Emerging markets: China’s Longyuan eyes eastern Europe


April 18, 2016

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It is all very well looking at emerging wind markets in Africa, the Middle East and South America, but we should not forget those in Europe. Investors are targeting them too.

Last week, it emerged that Chinese state-owned developer China Longyuan Power has joined forces with the Czech engineering group SWH to invest $600m in green energy projects, mainly wind farms, in central and eastern Europe.

The firms plan to buy, finance, develop and operate assets; and have said only that they are looking to invest in projects in several countries. But which countries? Clearly, we have not been party to these negotiations, but we still have a view on which markets in central and eastern Europe should be on their hitlist.

The Czech Republic and Germany are both obvious ones. No prizes for guessing those. SWH is a Czech company, and capacity in the wind market in the Czech Republic stands at 282MW. That would suggest that it has good prospects for growth.

However, no capacity was installed last year as the government focused its energy policy on the nuclear sector; and investors will worry about retrospective cuts to solar subsidies. One to miss.

SWH also has a strong presence in Germany, where 6GW of new wind capacity was built last year to take total capacity in the market to 45GW. The German government is reigning in growth in the wind sector but, with a market that size, there will always be investment opportunities. The chance to see the German market in action up close would also give Longyuan vital market intelligence that it can take back to China. It is an obvious target.

Poland would be a similarly obvious target, but for the fact that the government is looking to bring in laws that would destroy the wind industry. It is not a good time to enter Poland, but where is?

Well, let’s look at Longyuan’s previous investments outside China.

So far, it has built a 100MW wind farm in Canada, and is building a 245MW project in South Africa that is due to complete in 2017. This shows that the company is happy to look at emerging and established markets, but that it does not want to go anywhere completely new to start the market. Canada and South Africa both had established processes in place.

This leaves three other markets where the joint venture should be focusing. And, incidentally, so should GE, which also said last week that it was exploring opportunities in eastern Europe.

One is Austria, where 323MW was installed in 2015 to take total capacity to 2.4GW. This market has been attracting the interest of major investors including Allianz Capital Partners, which entered in summer 2015. The country is strongly anti-nuclear and 75% of its energy is generated by renewable sources. It also neighbours the Czech Republic and Germany, so is close so SWH’s core markets.

Another is Lithuania. Yes, it is a small wind market with only 424MW total capacity at the end of last year, but it grew by 145MW in 2015; and the Lithuanian government is looking at plans to install 750MW of onshore wind in the period to 2020. It would also give the joint venture a way into Lithuania’s fellow Baltic state Estonia, which has 303MW total installed capacity and is pushing ahead with new plans, including in offshore wind.

And our final pick is Romania, though it is something of a wild card. The market has installed capacity of 3GW, but it has been slowing over the last two years and just 23MW was completed last year. Its government has been moving away from its previous ambitious renewables pledges. It is a risky choice but, with parliamentary elections due in November, things could change quickly.

We may find out that Longyuan and SWH have other ideas. But, if we were them, that is where we would start.

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