Event: on December 31, 2021, State Grid Corporation of China issued the announcement on the allocation of additional subsidy funds for renewable energy electricity price in 2021.
In 2021, the Ministry of Finance issued a subsidy budget of 4.483 billion yuan for biomass power generation of the State Grid, a decrease of 7.81% compared with the subsidy budget of biomass of the State Grid in 2020. According to the disclosure of the budget department of the Ministry of finance, the total budget of additional subsidies for national renewable energy electricity price in 2020 is 92.355 billion yuan. According to the expected distribution plan, a total of 77.057 billion yuan will be allocated to the State Grid in 2020, including 31.331 billion yuan for wind power generation, Cecep Solar Energy Co.Ltd(000591) 40.864 billion yuan for power generation and 4.862 billion yuan for biomass power generation. In 2021, the total budget of additional subsidies for national renewable energy electricity price was 89.067 billion yuan, a decrease of 3.56% at the same time. On December 31, 2021, the State Grid announced that in 2021, the Ministry of Finance issued a total annual budget of 76.101 billion yuan for the company’s renewable energy electricity price additional subsidy funds, accounting for 85.44% of the total budget of the year, including 26.346 billion yuan for wind power generation, Cecep Solar Energy Co.Ltd(000591) 45.272 billion yuan for power generation and 4.483 billion yuan for biomass power generation, which decreased by 15.91% respectively compared with the expected subsidy budget allocation of the State Grid in 2020 Increased by 10.79% and decreased by 7.81%, and the amount of subsidy for photovoltaic power generation was expanded.
The central and local governments share in bidding to reduce the pressure of national subsidies, and the subsidy gap of stock projects is expected to be improved. According to the report on inspecting the implementation of the renewable energy law, by the end of 2018, the cumulative subsidy gap for renewable energy power generation projects had reached 233.1 billion yuan, and the cumulative subsidy gap was further expanded from 2018 to 2021. We calculated the theoretical demand for subsidies for waste incineration power generation. According to the statistical yearbook of urban and Rural Construction issued by the Ministry of housing and urban rural development, the actual waste incineration treatment capacity of cities and counties in 2020 was 163 million tons. Calculated according to 280 kwh / ton of on grid power, the annual on grid power was 45.703 billion kwh, The theoretical demand for subsidies in 2020 is 6.855 billion yuan (if the central and local governments share the subsidies for grid connected projects on and after September 11, 2020, the actual demand for subsidies will be less than 6.855 billion yuan), which is higher than the budget amount of biomass power generation subsidies in 2020, and the subsidy gap for waste incineration power generation continues to accumulate. The implementation of the new national subsidy policy requires that the subsidies for new projects connected to the grid after January 20, 2020 shall be collected and paid, and the subsidies for new projects shall not be in arrears. The new projects to be built on January 1, 2021 and later shall take the priority of bidding for Internet access and low price. Bidding for Internet access & the central and local governments share the burden of state subsidies, and the subsidy distribution of stock projects is expected to accelerate.
The policy supports waste incineration enterprises to explore diversified financing channels based on national subsidy funds and revitalize national subsidy accounts receivable. The State encourages the enterprises of renewable energy projects that have been included in the subsidy list to apply for subsidy right confirmation loans or carry out asset securitization projects for financing the uncollected financial subsidy funds that have been confirmed. In April 2021, Everbright green environmental protection successfully issued the first asset-backed note (ABN) based on the accounts receivable of national renewable energy electricity price additional subsidy funds, with an issuance scale of RMB 589 million. In December 2021, Everbright environmental protection China issued 672 million yuan of carbon neutral ABN based on the accounts receivable of national subsidy for urban biomass power generation projects.
The C-end of the business model of national subsidy and return slope promotion rationalizes and improves cash flow, and the per capita waste treatment fee at the C-end is 31 yuan / year. The implementation of competitive internet access will promote the increase of waste treatment fee, which is expected to be implemented to residents. We estimate that the actual impact of the decline in the price subsidy for waste incineration is limited, and the impact on the net interest rate of the waste incineration project is within 8pct. If the reduction in the national subsidy can be adjusted to the increase in the front-end treatment fee, and the treatment fee can be adjusted to the C-end at a favorable price, the per capita waste treatment fee will cost 31 yuan / year (compared with + 12 yuan / year before the decline), accounting for 0.07% of the disposable income of the people, and the difficulty of adjusting the price is small, It is expected to be implemented to residents. According to the policy requirements, combined with waste classification, promote the classified measurement and charging of residents, transfer the urban waste treatment fee to the tax department for collection, improve the collection rate, and strengthen the logic of favorable price.
The carbon reduction of waste incineration project is significant, and the profit increment of CCER is expected to offset the national subsidy. The carbon reduction effect of waste incineration is significant. CCER contributes 12% profit elasticity, which is expected to hedge the national subsidy, improve cash flow, reasonably subsidize environmental benefits through market-oriented carbon emission trading, and reduce dependence on subsidies.
Investment suggestions: biomass power generation subsidies will be distributed in an orderly manner, bidding for Internet access and central and local sharing will reduce the pressure of national subsidies, and the stock subsidy gap is expected to improve. Pay attention to the subject matter that the relatively high risk return and high operation efficiency of the project can offset the impact of national compensation and retreat slope. Key recommendations: Everbright environment, Grandblue Environment Co.Ltd(600323) ; It is suggested to pay attention to: Zhejiang Weiming Environment Protection Co.Ltd(603568) , Dynagreen Environmental Protection Group Co.Ltd(601330) , Chongqing Sanfeng Environment Group Corp.Ltd(601827) .
Risk warning: the subsidy distribution and policy promotion are less than expected, and the project progress is less than expected
