3.5 billion, corporate bonds of CNY 7.8 billion and super short-term debt of CNY 13 billion, which ensure the low financial cost and funding needs and help with the company's clean energy development. Moreover, the company used USD 600 million exchange rate swaps to effectively hedge the risk of exchange rate fluctuation [ in towards power steps ].
[Foreign Language]
In the second half of the year, while seeking progress and maintaining stability, the company will implement innovative, green, safe development and operational excellence. We will adhere to the concept of safe development and strengthen the management and control of key risk area. We will continuously develop clean energy projects and promote energy conservation, transformation and upgrading for coal-fired units under the goal of carbon peak and carbon neutrality. We will actively participate in the power market reform and the profit centers focused on marketing management. We will respond to the coal market trend and take multiple measures to control the coal price and ensure the supply. We will actively participate in the carbon market trading and expand our financing channels to control the financial cost. The company will enhance the competitiveness and create long-term, stable and growth return to our shareholders.
[Foreign Language]
Next, my colleague and I are glad to answer your questions. Thank you.
[Interpreted] Thank you, Mr. Zhao. Here we come to Q&A session. [Operator Instructions] May I invite the first question, please?
The first question is from [ Baxter ], whose phone number is 7530.
[Foreign Language]
I have 3 questions. My first question is about the coal inventory. As we all know, in August, the coal price reached a very high level, and the price stayed relatively high for both imported coal and for the seaborne coal. So for how many days can the company's inventory of coal be used?
My second question is about the carbon trading market. So could you please tell us the numbers of the carbon allowance of the company during the year 2019 to 2020? And what is the company's expectation about the current price and also the transaction volume in this year's carbon market? And will there be a fine if some power plants exceeding the carbon allowance?
My third question is about renewable development. So how does the company consider the renewable projects in the future? Would the company decided by a time period of 1 year, 3 year or 5 years?
[Foreign Language]
By the end of June, the company had total coal inventory of 10.61 million tons. It can be used in 14 days. And although our inventory is decreasing comparing to the high level, we still can ensure the safety supply of our coal. And the company is actively promote other sources to ensure the supply.
[Foreign Language]
As for the company's response to the high coal market, the company has the following measures: First is to increase the resource development, ensure the honor rate of long-term contract coal and optimize our procurement structure. Second is to seize the market chance and give full play of the company's price advantage of imported coal, lock high-quality coal as source. And third method is to use companies' and Huaneng Group's industrial chain to ensure the supply. And fourth is to actively respond to government authority and seek for policy support.
[Foreign Language]
So in the first half year, we can see the coal supply and demand both grow, but the supply/demand -- supply growth is lower than the demand growth. And in the second half year, we can see the domestic policy will be adjusted to stable -- to be more stable, and micro economy is expected to be improved. The power consumption will increase. Hydropower output will decrease due to the dry season. The thermal power demand will increase to fill in the gap. The coal consumption will maintain at a high level. And currently, there's still a tight supply with strict safety and environmental inspections, but the coal price has attracted great attention from the government. The government will take multiple measures to stabilize the price. And under the policy regulation, the price will be stable and decrease with the supply increase in the near future. But the actual coal price will still be determined by the policies as well as the demand and supply situation. That's all. Thank you.
[Foreign Language]
Let me answer your question about the carbon trading market. First, about the supply -- whether the company have a surplus of the carbon allowance. For now, the carbon calculation hasn't been accomplished yet. The government have said that by the end of September, they will allocate those allowance of carbon. So by the end of September, the company can know whether the company have a surplus or less of this carbon allowance.
[Foreign Language]
But according to our calculation of the carbon emission, we estimated that at Huaneng, as a group, we have surplus in our carbon allowance. But for now, the government haven't released the carbon allowance for each company, so we'll give out those numbers in the future.
[Foreign Language]
About the carbon price, although the national carbon market's average price is higher than the average price of the pilot area, it doesn't represent that the carbon market -- the high price in the carbon market will be the trend in the future because the government have only released the carbon bidding market that we can see from the trading board, but the government haven't released the commodity -- the carbon commodity price is not being included in our calculation.
[Foreign Language]
We estimate that the government will have a total allowance that will be less than the production company -- the power production company's total emission. There won't be a surplus, but we cannot exclude the possibility that the power companies using methods to reduce their carbon emission and returning this less carbon allowance to a surplus. So there is still uncertainty in the carbon market demand-and-supply situation.
[Foreign Language]
About the transaction volume in the future, although the settlement will be done in the near future, there's still not enough carbon quota that's released into the market because the carbon allowance is -- can be settled in the second year. So there might be some companies that they won't sell in this year and see the further price change in the market. So it's hard to say about the transaction volume.
[Foreign Language]
So that is the situation analysis for this year. And in general, there's still some uncertainty in the market. But Huaneng is in the leading level in the industry, so we are confident about the carbon market trading and believe we can profit from this market.
[Foreign Language]
The company is actively promoting the renewable energy development. The company plans to add 8 gigawatts per year in the next 5 years during the 14th Five-Year Plan. By the end of 2025, the company plans to increase the capacity of renewable energy by 55 gigawatts.
[Foreign Language]
The company will set each year's goal according to the real situation. And in 2021, the company has a goal of 8,314 megawatts of renewable energy added.
[Foreign Language]
In 2021, the [ PV module ] has increased sharply -- the price of [ PV module ] has increased sharply. It has a very limited impact to the company's project that's already been through the purchasing process, but some of the company's projects is still affected by this increase in price and maybe delayed and postponed of the operation date. In general, there won't be a great impact to the company.
[Interpreted] The next question is from [ Wei Zhang ] from [indiscernible].
[Foreign Language]
I have three questions. My first question is about the company's profit. Could you please give us the profit breakdown to different energy sources? My second question is about the coal price. So what is the company's average standard coal price in the first half of the year? And my third question is about the inventory. You just said that the inventory for now is 14 days? And what is the number for the same period last year?
[Foreign Language]
First, I will give you the number about the company's profit breakdown. The total profit of the company was CNY 4.822 billion. And for the coal sector, it was CNY 1.468 billion. For the gas sector, it was CNY 598 million. For the wind sector, it was of CNY 2.515 billion. For solar sector, it was CNY 331 million. For the hydro sector, it was CNY 20 million. And for the biomass sector, it was negative CNY 29 million.
[Foreign Language]
The standard coal price for the second quarter was CNY 821.01 per ton.
[Foreign Language]
We don't have the 10 years number of coal price. We'll give it later after the meeting. And about inventory, in the same period last year, the company had 12.9 million tons of coal inventory, and it can be used by 17 days. So this year, we have a decrease in the coal inventory.
[Foreign Language]
As for the coal price at the end of June, the company's coal price is in line with the index price from the spot market.
[Interpreted] The next question is from [indiscernible] of [indiscernible].
[Foreign Language]
I have three questions. My first question is the number you gave us for about the profit breakdown. Is that the number of profit before tax or net profit? The second question is about the tariff. What is the company's average tariff for thermal sector and coal sectors? And what is the year-on-year change? And what is the company's view about -- some provincial government, they have raised the benchmark tariffs. So what is the company's view about the average tariff in the future? And my third question is about the imported coal. So what is the company's imported coal proportion? And what is the price spread between the imported coal to domestic coal?
[Foreign Language]
So the previous number we give is the net profit breakdown. And if you ask for the profit before tax, in domestic business, we have a total profit before tax of CNY 5.974 billion. And for the coal sector, it was CNY 2.234 billion. For the gas sector, it was CNY 775 million. For the wind sector, it was CNY 2.722 million. For the solar sector, it was CNY 356 million. For the hydro sector, it was CNY 22 million. And for the biomass sector, it was negative CNY 29 million.
[Foreign Language]
The average tariff for thermal power of the company was CNY 391.92 per megawatt hour, increased by 0.42%.
[Foreign Language]
The company have total -- in total purchase imported coal of 29 million tons in the first half of the year. It accounts for 30.3% of the company's total coal procurement. And in the second quarter, the company's imported coal accounts for 31% of the company's total coal procurement.
[Foreign Language]
In the first half of the year, the imported coal have CNY 175.4 per ton discount comparing to the domestic coal. And we don't have a number in the second quarter, but I'll give you the number in each month. In January, the imported coal has a discount of CNY 333.74 per ton discount. In February, the discount was CNY 30.46 per ton. In March, CNY 59 per ton. In April, CNY 174.9 per ton. In May, CNY 230 per ton. In June, CNY 119.5 per ton.
[Foreign Language]
About the coal price, at the end of June, because the coal price is very complicated, we have inland coal and seaborne coal that not have the same trend. And we used the port price as a representative of the [ 5,500 kcal coal ] in the port price. By the end of June, the price was CNY 960 per ton. [ That's the end of the question. Thank you. ]
[Interpreted] Next question is from Steven of [ Morgan Datong ].
[Foreign Language]
I have 3 questions. My first question is what is the reason for the national carbon market's price lower than the pilot market price. The carbon price in the national market was about CNY 15 per ton comparing to the CNY 30 per ton pilot areas. And what is the company's expectation of the carbon price trend during the 14th five-Year Plan? My second question is about the coal price impact to the impairment. The coal price has increased dramatically. And will that be a great impact to the company's impairment division by the end of the year? And my third question is also about the carbon market. So the government allowance of the carbon market may be shrink in the future. And what is the profit impact to the company? And will the company have any goals or guidelines for the -- to reduce of carbon intensity in the future?
[Foreign Language]
About the carbon price higher than in national market than in the pilot market, actually, the national market -- the carbon price in national market is now the highest. The carbon price in the pilot area in Beijing is higher than CNY 50, and the carbon market is also relatively high in the pilot area in Shanghai. And the CNY 30 per ton price is only the average price of the pilot areas, and the price is very difficult to say with future trends because the price is market oriented. In the first day of trading, it can be very important for some of the power generating groups. So they actively involve themselves in this market. So that might be one reason for that, but the whole price trend is very hard to say.
[Foreign Language]
So about the second question -- third question, they have some similarities. And for the price trend expectation is the core problem of this expectation concerns with the coal -- the carbon emission price as well as its trading volume. So the carbon price is also determined by the relationship between the demand and supply.
[Foreign Language]
From the supply side, supply consists of the carbon quota allocated to each company and also the CCER.
[Foreign Language]
From the supply side, of course, the direct impact is from the carbon emission, but there are still other factors that can contribute to the supply. One is for the power consumption. Another is the structural reform and transformation from the power generating side and also the thermal power proportion in the whole power market.
[Foreign Language]
There are still other factors that bring uncertainty to this market. First is when will the government restart the trading of CCER? And second is what is -- when will other industry be included in this market? And third is when will the financial cooperation be included in the market? So the market still face great uncertainty.
[Foreign Language]
But we can see in the future, there are certain trends in this carbon market. The government will decrease the carbon allowance in the future, especially the free allocation of the carbon quota will be decreased in the future. And the allocation -- the allowance that the government charge for fee will increase in the future. And the company have awareness of this trend, and the company will take furthering measures to respond to this market change. First is to make structural adjustment in our power generation. The company will increase the renewable energy capacity as well as the renewable energy generation in the future, and second is the company will actively participate in the market building of the carbon market in the future. That is to actively respond and report to the government to involve ourselves in the positive decision-making process. So the company will optimize our structure and reduce our carbon costs in the future. That's all. Thank you.
[Foreign Language]
About the relationship between the coal price fluctuation and the company's impairment decision, the coal price fluctuates in the short to medium term, but the company will make impairment decision according to the coal price change in the long term.
[Foreign Language]
In the future, the company will actively follow up the price change in the coal market and actively study and research for the impairment price and making appropriate accounting impairment in accordance with the accounting standards.
[Interpreted] The next question is from Liu Jiani of CICC.
[Foreign Language]
I have 2 questions, all related to renewable energy. The company has announced the 8 gigawatts plan in this year's renewable energy capacity. So for wind power and solar power, what will be the proportion of each power sector? And what is the company's project reserve that have already signed the contract? And also, what is the company's project reserve for the project that had already been through the permitting process but haven't been constructed yet? And also, Huaneng Power International is the offshore wind platform for the group, and could you please tell us the subsidy policy in Jiangsu about the offshore wind power? Is there any policy related with the feed-in tariff? And if there is no policy released yet, what will be the company's plan for the whole year offshore wind capacity? Will the company still going to develop those projects? Or will the company postpone those project construction?
And my second question is about the capacity reserve revenue for the company. So as we know, the renewable energy may have some cost in the capacity reserve subsidy, and the thermal power may have some revenue. So what is the net revenue for the company?
[Foreign Language]
[Foreign Language] According to the company's plan in the beginning of the year, the company, in total, have planned 8,314 megawatts of renewable energy capacity this year. Among those, 5,586 are wind units and 2,758 megawatts are solar units.
[Foreign Language]
So the company had total renewable energy reserve in the first half of the year of 6,880 megawatts.
[Foreign Language]
By the end of June, there are 3,920 megawatts of wind power that's under construction and 1,160 megawatts of solar power are under construction.
[Foreign Language]
So according to our communication with the provincial government in Jiangsu, there's no subsidy guidance of this offshore wind power.
[Foreign Language]
So the company will actively follow the result of the feed-in tariff of the offshore wind, and the company has communicated with provincial governments in Guangdong, Jiangsu, Guangxi and Fujian about the following construction of offshore wind. And the company will make our investment decision according to the subsidy trend in the future. And also the construction cost, the company will make the investment decision according to those factors.
[Foreign Language]
About auxiliary service for the company. In the first half of the year, the company has a net profit from auxiliary service of CNY 596 million, and the number has decreased compared to the same period last year. That is because the wind and the solar units have an expense increase, and there is a cap of the oxide service revenue in Northeast China [Foreign Language]
[Interpreted] I have a follow-up question about the company's investment hurdle rate of renewable energy. So is there any change on the company's guidance of this investment hurdle rate?
[Foreign Language]
The company will insist on high profitability when investing in the renewable energy, and the company's requirement for now is 2 percentage points plus the financial cost. So for now, the company's investment hurdle rate is about 6.5% to 7%. It has a little decrease comparing to the formal requirement.
[Interpreted] The next question is from [indiscernible] of [indiscernible].
[Foreign Language]
I have three questions. My first question is about the power consumption estimation. So what is the company's estimation of the utilization hour of thermal units? Will the company change the guidance from the beginning of the year?
And my second question is what is the company's unit fuel cost breakdown to coal units and gas-fired units?
And my third question is about the cost of construction for wind power. So you can see from the market that the cost of construction has decreased for some of the wind units. So is the company experiencing this decrease now? Or is there a time lag between the company's cost of construction comparing to the market price?
[Foreign Language]
About the unit fuel cost, the unit fuel cost for coal-fired unit was CNY 241.6 per megawatt hour in the first half of the year. And for the gas-fired unit, it was CNY 363.1 per megawatt hour.
[Foreign Language]
So for the number for the second quarter alone, the coal-fired units unit fuel cost was CNY 256.66 per megawatt hour, and the number was CNY 370 per megawatt hour for gas-fired units.
[Foreign Language]
So I'll answer the question about the power generation expectation. So the association have changed the power consumption expectation for several times. In the first half -- in the beginning of the year, the expectation was about 6% to 7% increase for the whole year. And they changed the expectation in the first quarter to 7% to 8% growth rate. And currently, they changed it again to 10% to 11%.
[Foreign Language]
The company has actively studied and judged the market trend. And according to the expectation from the society and the association, the company has changed the power generation guidance from the beginning of the year. And for now, the company's guidance for the power generation in the 2021 is 445 billion kilowatt-hour.
[Foreign Language]
The power generation growth rate will be at 10.6%. It would be in line with the whole country's power growth.
[Foreign Language]
About utilization hour, the total utilization hour for the company will be at 3,900 hours, increasing by 150 hours comparing to the same period last year. And about thermal utilization hour, it will be 450 hours, increasing by 200 hours comparing to the same period last year.
[Foreign Language]
About the cost of construction of renewable energy because we signed an interval agreement with our key suppliers, so we have a very -- we have not very sensitive impact from the market price. And for the unit of 3 megawatts, the cost of construction was about CNY 2,300 to CNY 2,040. And for the solar power, the cost was about CNY 1.8 per watt. And so, in general, our cost of construction for wind projects is CNY 6,000 to CNY 7,000 per kilowatt. And for the solar power, it was CNY 3,900 to CNY 4,100. And the cost will vary according to different situation in the specific project.
[Interpreted] The next question is from [indiscernible] of [indiscernible].
[Foreign Language]
I have 2 questions. The first question is about the renewable energy subsidies. So what is the company's renewable energy subsidy collectible for now?
And the second question is about the thermal power emission reduction method. So what's the company's cost of those methods using to reduce the emission of thermal power?
[Foreign Language]
So in the first half of year, the subsidy for the renewable energy increased CNY 3.093 billion, and the company have collected CNY 10.1 million subsidy in the first half of the year. There are still CNY 11.883 billion subsidy that remains to be collected in the future.
[Foreign Language]
About the company's cash flow situation, the company has operating cash inflow of CNY 19.1 billion. And outflow of operating cash flow was CNY 17 billion, so the company has net cash inflow in the first half of the year.
[Foreign Language]
So I'll answer the question about the decarbonization of the company. So from the technical point of view, the company firmly promotes the transformation to green energy. And the company increased the proportion of renewable energy.
[Foreign Language]
At the same time, the company made full use of our professional technological knowledge background and to promote transformation renovation for the existing coal-fired thermal units.
[Foreign Language]
The company is making effort to decrease the carbon emissions by the following method: First is to increase the prioritization and decrease the carbon -- decrease the power consumption.
[Foreign Language]
Second is to promote flexibility retrofit to the existing thermal units and respond to ensure the safety of the [ grade in the home].
[Foreign Language]
The third method is to promote the renovation of heat supply.
[Foreign Language]
The first method is to actively promote the biomass coupling with the thermal units.
[Foreign Language]
The company is making effort in those areas to increase the technological renovation and seek for the carbon intensity decrease for our thermal units.
[Foreign Language]
As we announced in the first quarter, in the 14th Five-Year Plan period, the company strive for a 5-gram decrease in our coal consumption for power production.
[Foreign Language]
About the 5-gram decrease [indiscernible].
[Foreign Language]
So about the 5-gram decrease, is that only for the coal-fired units? And during the 14th Five-Year, what will be the company's cost to achieve this goal?
[Foreign Language]
So the 5-gram decrease is for the coal-fired units. And during the 14th Five-Year plan, the company will maintain a stable invest in the renovation and technological upgrade. The capital expenditure for those areas will be at CNY 6.9 billion for each year.
[Interpreted] Due to time constraint, we invite the last investor to ask questions. The last question is from [indiscernible] of [indiscernible].
[Foreign Language]
I have 2 questions. My first question is about fixed assets. The company has total fixed assets of CNY 303.1 billion. For what -- for the coal-fired units account for what proportion of those fixed assets?
And my second question about the tariff of the market-based power sales. So the company's average tariff was CNY 418 per megawatt hour, and the market-based volume accounts for about 61%, and the average market-based volume tariff for the coal-fired units was CNY 371.92 per megawatt hour. So what was the market-based volume tariff for the wind power?
[Foreign Language]
The company don't have the number for the assets -- fixed assets breakdown to the coal units. We can follow up this question after the meeting.
[Foreign Language]
So the average tariff of market-based volume for the company was [ CNY 377.19 ] per megawatt hour in the first half of the year.
[Foreign Language]
So for the first half of the year, the market-based volume for the wind power was CNY 2.003 billion kilowatt hour, and it accounts for 19.65% of the total wind power.
[Foreign Language]
[Foreign Language]
[Interpreted] Thank you so much for all of the questions and participation today. Finally, Mr. Zhao would like to give us a summary.
[Foreign Language]
Thank you for participating in this conference call. Thank you for your continued support. Here, we come to the end of today's conference call. Please contact our IR department if you have any further questions. Thank you.
[Interpreted] Thanks again for your attendance of the conference call regarding the interim results announcement of 2021. We are looking forward to meeting all of you in our next results announcement. Thank you.
[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]