Utility/Alternative Energy-China IPPs:mid-year tariff hike is a positive surprise

The NDRC has just issued a notice requesting provincial governments tosubmit thermal on-grid tariff hike proposals after removing/lowering severalend-user tariff surcharges starting on 1 July. In essence, the on-grid tariff hikewill come from structural rebalancing along the tariff chain without impactingend-user tariffs. Based on IPPs’ 2016 geographical capacity mix, we calculatethat, if the above surcharge removal is fully used to raise on-grid tariffs, theaverage tariff hike for the five HK-listed thermal IPPs will be in the 2.9-4.7%range. In our view, the tariff hike effective from mid-year is a positive surpriseas the market has been largely expecting a tariff hike only at year-end.