#1FROST & SULLIVAN Market Engineering Independent Market Study on Global and China's Power Operation Market Presented to SDIC 国投电力 October 28 2019 Confidential © 2019 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise resold without the written approval of Frost & Sullivan.#2Terms and Abbreviations • Terms: Compound Annual Growth Rate (CAGR): The term for interest rate at which a given Present Value (PV) would "grow" to a given Future Value (FV) in a given amount of time. The formula for calculating CAGR is: (FV/PV)^(1/number of years) • Installed Capacity: The intended full-load sustained output of power plant, usually denominated in MW or GW Abbreviations: CAAM CEC China Association of Automobile Manufacturers MEIH China Electricity Council Malaysia Energy Information Hub MW Megawatt, 10^6 W EGAT ΕΙΑ Electricity Generation Authority of Thailand U.S. Energy Information Administration MWh NBS EMA Energy Market Authority of Singapore NDRC EVN Electricity of Vietnam NEA FiT Feed-in Tariff NPC GW Gigawatt, 10^9 W MEIH GWh Gigawatt-hour, 10^9 Wh NRA National Railway Administration IPP Independent Power Producer OPEC Megawatt-hour, 10^6 Wh National Bureau of Statistics of China National Development and Reform Commission of China National Energy Administration of China National People's Congress of the People's Republic of China Malaysia Energy Information Hub Organisation of the Petroleum Exporting Countries KW Kilowatt, 10^3 W SEA Southeast Asia kWh Kilowatt-hour, 10^3 Wh TW Terawatt, 10^12 W LCOE Levelised Cost of Energy TWh FROST & Terawatt-hour, 10^12 Wh SULLIVAN 2#3Research Scope Research Period Independent Market Study on Global and China's Power Operation Market Base year: 2018 Historical: 2013 to 2017 Forecasting: 2019E to 2023E Service Market Scope Global Power Market China's Power Operation Market Global Geographical Scope Selected Regions: U.S., UK, Other European Countries, China and Southeast Asia China FROST & SULLIVAN 3#4Assumptions and Methodology Assumptions: The forecasts were made by Frost & Sullivan based on the following assumptions: •The social, economic and political conditions in global and China currently discussed will remain stable during the forecast period; •Government policies on power industries in China and major overseas countries discussed will remain consistent during the forecast period; •The global and Chinese power market will be driven by the factors which are stated in this report. Methodology: In preparing the report, Frost & Sullivan has relied on the statistics and information obtained through primary and secondary research. •Primary research includes interviewing industry insiders, competitors, downstream customers and recognised third-party industry associations. •Secondary research includes reviewing corporate annual reports, databases of relevant official authorities, independent research reports and publications, as well as the exclusive database established by Frost & Sullivan over the past decades. FROST & SULLIVAN 4#51. Analysis of Macro Economy in China 2. Analysis of Global Power Market 3. Analysis of China's Power Operation Market 4. Competitive Landscape of China's Power Operation Market FROST & SULLIVAN 5#6Analysis of Macro Economy in China Nominal GDP and Per Capita GDP Nominal GDP and Real GDP Growth, China, 2013-2023E CAGR:8.2% CAGR:8.3% RMB Trillion 160 15 140 131.7 122.0 120 113.0 104.4 12 96.1 100 88.6 81.2 80 59.7 64.7 69.9 74.6 9 60 5.8 5.6 420 7.8 40 7.3 6.9 6.7 6.9 6.6 6.2 6.2 20 6.0 0 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022 2023E Real GDP Growth Nominal GDP Nominal GDP per Capita, China, 2013-2023E RMB Thousand 120 CAGR:+7.9% 100 CAGR:+7.6% 85.9 79.9 80 74.1 68.5 63.4 60 43.9 47.3 50.9 53.9 58.4 40 20 0 92.7 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022 2023E CO 6 3 Highlights China's nominal GDP increased from RMB 59.7 trillion in 2013 to RMB 88.6 trillion in 2018, experiencing a CAGR of 8.2%, and is expected to increase further to RMB 131.7 trillion in 2023, representing a CAGR of 8.3% from 2018 to 2023. ➤ China's nominal GDP per capita increased from RMB 43.9 thousand in 2013 to RMB 63.4 thousand in 2018, representing a CAGR of 7.6%, and is expected to increase to RMB 92.7 thousand in 2023, with a CAGR of 7.9%. China's macro economy, indicated by real GDP growth rate, is undergoing a soft landing from 2019 to 2023. The ongoing structural adjustment of the economy in China is expected to improve the quality and efficiency of economic development. The future GDP growth is expected to be driven mainly by expanding domestic consumption, stable infrastructure investment and development of innovative industries. The rising nominal GDP per capita will contribute to the increase in electricity consumption per capita, which will stimulate the development of China's electricity market. Source: IMF, Frost & Sullivan FROST & SULLIVAN 6#7Analysis of Macro Economy in China Population and Urbanisation Rate Urbanisation Rate and Population*, China, 2013-2023E Million % 1,500 1,374.7 1,395.4 1,414.7 1,420.9 90 1,360.7 1,367.9 1,382.7 1,390.1 1,403.4 1,409.3 1,419.5 1,200 900 T 80 629.6 618.7 603.5 589.7 576.6 564.0 552.1 539.3 526.2 512.9 498.4 70 64.9 63.9 62.8 60.7 61.7 59.6 58.5 600 57.3 56.1 54.8 53.7 300 731.1 749.2 771.2 793.0 813.5 831.4 851.3 870.0 888.5 906.6 922.5 00 60 50 50 40 30 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Urbanization Rate Rural Population Urban Population *Urbanisation rate refers to the percentage of urban resident population (E) over total population FROST Highlights ➤ Total population of China increased from 1,360.7 million in 2013 to 1,395.4 million in 2018, representing a CAGR of 0.5%, and is expected to increase further to 1,420.9 million in 2023, representing a CAGR of 0.3% from 2018 to 2023. The high child-care and education cost and the decrease in number of women of child-bearing age lead to a lower population growth in the next five years. ➤ As urbanisation is one of the strategic focus of the government, China is in the stage of rapid development of urbanisation. In 2018, the urbanisation rate hit 59.6% and is expected to reach 64.9% by 2023. Chinese government targets to increase the urbanisation rate further to 70% by 2030. Further urbanisation process will push up electricity consumption per capita and moderate population growth will enlarge the electricity user base., which will stimulate the growth in power demand. SULLIVAN Source: IMF, NBS, Frost & Sullivan 7#8Analysis of Macro Economy in China Analysis of Exchange Rate and Inflation Rate (1/2) Currency Exchange Rate (Yearly Averages), US Dollar/RMB, EUR/RMB, GBP/RMB, 2013-2018 10.5 10.13 10.0 9.69. 9.5 9.0 9.53 9.01 8.84 8.71 8.5 8.22 8.16 7.82 8.0 7.64 7.36 7.5- 6.91 7.0 6.76 6.64 6.61 6.5 6.19 6.23 6.14 0.0 F 2013 2014 2015 2016 2017 2018 USD/RMB EUR/RMB GBP/RMB Highlights ➤ From 2013 to 2018, RMB experienced continuous depreciation against US Dollar, before it appreciated slightly in 2018. Overall, RMB per US Dollar increased from 6.19 in 2013 to 6.61 in 2018. In 2015, RMB appreciated sharply against Euro from 8.16 to 6.91. From 2015 to 2018, the EUR to RMB exchange rate maintained upward trend. The depreciation of GBP decreased the RMB per GBP from 9.69 in 2013 to 8.84 in 2018, suggesting a depreciation trend of GBP against RMB. ➤ There are increasing worries on the stabilities and future growth of global economy, especially considering the rising tensions between China and the United States relating to the trade disputes since Apr 2018, and RMB also started to depreciate after the trade war broke out, even though RMB appreciated slightly throughout the whole year of 2018. Going onwards, considering the relatively optimistic progressive negotiations carried on by the two countries so far (the just completion of 9th China-US trade consultation in Apr 2019) and the signaling indications of U.S. economy's slowing down, it is quite unlikely that RMB will depreciate significantly against US Dollar in future, assuming the bilateral negotiation goes well. Source: IMF, Frost & Sullivan FROST & SULLIVAN 8#9Analysis of Macro Economy in China Analysis of Exchange Rate and Inflation Rate (2/2) ➤ Historical inflation rate in China fluctuated and exhibited a general decline trend during 2013 to 2017, which was mainly due to the slow recovery of global economies from a series of financial turbulences e.g. global financial crisis in 2008 and European debt crisis in 2012, low commodities prices (e.g. crude oil and steel), unstable global financial market and gloomy international trade sentiments. Meanwhile, China is also facing an economic transformation from investment driven to consumption driven, the slowdown of economy growth is observed which also affected domestic inflation rate. China is maintaining an independent monetary policy with certain compromises given to the freedom of capital flows and foreign exchange rate. People's bank of China is setting the monetary policy with multiple targets considerations such as the maintenance of price stabilities, promoting employment and economic growth, and achievement of balance of payment, etc.. For the consecutive 5 years since 2015, the government has set the target of CPI annual increase to be around 3% in the government working reports. ➤ Going onwards, considering that the central bank of China is to adopt a moderate monetary policy to stimulate the economic growth and to further open domestic market to foreign capitals, the inflation rate is expected to slightly grow to 3%. Percentage Change of Average Consumer Prices, China, 2013-2023E % 3.0 2.6 2.5 2.0 2.0 1.5 1.0 T T 2.7 27 2.4 2.2 Percentage Change of Average Consumer Price 1.4 2.0 1.6 3.0 2.9 2.8 0.0 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Source: IMF, Frost & Sullivan 0.5 T FROST & SULLIVAN 9#10Analysis of Macro Economy in China Fixed Asset Investment RMB Trillion Fixed Asset Investment*, China, 2013-2023E Highlights 100 90 90 80 60 70 70 CAGR: 6.0% 80.2 75.7 CAGR: 7.8% 71.4 67.4 63.2 63.6 59.7 55.2 50.1 50 43.6 60 50 40 40 30 30 20 20 10 0 85.1 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022 2023E Driven by the upgrade of the industrial sectors, intelligent manufacturing and the vigorous development of the services industry, China's fixed asset investment increased from RMB 43.6 trillion in 2013 to RMB 63.6 trillion in 2018, representing a CAGR of 7.8%. It is expected to increase further to RMB 85.1 trillion in 2023, with a CAGR of 6.0% from 2018 to 2023. The increase in fixed asset investment has also boosted China's power consumption. ➤ Fixed asset investment has a long-term stable correlation with economic growth. The cooling down of China's growth rate in fixed asset investment further reflects a combination of earlier efforts to deleverage the economy, tighten environmental controls and reduce excessive capacity in heavy- asset industry. ➤ According to the NDRC, 189 fixed asset investment projects have been approved in 2018, covering power industry, transportation system, high-tech industry and etc.. The fixed asset investment will potentially resume a growth momentum in 2019 and is anticipated to continue growing driven by steady growth of real estate investment and investment in infrastructures. * Fixed asset investment includes investments in physical assets such as machinery, land, buildings, installations, vehicles, etc. FROST & SULLIVAN Source: NBS, Frost & Sullivan 10#11Analysis of Macro Economy in China Fixed Asset Investment in Power Sector The total fixed asset investment (FAI) in power sector increased from RMB 772.8 billion in 2013 to RMB 809.4 billion in 2018 with a CAGR of 0.9% and is expected to reach RMB 917.5 billion in 2023 at a CAGR of 2.5% during the period from 2018 to 2023. The focus of fixed asset investment in power sector has shifted from the development of power generation to the construction of power grid. Influenced by the decrease in power generation projects of thermal power and nuclear, the fixed asset investment for power generation encountered significant decrease in recent years. There was significant growth of fixed asset investment in hydropower and wind power based on the related data of the first 5 months of 2019. According to the statistics from the CEC, compared to the same period last year, the fixed asset investments in the hydropower and wind power sectors during the period from January to May 2019 increased by 33.8% and 55.0%, respectively. Given that the decrease of FAI in thermal power is deep and slowing down, the total FAI in power generation is forecasted to gain slow recovery in the coming years. The State Grid has committed to invest RMB 512.6 billion in the construction of power grid in 2019, which is around 5% higher than that in 2018. The construction of Ultra-high-voltage (UHV) transmission network is still the core of power grid development in China. In accordance with the plan, the government is facilitating the development of 12 UHV lines including the UHV lines under construction in the Southwestern China, as well as in the middle reaches of Yalong River-Jiangxi, which will improve the capability of transmitting power generated in the Southwestern China to other regions. The capacity of transmitting power to other regions for power plants in southwest China has been greatly enhanced after the completion of several UHV circuits, such as Fujin-Fengxian (-), Jinpin-Sunan (-) and Yibin-Jinhua (-). There are several UHV circuits under construction in the southwest China, such as Baihetan-Jiangsu (I), and the capability of transmitting power generated in the southwest China to other regions keeps increasing. With the continuous development of power transmission networks and power distribution networks, the fixed investment for power grid has been growing steadily and will keep growing in the future. Fixed Asset Investment in Power Sector, China, 2013-2023E RMB Billion 1,200 CAGR: 2.5% CAGR CAGR 13-18 18-23E CAGR: 0.9% 884.0 900 857.6 846.2 867.5 886.6 903.3 917.5 823.9 809.4 772.8 780.5 340.8 278.1 283.4 288.0 291.8 294.7 -6.8% 1.6% 393.6 290.0 272.1 600 387.2 368.6 300 543.1 533.9 537.3 568.1 584.0 598.6 611.5 622.8 6.9% 3.0% 385.6 411.9 464.0 0 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Power Sources Source: CEC, Frost & Sullivan Power Grid FROST SULLIVAN 11#121. Analysis of Macro Economy in China 2. Analysis of Global Power Market 3. Analysis of China's Power Operation Market 4. Competitive Landscape of China's Power Operation Market FROST & SULLIVAN 12#13. Analysis of Global Power Market Power Consumption In the last 3 years, the power consumption of all these selected regions experienced growing trends, except for the UK, of which the power consumption decreased by 0.7% from 304.0 TWh in 2016 to 299.6 TWh in 2018. China is the largest power consumer among all countries in the world and the power consumption increased rapidly from 5,971.0 TWh in 2016 to 6,844.9 TWh in 2018, with a CAGR of 7.1%. The power consumption in SEA increased at a CAGR of 4.7% from 2016 to 2018. In the following 5 years, the power consumption in China and SEA is predicted to keep the current growth trends due to the fast economic growth in these two regions and reach 8,912.1 TWh and 1,185.6 TWh in 2023 respectively. In rest of the regions, the power consumption will maintain at a relatively stable level. Power Consumption, U.S., UK, Other European Countries, China and SEA, 2016-2023E TWh 10,000 8,912.1 CAGR CAGR (16-18) (18-23E) 9,000 8,455.5 8,022.3 8,000 7,611.3 7,221.4 China 7.1% 5.4% 6,844.9 7,000 6,309.4 5,971.0 6,000 U.S. 0.5% 0.1% 5,000 3,902.3 3,864.5 3,942.0 3,887.3 3,916.5 3,934.3 3,931.9 3,947.0 Other 4,000 European 0.9% 1.0% Countries* 3,000 3,052.0 3,070.3 3,106.9 3,140.1 3,170.0 3,203.9 3,236.8 2,000 845.9 881.4 927.0 975.4 1,022.8 1,074.8 1,129.1 3,269.6 1,185.6 SEA 4.7% 5.0% 1,000 UK -0.7% 0.2% 304.0 299.6 299.6' 300.8▪ 300.9 0 2016 U.S. 2017 -UK 2018 2019E 2020E 2021E 302.0-302.8 303.4 2022E 2023E Other European Countries -China ➡SEA *Other European Countries not including Russia, Ukraine, Moldova, Belarus, Lithuania, Latvia, and Estonia FROST Source: EIA, EGAT, MEIH, EMA, Frost & Sullivan SULLIVAN 13#14Analysis of Global Power Market Power Installed Capacity in Major Regions • Corresponding to the fast-growing power consumption in China and SEA, the cumulative power installed capacity also presented a solid growth, increasing from 1,650.5 GW in 2016 to 1,899.7 GW in 2018, and increasing from 227.3 GW in 2016 to 256.9 GW in 2018 respectively. The cumulative power installed capacity in the UK increased 4.2% in the last 3 year. This growth was mainly driven by the new installed capacity of renewables, especially the wind power, of which proportion in the total power installed capacity increased from around 16% in 2016 to around 20% in 2018. For the rest of the regions, the cumulative power installed capacity kept a stable level and increased slightly in the last 3 years. In order to reduce the greenhouse emission, the EU issued the renewables energy target in 2020 and 2030. Currently, around half of the EU members have already achieved the target. However, there are still part of countries, such as Netherlands, France, and Ireland, far below the their targets. As a result, these countries may consider strengthening their policies of encouraging the development of renewables energy. Cumulative Power Installed Capacity, U.S., UK, other European Countries, China and SEA, 2016-2023E GW 2,750 2,454.4 2,500 2,339.0 CAGR CAGR (16-18) (18-23E) 2,225.5 2,250 2,113.9 2,004.2 1,899.7 2,000 China 7.3% 5.3% 1,784.2 1,650.5 1,750 1,500 U.S. 0.6% 1,177.2 1,186.9 1,191.8 1,200.1 1,207.8 1,214.8 1,222.6 1,230.2 0.6% 1,250 Other 1,000 1,035.2 1,046.9 1,058.9 1,069.8 1,081.3 1,092.7 1,103.9 1,115.3 European 1.2% 1.4% 750 Countries* 500 227.3 240.6 256.9 275.1 295.3 316.6 339.5 364.1 SEA 6.3% 7.2% K 250 <-99.8 106.0 108.4 -110.9▪ 112.7 115.0 117.2 119.4 UK 4.2% 2.0% 0 2016 2017 U.S. 2018 2019E 2020E 2021E 2022E 2023E -UK Other European Countries China W SEA *Other European Countries not including Russia, Ukraine, Moldova, Belarus, Lithuania, Latvia, and Estonia FROST Source: EIA, EGAT, MEIH, EMA, EVN, Frost & Sullivan SULLIVAN 14#15Analysis of Global Power Market Power Installed Capacity in the World • • The global cumulative power installed capacity increased from 6.6 TW in 2016 to 7.0 TW in 2018, with a CAGR of 2.9%, mainly due to the development of emerging countries. In the next 5 years, the cumulative power installed capacity is forecasted to keep growing and increase to 7.7 TW in 2023, with a CAGR of 2.0%. Among all energy sources, thermal power took the largest market share in 2018, and is expected to remain as the largest energy source by 2023. However, due to the non-renewability of thermal resources and environmental implications, there is expectation of a slowdown in the build-up of thermal installed capacities from 2018 to 2023. Regarding the clean energy source, the cumulative power installed capacity of wind power and solar power increased the fastest in the last 3 years, which increased from 487.7GW and 291.1GW in 2016, to 587.2 GW and 444.3 GW in 2018 respectively. This growth was mainly driven by the supporting policies of the major markets in the world. In the future, The lower cost of wind and solar power, more sophisticated grid technology and management, and increasingly affordable storage are expected to make the cumulative power installed capacity of this two types of power generation keep the growing trend. The installed capacity of hydropower increased at 2.1% annually from 2016 to 2018 and will reach 1.2 TW in 2023, with a CAGR of 1.6%. It is forecasted that by 2023, around 95% of the newly invested global power generation capacity will be in renewables, and that around 30% of the total power generated will be from renewable sources. Cumulative Power Installed Capacity (by Fuel Type), Global, 2016-2023E TW 10 CAGR (16-18) CAGR (18-23E) CAGR: 2.0% Total 2.9% 2.0% CAGR: 2.9% 8 7.4 7.5 7.6 7.7 Hydropower 2.1% 1.6% 6.9 7.0 7.2 7 6.6 1.2 1.2 1.2 1.2 Thermal 1.1 1.2 1.2 1.3% 0.1% 6 1.1 Power LO 5 Nuclear -1.1% 0.6% 4 4.1 4.2 4.2 4.2 4.2 4.2 4.2 Power 4.0 Wind Power 9.7% 7.8% 3 2 0.4 0.3 0.3 0.3 0.4 0.4 -0.4 +0.4 Solar Power 23.5% 11.3% 0.3 0.4 - 0.5 0.5 0.6 0.4 0.6/0.5 0.7 0.6 0.8 0.6 0.8 /0.7 0.9 0.8 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Other Clean Energy Sources* -0.1% -0.5% Hydropower Thermal Power Nuclear Wind Solar *Other clean energy sources include biomass and waste, tide and wave, and geothermal, etc. FROST Other Clean Energy Sources SULLIVAN Source: EIA, Frost & Sullivan 15#16Analysis of Global Power Market Power Consumption per Capita Power Consumption per Capita, OECD, U.S., UK, other European Countries, China and SEA, 2018 kWh 0 U.S. OECD* China Other European Countries** UK SEA 2,000 4,000 6,000 8,000 10,000 12,000 14,000 8,014 4,900 4,587 4,558 1,422 12,014 Power Consumption per Capita, OECD, U.S., UK, other European Countries, China and SEA, 2016 kWh 0 U.S. OECD* 2,000 4,000 6,000 8,000 10,000 12,000 14,000 7,957 China 3,926 4,436 4,943 Other European Countries** UK SEA 1,166 12,222 • • • Highlights The power consumption per capita in the U.S. was the highest among the 5 regions, reaching 12,014 kWh in 2018, followed by the OECD, China, other European counties, and the UK, whose power consumption per capita was 4,900 kWh, 4,587 kWh, and 4,558 kWh respectively in 2018. Based on the data of the U.S. and OECD, China's power consumption per capita is still much lower than major developed countries, indicating a growth potential for power consumption in China. The SEA had the lowest power consumption per capita, 1,422 kWh, among the presented regions and countries. The level of electrification in SEA needs to be improved and the power market in SEA is of huge potential. The differences in power consumption per capita in different regions are mainly contributed to three factors: the economic development level, the industrial structure, and the residents' living habits. In U.S., the residential sector takes a large proportion of the total power consumption. While in China, the secondary industry consumes the most of power, which takes more than 60% in the total power consumption. Comparing the power consumptions per capita of the selected regions in 2016 and 2018, it can be found that the power consumptions per capita in the US and the UK showed a decreasing trend, which indicates that the power consumptions per capita in those developed countries have saturated. However, with the further economic growth of developing countries, such as China and the SEA, the power consumption in these regions keeps increasing. *OECD, Organisation for Economic Co-operation and Development, an intergovernmental economic organisation with 36 member countries. The majority of member countries are developed countries.. **Other European Countries not including Russia, Ukraine, Moldova, Belarus, Lithuania, Latvia, and Estonia FROST SULLIVAN Source: Frost & Sullivan 16#17Analysis of Global Power Market Market Drivers Drivers of Power Industry, Global Main Drivers Influence (1-2 years) Influence (3-5 years) 1 Continuous and Steady Growth of the Economy High High 2 Increasing Electrification and Improvement of Power Grid High Medium 3 Continuous Improvement of Power Generation Technology Medium High 4 Rapid Growth of NEV Market Medium Medium 5 Improvement of Energy Storage System Medium Low Drivers Description DRIVERS RDIXEDS Continuous and Steady Growth of the Economy Increasing Electrification and Improvement of Power Grid Continuous Improvement of Electricity Generation Technology With the sustained and steady growth of the global economy, the demand for electricity in industrial sector is continuously rising. Meanwhile, the improvement of people's living standards also gradually increases the per capita power consumption. Additionally, the investment in internet data centres, which bring substantial demand for power consumption, amounted to approximately US Dollar 27 billion in 2018, and is expected to achieve US Dollar 39 billion in investments by 2023. The sustained and healthy economic development of major countries and regions has laid a solid foundation for the development of global power market. ➤ The electrification level in many countries of Africa and emerging Asia, such as Liberia, Uganda and South Sudan, is still relatively low, compared to those developed countries. There are still over 800 million people globally without access to electricity. With growth of electricity consumption in these regions, the demand for power generation is increasing. In addition, to stimulate the economic growth and development of industrial sector, the government in these regions are investing heavily in the power generation, transmission and distribution infrastructure. Growth momentum in these regions will drive the global power market. There are different approaches to improve electricity generation efficiency through technology innovation. For example, by wind electricity industry, the system efficiency could be improved through wind turbine blade design optimisation and in thermal electricity station, the application of CHP (cogeneration, combined heat and power) can also effectively increase the electricity generation efficiency. These technological innovations improve the efficiency of electricity generation, reduce the cost of electricity generation, increase return on investment of power plant, and will further stimulate the development of electricity market. FROST & SULLIVAN Source: Frost & Sullivan 17#18Analysis of Global Power Market Market Drivers Drivers of Power Industry, Global Main Drivers Influence (1-2 years) Influence (3-5 years) 1 Continuous and Steady Growth of the Economy High High 2 Increasing Electrification and Improvement of Power Grid High Medium 3 Continuous Improvement of Power Generation Technology Medium High 4 Rapid Growth of NEV Market Medium Medium 5 Improvement of Energy Storage System Medium Low Drivers Description Rapid Growth of NEV Market Improvement of Energy Storage System DRIVERS RDIXEDS With the cost reduction of battery system and constant improvement of electrical power system, the global NEV market has witnessed a rapid growth in the past few years. The global sales volume of NEVs was more than 2.3 million units in 2018 and is expected to reach 7.3 million unit in 2023. The growth of NEV sales will bring new electricity consumption through battery charging. At the same time, the charging infrastructure will intensively expand and power transmission and distribution system will be updated to meet the emerging charging demand from electric vehicles. The energy storage system can take on the tasks of peak clipping and valley filling and reduce the gap between peak and base load demand. The improvement of energy storage system will effectively reduce the abandon of wind energy and solar energy, due to the inadequate power grid dispatching capability. In addition, the energy storage system can real-time monitor the power output of renewable energy system and smooth the impact to power system by grid connection. In this context, the improvement of energy storage system will stimulate the growth of renewable energy power system, especially wind power and solar power. * NEV (New Energy Vehicles) includes electric vehicles and plug-in hybrid electric vehicles. FROST Source: Frost & Sullivan SULLIVAN 18#19Analysis of Global Power Market Development Trends 1 Adjustment of Power Generation Mix • Nuclear Phase- 2 out 3 4 Improvement of Power Generation Efficiency Enhanced Competitiveness of Renewable Energy • • With the increasing attention paid by the government and the public to environmental issues, major countries and regions are actively promoting the adjustment of power generation mix, increasing the proportion of clean energy such as hydropower, wind power, solar power and nuclear power in total power generation. In the US, due to the low gas price, its power generation mix is undergoing the switch from coal to gas. The European Commission has set an ambitious goal with the target that at least 20% in 2020 and 32% in 2030 of gross final consumption of energy comes from renewable sources. In 2017 renewable energy represented 17.5% of gross final consumption of energy in the EU, on a path to the 2020 target of 20%. With the structural adjustment of energy supply, major countries and regions will reduce the dependence on fossil fuel consumption, as well as the emission of carbon dioxide and harmful gases, which is more conducive to sustainable development of economy. In countries such as Germany and Switzerland, there exits a gradual phase-out of nuclear plants, mainly due to the economic challenges, diminishing costs of other alternative renewable energy sources, rising operating costs and safety concerns. For example, the electricity generation from nuclear source in Germany has decreased from approximately 150 TWh in 2008 to 76.1 TWh in 2018 with a CAGR of -6.5%. With the improvement of the environmental awareness of government and public, as well as investors' increasing demand for return on power plant investment projects, the overall efficiency of power generation system will continue to improve. In terms of thermal power generation, the system efficiency can be improved from about 35% to over 50% through the adoption of CHP (Combined Heat and Power) technology, which will lead to less coal consumption and carbon dioxide emission. With regard to wind power, solar power and hydropower, the improvement of electricity generation system efficiency means that under the same environmental conditions, more electricity will be generated and the return of investments will in turn increase. At present, the LCOE (Levelised Cost of Energy) of wind and solar electricity is still higher than that of thermal power and hydropower, weakening their competitiveness. In most countries and regions, wind and solar energy industries rely heavily on government subsidies. With the rapid development of technology, improvement of electricity generation efficiency and cost reduction brought by the large-scale application of wind and solar power, their respective LCOE is expected to continue to decline in the next few years, and application of those power generation technologies will gradually achieve growth without subsidies. FROST SULLIVAN Source: Frost & Sullivan 19#20Analysis of Global Power Market Power Market Pricing . Due to the limitations in power storage, in liberalised and centrally organised electricity markets, the wholesale price of power mainly depends on the dynamics of the immediate supply and demand situation. The price floor is generally determined by the marginal costs of all the power plants necessary to cover the demand that arrives in a market at any given time. The final price is then related to the competition intensity within the region. Supply of Electricity Demand of Electricity The Prices of Fuels The Price of Emissions Certificates Drivers of the Electricity Wholesale Prices The supply of electricity mainly refers to the available generation capacity of power producers. With the increase in available generation capacity, the wholesale price of electricity will decrease, at the same time, the utilisation rate of available generation capacity will also reduce. However, due to the costly electricity storage, the wholesale price of electricity may at least cover the marginal cost of the power producers when the demand is met. The demand of electricity mainly refers to the load required at any relevant point in time. With the increase in electricity demand, the wholesale price of electricity may also increase. The demand for electricity has peak and valley time within a day and seasonality due to the cooling and heating requirement in summer and winter. Although renewable energy is the trend of power generation, conventional power generation plants still take a large part of power generation in the world. As a result, the variation of the fuel prices will affect the cost of power generation plants and reflect on the variation in the electricity wholesale price. In order to control the emission level, emissions certificates and emissions trading schemes have been introduced in some market. For conventional power plants, the price of emissions certificates is the additional cost once the emission reaches the allowance. Additionally, the price of emissions certificates is the opportunity cost for the electricity supplier, indicating that a rational electricity supplier will only produce an MWh of electricity if the profit from electricity generation is at least as high as the revenue that would be garnered from selling the certificates in the market. Therefore, the price of emissions certificates will have an influence on the electricity wholesale price. FROST & SULLIVAN Source: Frost & Sullivan 20#21Analysis of Global Power Market Entry Barriers • Regulation and Qualification Barrier The government policy and regulation is normally strict on the power industry and has corresponding requirements for new entrants. For example, in the UK, power generation is a licensable activity and unlicensed power generation is prohibited. New entrants need to meet an array of requirements and acquire power generation license. The examination of qualifications and approval of licenses typically takes a long time. It is difficult for new entrants, who are lack of relevant industry experience to acquire necessary qualifications for power industry. 2 Capital Barrier • Generally, significant investment of more than US Dollar tens of millions is required to build up new power plants, including the cost for plant construction and equipment procurement. The payback period of power projects is usually long, which intensifies the requirements on developers' financial strength and financing capabilities. In addition, it's difficult for new entrants to obtain financing from banks and other financial institutions, due to their limited industry track record. Therefore, the high capital requirement is an important entry barrier in the global power market. 1 Entry Barriers • Technical Barrier The technical level of electric power companies is key in determining the quality of electric power system. Stable operation of large-scale power plants involves a wide range of complex technical expertise and experience. Technical competence in power system operation can also improve operational efficiency and reduce the operational cost. New entrants who lack of technical expertise can hardly compete with existing players with sophisticated technical expertise. 3 Source: Frost & Sullivan FROST & SULLIVAN 21#22Analysis of Global Power Market Overview of UK's Economy Nominal GDP, UK, 2016-2023E CAGR US Dollar Billion (16-18) (18-23E) Nominal GDP 2.9% 2.9% 4,000 3,000 2,669.1 2,640.0 2,000 1,000 0 2,828.6 2,829.2 2,927.1 3,027.1 3,142.3 3,265.6 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Nominal GDP per Capita, UK, 2016-2023E Thousand CAGR (16-18) (18-23E) US Dollar 60 Nominal GDP per Capita 2.3% 2.4% 50 42.6 40.7 42.3 43.5 44.8 46.2 47.8 40.0 40 30 20 10 0 2016 2017 Highlights ➤ UK's nominal GDP increased from US Dollar 2,669.1 billion in 2016 to US Dollar 2,828.6 billion in 2018, representing a CAGR of 2.9%, and is expected to increase further to US Dollar 3,265.6 billion in 2023 at a CAGR of 2.9% from 2018 to 2023. ➤ The nominal GDP per capita of UK increased from US Dollar 40.7 thousand in 2016 to US Dollar 42.6 thousand in 2018, indicating a CAGR of 2.3%, and is expected to increase to US Dollar 47.8 thousand in 2023, with a CAGR of 2.4%. ➤ As one of the top economies in the world, the UK has a relatively high GDP and GDP per capita. However, affected by the Brexit, the domestic currency of the UK experienced a sharp depreciation in 2016 and 2017, which led to the decline of nominal GDP in terms of US Dollar. In the near future, the uncertainty of the Brexit will still bring fluctuation to the UK's economy. However, with the finish of the Brexit process, the UK's economy is expected to return to stable growth. 2018 2019E 2020E 2021E 2022E 2023E FROST SULLIVAN Source: IMF, Frost & Sullivan 22 22#23Analysis of Global Power Market Overview of UK Power Market (1/3) The UK power market is one of the most mature and diversified power markets in Europe, and consists of four parts, including generation, transmission, distribution and supply. Power Generation • The UK generation ownership is highly diversified compared to other European electricity markets with over 150 firms operating with licenses to generate power in the UK. In terms of cumulative power installed capacity by 2018, major power operators include EDF Energy, SSE, RWE, Uniper and Centrica. Power Transmission • • There are currently three transmission operators permitted to develop, operate and maintain a high voltage system within their own distinct onshore transmission areas. These are National Grid Electricity Transmission plc for England and Wales, Scottish Power Transmission Limited for southern Scotland and Scottish Hydro Electric Transmission plc for northern Scotland and the Scottish islands groups. Power Distribution Currently, there are 14 licensed distribution network operators (DNOS) in Britain and each is responsible for a regional distribution services area. The 14 DNOS are owned by six different groups, namely SSE, SP Energy Networks, Electricity North West, Northern PowerGrid, Western Power Distribution, UK Power Networks. Power Supply • The major power suppliers in UK include EDF Energy, SSE, Npower, E.ON, Centrica, Scottish Power, while a number of smaller, yet growing participants like First Utility, Drax Group, Ovo Energy, etc. are also competing in UK power supply market. Overview of UK Wind Power Market • The UK is the world leader in offshore wind with the highest installed capacity globally, totaling 8.2 GW in 2018. Offshore wind generates around 9% of electricity in the UK, providing power to 4.5 million homes annually. In 2018 offshore wind generation reached a record level, increasing by 28%, from 20.9 TWh to 26.7 TWh. In the future, the construction rate of offshore wind project is expected to increase with a number of larger projects approved by the Crown Estate will get commissioned. In the UK, the Crown owns the marine estate, including the seabed around the coast of Britain, from the coastline to a distance of 12 nautical miles offshore and owns the rights to generate electricity from wind, waves and tides in the UK. The Crown Estate manages the marine estate on behalf of the Crown, and leases rights to develop offshore wind to renewable energy developers. 2018 was a record-breaking year for UK offshore wind, and by December 2018 there were 1931 fully operational offshore wind turbines on the UK seabed (43% of the European total) with a further 992 under construction. The market is subject to some competition with a number of players active in developing, building and operating those wind farms aside from SDIC. In terms of cumulative power installed capacity of offshore wind by 2018, major wind power operators include Orsted, Innogy, and Vattenfall. Source: Ofgem, Frost & Sullivan FROST SULLIVAN 23#24Analysis of Global Power Market Overview of UK Power Market (2/3) • . In the last few years, the power generation in the UK maintains at a stable level with a slight decrease from 339.2 TWh in 2016 to 332.9 TWh in 2018, representing a CAGR of -0.9%. The power generation in the UK is mainly driven by the power demand, which was broadly stable since 2016. In the next 5 years, the power generation in the UK is expected to hold the current level with a slight increase, since the stable expectation of power consumption in the UK in the following years. The cumulative power installed capacity saw a robust increase in the last 3 years from 99.8 GW in 2016 to 108.4 GW in 2018, representing a CAGR of 4.2%. This growth is mainly driven by the newly installed capacity of renewable energy, such as wind power and solar power. In the following years, due to the decarbonisation policies, the renewable energy capacity will keep growing replacing the conventional capacity. As a result, the power installed capacity in the UK is expected to keep the increasing trend but with a relatively slow speed. Cumulative Power Installed Capacity, UK, Power Generation, UK, 2016-2023E 2016-2023E CAGR (16-18) (18-23E) GW 150 Installed Capacity 4.2% 2.0% 106.0 108.4 110.9 112.7 115.0 117.2 119.4 99.8 100 TWh 450 CAGR Generation (16-18) (18-23E) -0.9% 0.4% 400 339.2 338.2 350 332.9 336.4 336.8 337.0 338.4 339.1 300 250 200 150 50 100 50 0 0 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Power Generation FROST & 2016 2017 2018 2019E 2020E 2021E 2022E 2023E SULLIVAN Source: Frost & Sullivan 24#25Analysis of Global Power Market Overview of UK Power Market (3/3) The power consumption in the UK was relatively stable at around 300 TWh in the last 3 years, but with a slightly decrease from 304.0 TWh in 2016 to 299.6 TWh in 2018, representing a CAGR of -0.7%. The relatively stable power consumption is mainly due to the relatively stable condition of the domestic economy, and the warmer weather in winter might cause the sight decrease in power consumption. ➤ In the future, the power consumption in the UK is expected to keep the current level with a slightly increase due to the stable economy expectation. ➤ Regarding the breakdown of power consumption in the UK, the industry and domestic sectors took nearly one-third of the power consumption, and the other part including commercial, transportation, and public administration, etc. took the rest part of power consumption in the UK. Breakdown of Power Consumption (by End Power Consumption, UK, 2016-2023E TWh CAGR (16-18) (18-23E) 500 Power Consumption -0.7% 0.2% 400 304.0 300 200 100 299.6 299.6 300.8 300.9 302.0 302.8 303.4 0 2016 2017 2018 2019E 2020E 2021E 2022E 2023E *Others refers to commercial, transportation and public administration, etc. FROST User), UK, 2018 31.0% 33.9% 35.1% Industry Domestic Others* SULLIVAN Source: Frost & Sullivan 25#26Analysis of Global Power Market Power Installed Capacity in the UK The total cumulative power installed capacity in the UK increased slightly over the past 3 years. However, the fuel type structure of power installed capacity has changed significantly with renewable capacity displacing coal-fired output in the generation mix. The cumulative power installed capacity of wind and solar power increased from 16.1 GW and 11.9 GW in 2016 to 21.8 GW and 13.1 GW in 2018 respectively, which replaced part of power installed capacity of thermal power. In line with other European countries, it was confirmed in September 2017 that the UK government will proceed with action to regulate the closure of unabated coal power generation units by 2025. Among the wind power capacity, the offshore wind power capacity increased significantly from 5.3 GW in 2016 to 8.2 GW in 2018, which was mainly driven by the reducing cost of offshore wind. The UK is the world leader in offshore wind with the highest installed capacity as of 2018. Offshore wind generates around 8% of electricity in the UK, providing power to 4.5 million homes annually. In the last few years, the proportion of thermal power installed capacity decreased from 49.8% in 2016 to 45.1% in 2018 in order to reduce the emission. In contrast, the proportion of clean energy power installed capacity represented by the wind power and solar power kept increasing. The share of wind power increased from 16.2% in 2016 to 20.1% in 2018, and the share of solar power increased from 11.9% in 2016 to 12.1% in 2018. In the future, the cumulative power installed capacity of clean energy is expected to keep the growing trend and further replace the power installed capacity of thermal power. The proportion of thermal power capacity is expected to decrease to around 35% of the total installed power capacity and the proportions of wind power installed capacity and solar power installed capacity are expected to increase to nearly 30% and 15% of the total installed power capacity respectively. Additionally, the offshore wind is also expected to keep the rapid growth with the support of the UK government. Cumulative Power Installed Capacity, UK, 2016-2023E GW 150 CAGR (16-18) CAGR (18-23E) Total 4.2% 2.0% 120 106.0 108.4 110.9 112.7 115.0 117.2 119.4 99.8 1.9 1.9 1.9 1.9 1.9 2.0 2.0 Hydropower 1.2% 1.1% Thermal Power -0.7% -2.4% 1.8 43.3 90 90 47.1 45.9 44.9 44.1 Nuclear Power -0.7% -0.2% 49.0 50.8 49.7 9.2 Onshore Wind 9.2 60 60 9.2 11.9% 4.6% 9.2 Power 9.3 9.4 16.5 17.0 9.4 15.8 15.2 9.5 14.5 Offshore Wind 13.6 12.6 30 30 10.8 -8.2 9.6 10.9 12.4 14.0 15.6 24.6% 13.7% Power -5.3 -7.0 11.9 12.6 13.1 13.9 14.4 15.1 15.8 16.6 Solar Power 5.0% 4.8% 10.8 11.7 13.4 14.6 15.2 15.7 15.7 15.7 0 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Other Clean Energy Sources* 11.5% 3.3% Hydropower Thermal Power Nuclear Onshore Wind Offshore Wind Solar Other Clean Energy Sources *Other clean energy sources include biomass and waste, tide and wave, and geothermal, etc. FROST & Source: Department for Business, Energy & Industrial Strategy, Frost & Sullivan SULLIVAN 26#27Analysis of UK Power Market Wholesale Power Price in the UK • • The wholesale power price in the UK kept increasing in the last 3 years, especially in 2018, the wholesale power price increased significantly and reached the highest point, which was mainly driven by the increasing gas price in the UK. UK power prices are primarily driven by gas prices, which have become the marginal price setter since the retirement of uneconomical coal power plants and the increase of non-dispatchable generation in the system. UK power prices are therefore correlated to gas and carbon prices and supply-side dynamics. As a power importer, the UK also imports a considerable amount of power from the EU countries, hence the current uncertainty of the Brexit plan may further affect the power price in the future. In the future, regarding the power supply side, with the close of coal-fired power plants or conversion of them to gas power plants, the gas power plants may have more share of new flex capacity in the UK. Meanwhile, renewable energy will gradually become mainstream sources of power generation, which may push up power wholesale prices due to its relatively high LCOE. On the other hand, unlike the conventional power plants of which fuel costs vary depending on the price of gas and coal, the renewable energy power generation plants have no fuel cost, which may lead to the wholesale price affected less by the variation of fuel prices. For the demand side, although the improvement of power efficiency may mutedly reduce the demand, the economic growth and the popularity of electric vehicle in the UK will drive the power consumption growth in the future. As a result, the gas price will still affect the wholesale price when the power demand is high such as during the winter, however, during the low demand periods, the wholesale price may be stable. Additionally, the growing share of renewable energy power generation and the stable increasing power demand may increase the wholesale power price slightly. Moreover, the Brexit may further raise the power price. As a power importer, the UK imports a considerable amount of power from the EU countries, such as German and Netherland, every year. The Brexit may increase the import power price which will lead to the increasing domestic power price in the UK. Moreover, the current uncertainty of the Brexit plan will cause the uncertainty of the exchange rate which will also have an impact on the import power price. Average Wholesale Power Price, UK, 2016-2023E GBP/MWh 80 58.2 60 52.0 52.2 52.9 53.5 54.2 46.3 42.6 40 20 20 2016 2017 2018 2019E 2020E FROST 2021E 2022E 2023E Source: Ofgem, Frost & Sullivan SULLIVAN 27#28Analysis of Global Power Market Policies and Regulation in the UK and Europe (1/2) The European Commission and UK government have both issued a series of policies and regulations to promote the development of renewable energy and increase the share of renewable energy sources in total energy consumption. The share of renewable energy sources in EU's gross final consumption of energy was 17.5% in 2017 and that in the UK has reached over 30% in 2018. Policies and Regulation of Power Market, Major Countries and Regions Execution Year Policies and Regulations Industrial Strategy Offshore 2019 Wind Sector Deal Renewable Energy Directive (EU) 2018/2001 2018 Contracts for Difference (CfD): Draft Budget Notice 2018 for the third allocation round Issued Department Department for Business, Energy & Industrial Strategy The European Parliament & The European Commission Department for Business, Energy & Industrial Strategy • • The Renewables Obligation Order 2015 2015 The Secretary of State • FROST & Main Content and Emphasis In the UK, the offshore wind can contribute up to 30GW of generating capacity by 2030. Building up to 30GW of offshore wind by 2030 could account for over £40bn of infrastructure spending in the next decade. Establish a binding Union target: a share of renewable energy sources at least 32% in 2030 and 20% in 2020 in gross final consumption of energy Commission should assess whether that target should be reviewed upwards in light of substantial cost reductions in the production of renewable energy The administrative strike prices for offshore wind energy in third allocation round are 53 £/MWh (2024/25) and 56 £/MWh(2023/24), which shows a clear downward trend, compared with competition strike price 74.75 £/MWh (2021/22) and 57.50 £/MWh (2022/23) of second allocation round Implement outstanding policy decisions relating to the transition from the renewables obligation to the Contract for Difference and Capacity Market mechanisms Make consequential amendments to the Renewables Obligation Closure Order Regulates on registration of offshore wind turbines Source: Government Documents, Frost & Sullivan SULLIVAN 28#29Analysis of Global Power Market Policies and Regulation in the UK and Europe (2/2) Policies and Regulations Policies and Regulation of Power Market, Major Countries and Regions A European Strategic Long- Execution Year Issued Department • Main Content and Emphasis term Vision For a Prosperous, Modern, Competitive and Climate Neutral Economy 2018 The European Commission Energy Efficiency Directive (EU) 2018/2002 The European Parliament & 2018 The European Commission Parliament of Energy Act 2013 2013 the United Kingdom Energy Act 2010 2010 Parliament of the United Kingdom • • The clean energy transition would result in an energy system where primary energy supply would largely come from renewable energy sources, thereby significantly improving security of supply and fostering domestic jobs. Establish a set of binding measures to help the EU reach its 20% energy efficiency target by 2020. The Commission proposed an update to the Energy Efficiency Directive, including a new 30% energy efficiency target for 2030. Stipulate that it is the duty of the Secretary of State to ensure that the carbon intensity of electricity generation in the United Kingdom is no greater than the maximum permitted level of the de-carbonisation target range. Deal with arrangements for carbon capture and storage development. It details the powers of the Secretary of State for Energy and Climate Change to provide funding for carbon capture and storage (CCS) projects. Source: Frost & Sullivan FROST & SULLIVAN 29 29#30Analysis of Global Power Market Wind Power Subsidy and Price Scheme in the UK (1/2) Feed-in Tariffs (FIT) Applicable Project and Date Wind power(<5MW) 1st Apr 2010 - present Scheme FiT generators get fixed tariff payments for electricity generated and connected to the National Grid • For wind electricity generated payments = tariff *total power generated Total Installed • Tariff Capacity (kW) (p/kWh) 0-50 8.24 50-100 4.87 • 100-1500 1.55 • 1500-5000 0.47 (valid from 1st Jan 2019 to 31st Mar 2019) • For electricity exported to the grid payments: = tariff * total power exported Applicable project Non-solar PV Tariff(p/kWh) 5.38 Renewables Obligation(RO) New application closed for onshore wind on 12th May 2016 and for all new generating capacity on 31st Mar 2017 Started in 2002 in England, Wales and Scotland, 2005 in Northern Ireland Electricity generation accredited under the RO will receive support for 20 years The level of the annual obligation on electricity suppliers is published ahead Eligible renewable electricity generators report the amount of renewable electricity they generate Ofgem issues Renewables Obligation Certificates (ROCs) to generators relating to the amount of eligible renewable electricity they generate Generators sell ROCs to suppliers Suppliers who do not present enough ROCS pay a penalty Ofgem collects the money in the buy-out and re-distributed on a pro-rata basis to suppliers who presented ROCs The number of ROCS electricity suppliers are required to produce during 2019/2020 obligation period (ROCS/MWh) Great Britain Contract of Difference (CfD) Onshore wind (first allocation round) Offshore wind (second allocation round) Started in 2014 -1st allocation round in 2014/2015 -2nd allocation round in 2017 -3rd allocation round in 2019* Generators sell energy into the market through usual commercial channels When market price>strike price, generators pay back the difference When market price<strike price, generators receive the difference The strike price shows a declining trend from 2018 to 2022. 1st Round Result - Onshore Wind Strike Price(£/MWh) 79.23 82.50 Delivery Year 2016/2017 2018/2019 2nd Round Result - Offshore Wind Strike Price(£/MWh) 74.75 57.50 Delivery Year 2021/2022 2022/2023 3rd Round Result Offshore Wind Strike Price(£/MWh) 0.484 39.65 41.611 Delivery Year 2023/2024 2024/2025 (valid from 1st Dec 2012 to present) Northern Ireland 0.190 The third CfD allocation round, for offshore wind farms of no greater than 1.5 GW of capacity, concluded in September 2019, with a strike price of £39.65/MWh and £41.611/MWh for the delivery year of 2023/2024 and 2024/2025 respectively. FROST Source: Government Documents, Frost & Sullivan SULLIVAN 30#31Analysis of Global Power Market Wind Power Subsidy and Price Scheme in the UK (2/2) • • . The Electricity Market Reform (EMR)'s central mechanism for supporting a range of low carbon technologies is a form of long-term private law contract capable of increasing revenue certainty and bringing forward new investment into the sector. The contracts are structured as Feed-in Tariffs (FiTs) in the form of Contracts for Difference (CfDs), in most cases for a total duration of 15 years. Unlike the prior Renewable Obligation scheme, CfD contracts are intended to support a range of low carbon technologies, including carbon capture and storage as well as renewables. CfDs are managed by the Department for Business, Energy and Industrial Strategy (BEIS) and the UK Treasury, and are allocated within the budget constraints of the 'Levy Control Framework' Capacity Market Capacity market payments are to remunerate plants for being available during periods of system stress. Auctions are held annually and four years ahead of delivery. Four T-4 auctions are held in 2014-18 for the delivery in 2018-22. T-1 auctions (i.e. one year ahead of delivery) are also held for short-term capacity delivery. - Generation capacity providers, including conventional and renewable power generators, non-generation capacity providers, such as storage, are eligible for capacity market auction. However, power generators who receive other forms of renewables support, such as RO, CfD, etc., are not eligible. Therefore, renewables are generally don't benefit from capacity revenue, especially offshore wind. European court ruling on capacity mechanisms In Nov 2018, the EU ruled that the UK's Capacity Market was illegal on state aid grant, and the Capacity Market would be suspended indefinitely. In Feb 2019, the European Commission launched a review of the Capacity Market scheme which could take 12 months to complete. In early March 2019, Tempus Energy sought judicial review on UK Capacity Market payments. In late March, UK gave possible date ranges for delayed power capacity auction which could be held in June/July 2019. In June 2019, T-1 Capacity Auction for delivery in 2019/20 was held. The European Union court ruling means any contracts issued under the 2019 auction will be conditional. Historical T-4 Auction and T-1 Auction Results T-4 Auction Results Clearing Price(£/kW) Awarded Capacity (GW) Delivery Year 19.4 47.53 2018/2019 18.0 46.35 2019/2020 22.5 52.40 2020/2021 8.4 50.42 2021/2022 *The first T-1 auction was held on February 2018. T-1 Auction* Results Clearing Price(£/kW) Awarded Capacity (GW) Delivery Year 6.0 5.78 2018/2019 0.77 3.63 2019/2020 Source: Government Documents, Frost & Sullivan FROST & SULLIVAN 31#32Analysis of Global Power Market Overview of SEA Power Market • The continuous economic and population growth pushed up power demand in Southeast Asia growing from 845.9 TWh in 2016 to 927.0 TWh in 2018, with a CAGR of 4.7%. Correspondingly, the power generation in Southeast Asia also experienced a growing trend from 915.0 TWh in 2016 to 988.0 TWh in 2018, representing a CAGR of 3.9%. In the future, with further economic development, the power consumption and power generation are expected to reach 1,185.6 TWh and 1,268.8 TWh in 2023 respectively, with CAGRS of around 5.0% and 5.1%. In order to satisfy the rapidly increasing power demand, the cumulative power installed capacity increased from 227.3 GW in 2016 to 256.9 GW in 2018, representing a CAGR of 6.3%. Amongst the cumulative power installed capacity, the thermal power took a dominant share in 2018, which occupied around 70% of the total power installed capacity in Southeast Asia, followed by the hydropower and solar power. In the next 5 years, the cumulative power installed capacity in Southeast Asia is forecasted to keep the growing trend and reach 364.1 GW in 2023. The renewable energy power installed capacity, especially solar power and wind power, is expected to play an increasingly important role in the future. The power prices in most of Southeast Asia countries are regulated by the government, expect Singapore and Philippines. As a result, the policies have significant impacts on the power prices of those restricted market. Besides, the relationship between power demand and supply may decide the power prices in the open market such as Singapore and Philippines. Power Generation and Power Consumption, Cumulative Power Installed Capacity, SEA, 2016-2023E GW 1,129.1 1,074.8 1,268.8 400 CAGR: 7.2% 364.1 1,185.6 339.5 350 CAGR: 6.3% 316.6 295.3 300 275.1 256.9 240.6 250 227.3 200 150 100 50 0 SEA, 2016-2023E CAGR Generation (16-18) (18-23E) 3.9% 5.1% TWh Consumption 4.7% 5.0% 1,400 1,096.2 1,149.3 1,207.4 1,200 1,044.0 1,022.8 915.0 942.5 1,000 988.0 881.4 975.4 927.0 845.9 800 600 400 200 0 2016 2017 Power Generation 2018 2019E 2020E 2021E 2022E 2023E Power Consumption FROST & 2016 2017 2018 2019E 2020E 2021E 2022E 2023E SULLIVAN Source: Frost & Sullivan 32#33Analysis of Global Power Market Overview of Indonesia's Economy Nominal GDP, Indonesia, 2016-2023E US Dollar Billion CAGR (16-18) (18-23E) Nominal GDP 4.7% 8.0% 1,800 1,499.4 1,500 1,399.1 1,305.7 1,208.9 1,200 1,015.3 1,022.5 1,100.9 932.1 900 600 300 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Nominal GDP per Capita, Indonesia, 2016-2023E US Dollar CAGR (16-18) (18-23E) 6,000 Nominal GDP per Capita 3.6% 6.8% 5,381.1 5,074.9 4,787.1 5,000 4,479.5 4,000 3,605.7 3,884.7 3,870.6 4,123.3 3,000 2,000 1,000 0 2016 2017 Highlights Indonesia's nominal GDP increased from US Dollar 932.1 billion in 2016 to US Dollar 1,022.5 billion in 2018, registering a CAGR of 4.7%, and is expected to increase further to US Dollar 1,499.4 billion in 2023 at a CAGR of 8.0% from 2018 to 2023. Indonesia's nominal GDP per capita increased from US Dollar 3,605.7 in 2016 to US Dollar 3,870.6 in 2018, indicating a CAGR of 3.6%, and is expected to increase to US Dollar 5,381.1 in 2023, with a CAGR of 6.8%. ➤Indonesia is the largest economy in Southeast Asia. The government keeps upgrading power and other infrastructures, improving political environment, and taking other steps to improve the regulatory environment in order to improve Indonesia's business environment, attract foreign direct investment and maintain a sustainable economic growth. ➤ The Indonesia's GDP per capita is below the world average. There is huge potential for Indonesia's economy considering its increasing economic openness. 2018 2019E 2020E 2021E 2022E 2023E FROST SULLIVAN Source: IMF, Frost & Sullivan 33#34Analysis of Global Power Market Overview of Indonesia Power Market (1/2) Power Consumption, Indonesia, 2016-2023E TWh 500 CAGR Power Consumption (16-18) (18-23E) 6.6% 6.4% 400 360.5 338.8 318.3 299.1 300 281.1 266.8 247.1 200 100 0 383.6 2016 2017 2018 2019E 2020E 2021E 2022E 2023E ➤ The total power consumption in Indonesia increased from 247.1 TWh in 2016 to 281.1 TWh in 2018 at a CAGR of 4.7% and is forecasted to reach 383.6 TWh in 2023 with a CAGR of 8.0% during the period from 2018 to 2023. The growth of the power consumption in Indonesia is mainly driven by economic growth, population growth and the electrification program, as well as development programs that trigger the growth of new business and residential areas. Increasing the national electrification ratio, especially in 3T (foremost, outermost and lagging) regions, has long been a strategic focus of the government and PLN*. ➤ Additionally, continuous investments in power infrastructure, including the construction of plants, transmission networks and distribution networks, are expected to strengthen the power supply in Indonesia, delivering power with good quality and reliability to the consumers. • • The total cumulative power installed capacity in Indonesia increased from 54.7 GW in 2016 to 57.8 GW in 2018 with a CAGR of 2.8 % and is expected to further grow to 92.8 GW in 2023, indicating a CAGR of 9.9% during the period from 2018 to 2023. Considering the installed capacities of different power sources, coal and natural gas are the major sources of power plants in Indonesia and are expected to remain dominating in the foreseeable future. The government and PLN are planning to strictly limit the generators of diesel and actively promote the development of renewable energy, such as hydropower, solar power and wind power, in order to mitigate the increasingly environmental concerns. * PLN (Perusahaan Listrik Negara, State Electricity Company), is an Indonesian government-owned corporation which has a monopoly on electricity distribution in Indonesia and generates the majority of the country's electrical power. FROST SULLIVAN Source: PLN, Frost & Sullivan 34#35Analysis of China's Power Operation Market Overview of Indonesia Power Market (2/2) GW 100 15 75 Cumulative Power Installed Capacity (by Fuel Type), Indonesia, 2016-2023E 54.7 50 50 25 25 CAGR: 2.8% 55.9 CAGR: 9.9% 92.8 85.5 78.1 71.7 61.7 57.8 0 2016 2017 2018 2019E Coal Diesel Natural Gas Hydorpower 2020E 2021E 2022E 2023E Geothermal Others Unit: GW 2016 2017 2018 2019E 2020E 2021E 2022E 2023E CAGR (13-18) CAGR (18-23E) Coal 24.7 25.8 27.0 28.6 34.6 37.4 39.0 42.1 4.7% 9.3% Natural Gas 18.2 16.3 16.8 18.4 21.5 23.3 27.7 30.8 -3.8% 12.9% Diesel 5.7 6.6 6.8 7.0 7.0 7.0 7.0 7.0 9.8% 0.6% Hydropower 4.6 4.9 5.1 5.3 5.9 7.1 7.3 7.7 5.4% 8.8% Geothermal 1.5 2.2 1.9 2.0 2.2 2.3 2.8 3.0 11.5% 10.4% Others 0.1 0.2 0.3 0.3 0.6 0.9 1.7 2.2 39.5% 52.1% Total 46.1 51.6 52.9 54.7 55.9 57.8 61.7 71.7 2.8% 9.9% FROST & SULLIVAN Source: CEC, NEA, Frost & Sullivan 35#361. Analysis of Macro Economy in China 2. Analysis of Global Power Market 3. Analysis of China's Power Operation Market 4. Competitive Landscape of China's Power Operation Market FROST & SULLIVAN 36#37Analysis of China's Power Operation Market Power Generation (1/2) • . • The total power output in China increased from 5,372.1 TWh in 2013 to 6,994.0 TWh in 2018 with a CAGR of 5.4% and is expected to further grow to 9,123.6 TWh in 2023, indicating a CAGR of 5.5% during the period from 2018 to 2023. The total power output in China increased from 6,022.8 TWh in 2016 to 6,994.0 TWh in 2018 with a CAGR of 7.8% and is expected to further grow to 9,123.6 TWh in 2023, indicating a CAGR of 5.5% during the period from 2018 to 2023. Currently, thermal power is, and will continue to be, the major power source in China. However, the Chinese government is promoting the development of clean energy, including hydropower, wind power, solar power and nuclear power. The hydropower is the second largest power source and is growing faster than thermal power in terms of power output. The proportion of wind power and solar power in total power output has also been growing steadily. According to The 13th Five- Year Plan for Power Development (2016-2020) LA&E “TE”(2016-2020) and The Strategy of Reforming Energy Production and Consumption (2016-2030) (2016-2030), the development of these clean energy sources is a strategic focus of China's power industry in both short term and long term. Driven by the specific incentive policies for these clean energy sources and continuously growing power demand in China, a dynamic growth will be maintained for these clean energy sources in the coming years. Source: CEC, NEA, Frost & Sullivan FROST & SULLIVAN 37#38Analysis of China's Power Operation Market Power Generation (2/2) Power Output (by Fuel Type), China, 2013-2023E TWh 10,000 CAGR: 5.5% 9,123.6 8,641.5 8,205.7 8,000 CAGR: 5.4% 7,788.3 7,387.8 6,994.0 6,452.9 6,000 5,372.1 5,680.1 5,740.0 6,022.8 4,000 2,000 0 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Hydropower Thermal Power Wind Solar Others Unit: TWh 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E CAGR CAGR (13-18) (18-23E) Hydropower 892.1 1,060.1 1,112.7 1,174.8 Thermal Power Wind Solar 138.3 8.4 4,221.6 4,303.0 4,230.7 4,327.3 159.8 185.6 240.9 1,194.7 4,587.7 1,232.9 4,923.1 304.6 Others Total 111.8 5,372.1 5,680.1 23.5 133.8 39.5 171.5 5,739.9 66.5 213.3 117.8 366.0 177.5 1,275.9 1,320.5 1,370.5 1,426.6 5,079.3 5,245.5 5,422.3 5,610.6 435.3 506.6 577.5 653.3 227.7 287.8 351.5 422.5 1,489.3 6.7% 5,811.0 3.1% 731.9 21.5% 498.7 84.2% 3.9% 3.4% 14.9% 22.9% 248.1 6,022.8 6,452.9 6,994.0 294.5 369.7 427.9 483.9 528.5 7,387.8 7,788.3 8,205.7 592.8 21.4% 8,641.5 9,123.6 5.4% 15.0% 5.5% FROST & SULLIVAN Source: CEC, NEA, Frost & Sullivan 38#39Analysis of China's Power Operation Market Power Consumption The total power consumption in China increased from 5,971.0 TWh in 2016 to 6,844.9 TWh in 2018 at a CAGR of 7.1% and is forecasted to reach 8,912.1 TWh in 2023 with a CAGR of 5.4% during the period from 2018 to 2023. With the structural transformation of China's economy towards the development of tertiary industry, the power consumption in tertiary industry has increased rapidly. Additionally, driven by the continuous improvement of residents' living standards and deepening of urbanisation, the power consumption in residents' daily lives experienced solid growth. These two areas are and will continue to be the major drivers of power consumption in China. Power Consumption, China, 2013-2023E TWh 10,000 CAGR: 5.4% 8,912.1 8,455.5 8,022.3 8,000 7,611.3 CAGR: 5.1% 7,221.4 6,844.9 6,309.4 5,971.0 6,000 5,639.3 5,693.3 5,342.3 4,000 2,000 0 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Source: CEC, Frost & Sullivan FROST & SULLIVAN 39#40Analysis of China's Power Operation Market Power Peak Demand and Reserve Power peak demand in China increased from 776.4 GW in 2013 to 994.5 GW in 2018, with a CAGR of 5.1%. Reserve margin, calculated using power reserve divided by power peak demand, is exhibiting an upward trend during 2013 to 2015 and then declined gradually to 32.4% in 2018. Such trend demonstrates an overcapacity situation faced by China power operation industry during 2013 to 2015, especially for thermal power. In 2016, central government including NDRC and NEA issued a series of policies (e.g. 《关于促进我国煤电有序发展的通知》《关于进一步规范电力项目开工建设秩序的通知》《关于进一步调控煤电规划 ») to restrict the power plant construction, with reserve margin declining since then. Nevertheless, compared with that of those developed regions such as North America, reserve margin in China is considered to be high (versus. reserve margin of 15% as set by North American Electric Reliability Corporation) and therefore it is expected to further decrease in future. Power Peak Demand and Reserve, China, 2013-2018 GW 2,000 % 43.6 45.0 40.8 37.1 40.0 33.6 1,500 27.4 32.4 35.0 30.0 994.5 25.0 928.8 1,000 861.7 776.4 797.3 799.8 20.0 15.0 500 10.0 5.0 0 0.0 2013 2014 2015 2016 2017 2018 Reserve Margin Power Peak Demand FROST & SULLIVAN Source: Frost & Sullivan 40#41TWh Analysis of China's Power Operation Market Seasonality of Power Generation and Consumption • Influenced by the climatic condition and holiday schedules, there is certain seasonality in power generation and consumption in China. Generally, July, August and December are the peak seasons and February is the low season. The power generation and consumption in the remaining months are at similar levels. Total Power Output and Power Consumption (by Month), China, 2013-2018 800.0 600.0 Power Output Power Consumption 400.0 200.0 2013.1 Алынны 2013.3 2013.5 2013.7 2013.9 2013.11 2014.1 2014.3 2014.5 2014.7 2014.9 2014.11 2015.1 2015.3 2015.5 2015.7 FROST & 2015.9 2016.5 2016.7 2016.1 2016.3 2015.11 SULLIVAN 2016.9 2016.11 2017.1 2017.3 2017.5 2017.7 2017.9 2018.1 2017.11 2018.3 2018.5 2018.7 2018.11 2018.9 Source: CEC, Frost & Sullivan 41#42Analysis of China's Power Operation Market Power Generation and Consumption of Regions (1/2) • At present, the power consumption is mainly concentrated in eastern China. As at 2018, it accounted for 47.9% of China's total power consumption. China currently supports the construction of trans-regional transmission infrastructure to enhance inter- provincial transmission. "West-to-East Power Transmission" is one of the most important transmission projects in China. Future development of transmission infrastructure in China is expected to further stimulate cross-regional power demand. Total Power Generation (by Region), China, 2016-2018 Total Power Consumption (by Region), China, 2016-2018 TWh 3,500 TWh 3,500 3,277.8 3,064.9 2,938.0 3,000 2,670.6 3,000 2,517.1 2,500 2,394.2 2,501.2 2,260.4 2,500 2,067.0 2,000 2,000 1,685.5 1,557.7 1,438.2 1,500 1,319.3 1,218.4 1,500 1,868.4 1,295.9 1,112.0 1,182.3 1,000 1,000 500 343.2 356.1 384.0 500 363.3 376.7 402.7 0 0 2016 2017 2018 2016 2017 2018 Eastern China Western China Central China Northeast China FROST SULLIVAN Source: CEC, NBS, Frost & Sullivan 42#43Analysis of China's Power Operation Market Power Generation and Consumption of Regions (2/2) Economic Geographical Areas, China, 2018 Eastern China Central China Western China Northeast China Eastern China: Beijing, Tianjin, Hebei, Shanghai, Jiangsu, Fujian, Shandong, Guangdong and Hainan Central China: Shanxi, Anhui, Jiangxi, Henan, Hubei and Hunan Western China: Inner Mongolia, Guangxi, Chongqing, Sichuan, Guishou, Yunnan, Tibet, Shaanxi, Gansu, Qinghai, Ningxia and Xinjiang Northeast China: Liaoning, Jilin and Heilongjiang Source: CEC, NBS, Frost & Sullivan FROST & SULLIVAN 43#44Analysis of China's Power Operation Market Value Chain Analysis (1/2) • • • China's power market consists of four parts, including power generation, power transmission and transformation, power distribution and sales, and power consumption, and each part has its own development goals. From the perspective of industrial chain, China's power industry includes equipment manufacturing in the upstream, power plant and transmission network design and construction in the middle, and operation, maintenance, inspection and maintenance in the downstream. In order to facilitate the inter-province power transaction, new energy power consumption, and the marketisation of power price, the Beijing Power Exchange Centre and Guangdong Power Exchange Centre are established by the State Grid and Southern Grid. State Grid and China Southern Power Grid are major participants in power distribution and sales in China. However, power distribution and sales have been open to private sector capital with the reform of power market. Value Chain of Power Industry, China Power transmission Structure Power generation Optimise site selection Encourage investments in renewable resources • Stability Rigid emission standard power sources Objects Economical maintenance cost • Higher utilisation ratio and transformation Safety, reliability, energy saving and economical Optimal plan of power grid Adoptable to various types of Power distribution and sales Power consumption Scientific and economical plan of power grid Faster response to malfunction • More reliable power supply Higher quality power • Reliable and economical equipment • Flexible pricing strategy China Huaneng Group China Datang Lower transmission loss Economical and reliable maintenance cost Higher transmission stability management More competitive marketing strategy Customised services Allow users providing excess power to grid Control power supply based on credits of users • Support distributed energy resources and storage element China Huadian Major Market Players China Guodian State Power Invetment Chian Resources Power Guohua Power SDIC Power* China General Nuclear Power Industry Chain Upstream State Grid China Southern Power Grid State Grid China Southern Power Grid China Resources Power Sales Huaming Power Guangshou Hengyun Integrated Energy Sales Hailan Power SDIC Gansu Power Sales Power Consumers Midstream Downstream Maintenance of power plants Maintenance of power grid Inspection and repair Source: Frost & Sullivan Segment Manufacturing of construction materials Manufacturing of power equipment *SDIC: State Development & Investment Corporation Power FROST Survey and design Contract of construction projects SULLIVAN 44#45Analysis of China's Power Operation Market Value Chain Analysis (2/2) In 2018, the total coal consumption in China was 3.9 billion tonnes and a majority part was consumed by the secondary industry which took 94.4% of the total consumption. Among the secondary industry, the top 5 industries occupied 85.4% of the coal consumption, and the electric power and heat generation industry accounted for the largest part due to the large coal demand from the coal-fire power plants. The industrial sectors contributed most of the power consumption in 2018, which took 69.0% of total power consumption. However, with the structural transformation of China's economy towards the development of the services industry, the power consumption in tertiary industry has increased rapidly. In terms of power consumption growth rate, the compound average growth rate of the industrial sectors and the services industry was 5.3% and 13.1%, respectively, from 2016 to 2018, indicating the growth of the services industry was faster. Among the secondary industry, the top 5 power consuming industries contributed to 62.5% of the secondary industry power consumption in 2018, and the electric power and heat generation industry was also the largest power consumer, followed by ferrous and non-ferrous metals smelting and pressing industries. Similarly, in 2016, the same 5 industries consisted of the top 5 power consuming sectors in 2016 and accounted for 63.6% of the secondary industry power consumption. However, the smelting and pressing of non-ferrous metals and manufacture of chemical products took the second and third place of the top 5 power consuming industries in 2016. Breakdown of Coal Consumption (by Downstream Industries), China, 2018 Total Consumption: 3.9 billion tonnes 0.7% 2.3% 2.7% 94.4% 85.4% 7.6% Manufacture of 8.6% Chemical Products 10.3% Manufacture of 13.6% Non-Metallic Products Breakdown of Power Consumption (by Downstream Industries), China, 2018 Total Consumption: 6,844.9 TWh 62.5% 7.7% Manufacture of Breakdown of Power Consumption (by Downstream Industries), China, 2016 Total Consumption: 5,971.0 TWh 63.6% 8.0% Non-Metallic Products Manufacture of Non-Metallic Products 11.3% Manufacture of 10.5% Smelting and Pressing 1.1% Chemical Products 1.0% of Ferrous Metals Smelting and Pressing 14.1% 12.3% Smelting and Pressing of Non-Ferrous Metals 13.5% 11.0% Manufacture of Chemical Products 14.2% 15.8% Processing of Petroleum, 13.1% Smelting and Pressing 14.5% Smelting and Pressing of Coking and Nuclear Fuel 45.4% Electric Power and Heat Generation of Ferrous Metals 69.0% 18.1% Electric Power and Heat Generation Non-Ferrous Metals 71.3% Electric Power and 18.3% Heat Generation of Ferrous Metals Primary Industry Secondary Industry Tertiary Industry Resident Source: NBS, Frost & Sullivan FROST SULLIVAN 45#46Analysis of China's Power Operation Market Off-takers of Wind Power Generation in China .• Since 2002, according to the national power system reform, the State Grid Corporation of China and China Southern Power Grid have been established to operate the majority of power grids in China. The State Grid Corporation of China is responsible for the power transmission in 26 provinces of China, which covers around 90% of the national territorial area including the north China, central China, east China, north-east China, and north-west China. The China Southern Power Grid is responsible for the power transmission in five southern provinces of China, including Guangdong, Guangxi, Yunnan, Hainan, and Guishou province. Expect for the State Grid Corporation of China and the China Southern Power Grid, there are some local power grid enterprises, such as Inner Mongolia Power Group, which is responsible for power transmission in western Inner Mongolia Autonomous Region. Inner Mongolia Power Group is responsible for the power transmission in the 6 cities and 2 leagues of Inner Mongolia Autonomous Region, namely Hohhot, Baotou, Wuhai, Erdos, Bayannur, Ulanqab, Alxa League and Xilin Gol League. Other areas of Inner Mongolia Autonomous Region are covered by the State Grid. Structure of Electric Power Grid, China, 2018 FROST & SULLIVAN State Grid Corporation of China China Southern Power Grid Inner Mongolia Power Group Source: Frost & Sullivan 46#47Analysis of China's Power Operation Market Merit Order of Electricity Intake ii In the PRC, the dispatch priority of power generation units is determined in the following sequence pursuant to regulations issued in 1993 and a provisional State Council measure issued in 2007: Merit Order of Electricity Intake, China non-adjustable power generation units utilising renewable sources, including wind, solar, marine energy and run-of-the- river hydro; adjustable power generation units utilising renewable sources, including adjustable hydro, biomass and geothermal energy, as well as waste incineration power generation units meeting certain environmental standards; nuclear power generation units; iv cogen units that meet certain heat to power ratio requirements; V gas-fired power generation units; vi vii coal-fired power generation units, including cogen units (other than those included in (iv) above); and oil-fired power generation units. Furthermore, particularly in southwest China, in order to deal with and better utilise the abundant hydropower capacity, central government inclusive of NDRC and NEA issued regulatory guidance (e.g. MŁ¤ALNA ), promoting the optimised allocation of hydropower resources and prioritising hydropower generation. For instance, regarding the cross-region power supply and power receiving, hydropower in southwest China shall enjoy certain level of priorities for power generation and transmission. Moreover, power grid constructions for hydropower transmission from southwest to the rest of China (e.g. Guangdong, Guangxi, Jiangxi) are encouraged and emphasised to ensure the unimpeded power transmission in future. Source: NDRC, NEA, Frost & Sullivan FROST & SULLIVAN 47#48Analysis of China's Power Operation Market Power Installed Capacity (1/2) • The total cumulative power installed capacity in China increased from 1,257.7 GW in 2013 to 1,899.7 GW in 2018 with a CAGR of 8.6% and is expected to further grow to 2,454.4 GW in 2023, indicating a CAGR of 5.3% during the period from 2018 to 2023. The total cumulative power installed capacity in China increased from 1,650.5 GW in 2016 to 1,899.7 GW in 2018 with a CAGR of 7.3% and is expected to further grow to 2,454.4 GW in 2023, indicating a CAGR of 5.3% during the period from 2018 to 2023. Currently, thermal power is, and will continue to be, the major power source in China. However, the Chinese government is promoting the development of clean energy, including hydropower, wind power, solar power and nuclear power. The hydropower is the second largest power source and is growing faster than thermal power in terms of power output. The proportion of wind power and solar power in total power output has also been growing steadily. In China it is not uncommon for power projects to commence construction while the land use right certificates are being applied. Such application could take ten years or even longer to complete, depending on the competent authorities' review and approval progress. Source: CEC, Frost & Sullivan FROST & SULLIVAN 48#49Analysis of China's Power Operation Market Power Installed Capacity (2/2) ☐ Cumulative Power Installed Capacity (by Fuel Type), China, 2013-2023E GW 3,000 CAGR: 5.3% 2,454.4 2,500 2,339.0 2,225.5 CAGR: 8.6% 2,113.9 2,004.2 2,000 1,899.7 1,784.2 1,650.5 1,525.3 1,500 1,378.9 1,257.7 1,000 500 0 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Hydropower Thermal Power Wind Solar Others Unit: GW 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E CAGR CAGR (13-18) (18-23E) Hydropower 280.4 Thermal Power 870.1 Wind 76.5 96.6 Solar 15.9 24.9 147.5 76.3 163.3 184.3 130.4 174.6 Others 14.7 20.3 27.3 33.7 36.6 44.9 209.1 50.6 304.9 319.5 332.1 343.8 352.3 363.5 396.4 413.7 431.6 932.3 1,005.5 1,060.9 1,110.1 1,143.7 1,177.3 1,211.8 1,248.2 1,285.6 1,324.2 5.6% 3.0% 130.8 203.6 221.3 239.1 256.8 274.5 19.2% 8.3% 42.2 243.6 278.1 312.6 347.0 61.5% 14.7% 57.2 63.8 70.4 77.0 24.9% 11.4% 379.9 4.7% 4.1% Total 1,257.7 1,378.9 1,525.3 1,650.5 1,784.2 1,899.7 2,004.2 2,113.9 2,225.5 2,339.0 2,454.4 8.6% 5.3% FROST SULLIVAN Source: CEC, NEA, Frost & Sullivan 49#50Analysis of China's Power Operation Market Overview of Pricing Mechanism of Power Market • . • From 2015, the new round of power system reform which forces on the marketisation has stated. In order to successfully promote the new round of power system reform, the new market-oriented power system and the original restricted power system are both effective in the current power system in China. However, the original power system which stipulates the power generation and the on-grid price is still the mainstream. In the original power system, the government will design the planned power generation based on power demand. National grid enterprises purchase power from power generation plants based on the plan at benchmark prices which are also regulated by the government. By introducing the marketisation into the power system, currently, the output of the plants consists of two parts, the planned output, according to the power generation plan, and the market-oriented output. In order to promote the development of clean energy, the NDRC and the NEA have published notices related to the orderly liberalisation of the power generation sector. The government stipulates that the existing large-scale hydropower, nuclear power, wind power, and solar power plants should be given priority in the dispatch of power. The total amount of prioritised clean power output in any given year should not be lower than the amount in the previous year or the average of those in recent years. Centralised Power Generation Plants Diagram of Pricing Mechanism of Power Market, China Provincial Power Grid Local Power Grid / Wholesale Regions Distributed Power Generation Power Distribution Network Market-oriented Generation Market-oriented Power Price Planned Generation / Precedence Generation On-grid Price / Benchmark Power Price FROST Power Transmission and Distribution Power Transmission and Distribution Price Comprehensive Power Supply Power Wholesale Price / Power Tariff SULLIVAN Non-marketisation Users Marketisation Users Source: Frost & Sullivan 50#51Analysis of China's Power Operation Market Current Major Market Pricing Mechanism of Power Market Trading Process of Bilateral Agreement Power Company Bilateral Agreement Power Exchange Centre Data Submission Electricity Sale Company or Electricity Consumer Pass Deal No Pass Transaction Approval Trading Process of Centralised Bidding Power Exchange Centre Biding and Trading Notice Electricity Sale Company or Step-wise Bidding Electricity Consumer Power Company Step-wise Bidding Match and Trade Result Trading Process of Listing Transaction Power Company Supply Volume and Price Power Exchange Centre Demand Volume and Price Electricity Sale Company or Electricity Consumer Highlights ➤ In March 2015, Policy No. 9 kicked off this new round of electricity system reform. In the current reform, the government has released a package of schemes to ensure that pricing of electricity would shift from administrative decision to result of market competition. ➤ In the original power system, the government determines the planned power generation based on power demand. National grid companies purchase power from power generation plants based on the plan at benchmark prices, which are also regulated by the government. With the promotion of the power system reform, the power sales through market-oriented power transactions keep increasing and accounted for around 30% of China's total power consumption in 2018. ➤ Currently, there are 2 major transaction mechanisms, which are bilateral agreement and centralised bidding, and one auxiliary mechanism, listing transaction. ➤1) Under the bilateral agreement mechanism, the two transaction counterparties negotiate and make an agreement on the electricity transaction volume and the price which is consisted of a basic price and a floating part depending on the production cost or the product prices of downstream industries. ➤ 2) The centralised bidding is usually held periodically (i.e. monthly) at the provincial power exchange centre. The two transaction counterparties make two-way quotations to the exchange centre, and the exchange centre will match the quotations of two counterparties based on the high-low matching principle and/or the uniform pricing rule which uses the arithmetic mean of the last successful matched pair as the uniform price for all trading participants. 3) Under the listing transaction mechanism, the power supply side or the demand side list the power supply or demand volume and prices at the power exchange centre. A deal is made if accepted by the eligible counterparty and passed the safety check. Accepted by the Eligible Counterparty Safety Check and Bilateral Confirmation Deal FROST & SULLIVAN Source: Frost & Sullivan 51#52Analysis of China's Power Operation Market Power Generation Cost • • • • Levelised Cost of Electricity (LCOE) represents the net present value of the unit cost of electricity, i.e. to generate one KWh electricity, over the total lifecycle of a power generating asset. It allows the comparison among different power generation methods on a consistent basis. In China, coal-fired power and hydropower are the two major power generation sources, with a relatively mature technology and minimum LCOE lower bound. LCOE of power generation using sources such as gas, coal and biomass varies and is affected by fuel cost. In 2018, LCOE of gas-fired power generation is within the range of RMB 0.28 to RMB 1.28 per KWh, and LCOE of coal-fired power generation is within RMB 0.25 to RMB 0.54 per KWh. A slight downward trend is observed for both sources, as price of gas and coal are lower compared with 2017. LCOE of power generation using biomass is higher, with a range of RMB 0.74 to RMB 2.27 per kWh. LCOE of power generation using renewable sources such as hydro, solar and wind are mainly affected by the initial capital investment and natural factors. For instance, LCOE of hydropower is generally low and site-specific (e.g. built on reservoir or the running-of-river), as well as influenced by financial factors (e.g. cost of capital raising) and natural factors (e.g. rainy period and drought period). The LCOE varied within the range of RMB 0.15 to 0.32 per KWh in 2018. Given the rapid development of technology and acceleration of industrialisation, LCOE of power generation using renewable sources are witnessing a downward trend compared with past years. Levelised Cost of Electricity (LCOE) of Major Power Generation Sources, China, 2018 RMB per KWh 2.50 2.00 1.50 1.28 2.27 1.29 1.00 0.70 0.54 0.49 0.50 0.32 0.74 0.76 0.50 0.25 0.00 0.15 0.28 0.34 Hydro Coal Gas Wind Solar Biomass Nuclear FROST Source: World Energy Council, International Renewable Energy Agency, Frost & Sullivan SULLIVAN 52#53Analysis of China's Power Operation Market Key Power Price Drivers • The power price in China is influenced by government policies, the cost of power generations and the dynamics of market supply and demand. Power Price Policies Key Power Price Drivers Currently, the power market in China is in the transitional period from restricted market to open market. The government policies will have great impacts on the power price. The government usually influences the power price through subsidy or tax policies. For example, the policy released by the NDRC in 2018 reduces the added-value tax of the power industry in order to reduce the general industrial and commercial power price. Cost of Power Generation The cost of power is the main basis for the government to stipulate the power price. There are several factors that can affect the cost of power generation, such as the variation in fuel prices. Additionally, the development of technology will also influence the cost of power generation, especially for solar and wind power. Relationship between Supply and Demand The relationship between power supply and demand will gradually have increasing impacts on the power price with the promotion of power price marketisation. FROST Source: Frost & Sullivan SULLIVAN 53#54Analysis of China's Power Operation Market Analysis of On-grid Prices of Thermal Power and Hydropower The on-grid tariffs of coal-fired power projects are determined by factors including, but not limited to, the benchmark price and the price compensation. The benchmark price is announced by primarily by the NDRC in consideration of the average cost of coal-fired power generation, which is affected by various factors, including the average utilisation hours and the depreciation of equipment. The price compensation is provided when certain standards such as denitrification and ultra-low emission are met. The relevant pricing authorities primarily use the following three pricing methods to determine the on-grid tariff: (i) local price backward pricing; (ii) individual project pricing; and (iii) benchmark pricing; ➤ Hydropower projects whose generated power is subject to inter-provincial transmission are subject to the local price backward pricing method where the NDRC determines the on-grid tariff. Such on-grid tariff is determined with reference to the local market price at the power receiving side, after deducting the transmission price charged by the grid company. ➤ Certain hydropower projects are subject to the individual project pricing method where the on-grid tariff is determined by the relevant pricing authority on a case-by-case basis. One of the key considerations is the construction and operating costs and the rate of return of the projects. ➤ Other hydropower projects are usually subject to the benchmark pricing method where the on-grid tariff is calculated based on the average costs of hydropower stations of the same category. Average On-grid Price of Thermal Power, China, Average On-grid Price of Hydropower, China, 2016-2018 RMB per MWh 800 700 RMB per MWh 280 695.1 664.9 647.3 275 600 270 500 264.6 265 400 362.4 371.7 378.4 260 2016-2018 263.5 258.9 0 2016 2017 2018 0 2016 2017 Coal-fired Gas Power FROST & SULLIVAN 2018 Source: NEA, Frost & Sullivan 54#55Analysis of China's Power Operation Market On-grid Tariff Analysis of Wind Power in China Wind Power Tariffs, China, 2014-2019 consist of On-grid Tariff for Wind National Subsidy for Wind Power Generation Power Generation Local On-grid Tariff for Coal-fired Power Generation 0.8 Class I Region 0.6 0.51 0.49 0.47 1.00 Class II Region 0.40 0.4 0.34 0.75 0.54 0.52 0.50 0.2 0.45 0.50 0.39 0.0 0.25 2014 2015 2016 2018 2019 0.00 2014 2015 2016 2018 2019 1.0 Class III Region 0.8 0.58 0.6 0.56 0.54 0.49 0.43 1.00 Class IV Region 0.4 0.75 0.61 0.61 0.60 0.57 0.52 0.2 0.50 0.0 0.25 2014 2015 2016 2018 2019 0.00 2014 2015 2016 2018 2019 On-grid Tariff ➤ In China, wind power on-grid tariff is subsidised by the Renewable Energy Development Fund since 2009. Based on different levels of wind resources, China is divided into four regions with differential on- grid tariffs. As the costs of wind power generation have been decreasing in recent years, the on-grid tariff for wind power have also been reduced by the NDRC. ➤ According to the notice published by NDRC in May 2019, the original benchmark on-grid tariff for wind power has been changed to the guidance price. All newly approved on-grid tariff for centralised onshore wind power projects shall be determined through competition and shall not be higher than the guidance price in the resource area where the project is located Green Certificate In Jan 2017, NDRC, Ministry of Finance and NEA issued Notice on Trial Implementation of Issuance and Voluntary Subscription of Green Certificate for Renewable Energy(关于试行可再生能源绿色 电力证书核发及资源认购交易制度的通知). ➤ The government plans to start a subscription of Green Certificate from 1st July 2017 and quota examination of renewable energy and transaction of Green Certificate in 2018. Wind power generation companies will not be entitled to receive national subsidies after sales of Green Certificates. FROST & SULLIVAN Source: Frost & Sullivan 55#56Analysis of China's Power Operation Market On-grid Price Analysis of PV Power in China Composition of Distributed PV Power On-grid Price, China, 2018 National Subsidy (flat rate) Local Subsidy (if applicable) Local On-grid Tariffs of Desulfurised Coal-fired Plants Distributed PV Power On-grid Price Composition Range of Distributed PV Power On-grid Price, China, 2019 Tariff Composition On-grid Price of Utility-Scale PV Power Generation, China, 2015-2019 Provincial Subsidy Range (RMB/kWh) National Subsidy 0.1-0.18 0.1~0.4 0.1-0.4 0.25-0.45 Municipal Subsidy Local On-grid prices of Desulfurised Coal-fired Plants Class II Resource Region Class I Resource Region -20.0% 0.90 -25.0% 0.80 0.65 0.95 0.88 0.50 0.40 0.75 0.60 0.45 20152016201720182019 20152016201720182019 Tibet Province • 2016: On-grid prices were determined project by project 2017 & 2018: RMB 1.05 per kWh Class III Resource Region -21.4% 1.00 0.98 0.85 0.70 0.55 China has adopted on-grid tariff for utility-scale solar power generation since 2011, based on different solar radiation conditions in different regions. The on-grid tariff for solar power is also declining on the back of decreasing power generation costs of solar power. In April 2019, the NDRC announced that the newly added on-grid tariff for centralised solar power stations shall be determined in principle through market competition, and shall not exceed the guidance price set by the NDRC in the resource area. 20152016201720182019 FROST C SULLIVAN Source: Frost & Sullivan 56#57Analysis of China's Power Operation Market Utilisation Rate of Power Generators Average Utilisation Hours of Power Generators (by Fuel Type), China, 2013-2018 Hours per year 9,000 7,873.9 7,787.0 7,403.3 7,060.4 7,089.0 7,184.0 6,000 5,020.6 4,777.7 4,364.1 4,185.5 3,669.1 3,590.2 3,618.9 4,219.0 3,597.0 4,361.0 3,613.0 3,359.3 3,000 2,024.6 2,095.0 1,900.2 1,949.0 1,724.3 1,744.8 1,342.2 1,235.3 1,224.8 1,129.3 1,205.0 1,212.0 2013 2014 2015 2016 2017 2018 Highlights ➤Driven by the accelerating growth of power consumption, the average utilisation hours of most of power generators in China experienced stable recovery from the low level from 2016 and 2018. The improvement is relatively significant in wind power and solar power due to a series of supportive policies for the consumption of clean energy, especially wind power and solar power. ➤ The utilisation hours of hydropower generators are relatively stable among those of all other power sources during the period from 2016 to 2018. According to the data of first 5 months of 2019, there was significant increase in the utilisation hours of hydropower generators driven by the improving consumption of hydropower and increase of water inflow. With the deepening of structural reform, the overall efficiency of thermal power industry is improving and utilisation hours are expected to increase steadily from 2016 to 2018. Hydropower Nuclear Solar Thermal Power Wind Power FROST & SULLIVAN Source: CEC, Frost & Sullivan 57#58Analysis of China's Power Operation Market Market Drivers Drivers of Power Operation Market, China Main Drivers Influence (1-2 years) Influence (3-5 years) 1 Continuous Growth of Economy and Power Demand High High 2 Industrial Upgrading and Changes in Industrial Power Structure High High 3 Development of Power Transmission High Medium 4 Structural Reform of the Coal-fired Power Sector High Medium 5 Favorable Financial Policies for Hydropower Sector Medium Medium 6 Development of NEV Market and Rail Transit Medium High 7 Construction of Data Centre Drivers Medium Description High DRIVERS XEDS Continuous Growth of Economy and Power Demand Industrial Upgrading and Changes in Industrial Power Structure Development of Power Transmission Structural Reform of the Coal-fired Power Sector The power consumption has positive correlation with the economic conditions. With the increasing of GDP and growing demand from industrial production, the power consumption kept growing in the last five years. In order to meet the demand from industrial production, the power consumption increased corresponding. Additionally, with the improvement of residents' life quality, the household appliance, especially high-power appliance, become increasingly popular in China, which leads to the growth of residential power consumption. ➤ In recent years, the driving force of the industrial sectors has gradually turned to intelligent manufacturing, high-end manufacturing. In addition, under the promotion of the government, China's tertiary industry has also ushered in a boom. Driven by the upgrading of industries and the transformation of industrial structure, the demand for new power consumption continues to grow. ➤ China is supporting the construction of cross-region power transmission including UHV transmission to achieve the balance of power supply and demand between East and West China. In addition, the structure of power transmission network will be further improved to enhance the security and strengthen cross-provincial connection. The development of power transmission infrastructure will stimulate the cross-region power demand. In order to alleviate the risk of overcapacity in the coal-fired power industry, China has issued several policies to promote the supply-side reform in the coal-fired power industry. Many of the self-supplied power plants and small coal-fired power plants tend to be phased out. The newly installed coal-fired power capacity is under strict control. As a result, the average utilisation hours of the coal-fired power plants increased in recent years which is conducive to a healthy development of Chinese power industry. Source: Frost & Sullivan FROST & SULLIVAN 58#59Analysis of China's Power Operation Market Market Drivers Drivers of Power Operation Market, China Influence Main Drivers (1-2 years) Influence (3-5 years) 1 Continuous Growth of Economy and Power Demand High High 2 Industrial Upgrading and Changes in Industrial Power Structure High High 3 Development of Power Transmission High Medium 4 5 сл Structural Reform of the Coal-fired Power Sector Favorable Financial Policies for Hydropower Sector High Medium Medium Medium 60 Development of NEV* Market and Rail Transit Medium High DRIVERS XEDS 7 Construction of Data Centre Medium High Description Drivers Favorable Financial Policies for Hydropower Sector Development of NEV Market and Rail Transit Construction of Data Centre As a renewable and clean energy source, hydropower received policy support from Chinese government and qualified hydropower enterprises are entitled to various financial support including VAT refund and encouraging financial institutions to reduce loan interest rates and appropriately extends the loan terms. These policies reduce the cost and cash flow pressure of hydropower enterprises and increase the profitability of hydropower enterprises. ➤ Driven by the continuous technological advancements and supportive policies, the NEV market is experiencing rapid growth in China. China is the largest NEV market in the world with sales volume of NEVS more than 1.25 million in 2018, indicating a CAGR of 57.3% from 2016 to 2018, and total ownership of more than 2.61 million by the end of 2018 according to the statistics from the CAAM. Also, the charging infrastructures are developing rapidly to meet the charging demand from NEVs, increasing the utilisation rate of NEVS. ➤ ➤ ➤ Additionally, China is actively promoting the development of rail transit. The total mileage of electrified railways increased from 80.3 thousand kilometers by 2016 to 91.7 thousand kilometers by 2018 according to the statistics from the NRA. The total mileage of urban railways, which are fully electrified, increased from 4,152.8 kilometers by 2016 to 5,761.4 kilometers by 2018. The electrification in the transportation sector is becoming an increasingly important driver for power consumption. In order to support the rapid development of advanced fields of IT industry, such as of Internet, cloud computing and big data, a large number of data centres have been built in China in recent years. The expansion of data centres will bring increasing demand for power. Driven by support policies and continuous technological innovations, the information technology industry in China will maintain a rapid growth in the future. The development of information technology industry will drive increasing demand for power. * NEV (New Energy Vehicles) includes electric vehicles and plug-in hybrid electric vehicles. Source: Frost & Sullivan FROST SULLIVAN 59#60Analysis of China's Power Operation Market Development Trends 1 2 3 4 Marketisation of Power Price Development of Low-carbon Technologies Intelligent Management System Development of Hydroelectric Pumped Storage Power Plant On-grid Price Parity 5 of Renewable Energy Sources • • • The power price marketisation is the core of recent power system reform. Under the guideline of power system reform, the government will gradually introduce competition to the power pricing mechanism except the power transmission and distribution segments, and open the power retail market to social capital. Additionally, improving the power bidding mechanism and the price adjustment mechanism for medium and long-term contract transactions will be the two important tasks of this reform. With the maturity of the market, the proportion of market-oriented transaction in power market will keep increasing and the power prices will follow the market mechanism gradually. As a member of the "Kyoto Protocol" and the "Paris Agreement”, China has been facilitating the implementation of emission reduction policies. With higher coal-fired power generation environmental standards, the coal-fired power plants are encouraged to upgrade their energy-saving and low-carbon technologies. Furthermore, the implementation of carbon trading will also motivate the coal-fired power enterprises to improve their productivity and the efficiency of resource utilisation. With the progress of technology, part of large hydropower plants such as the Three Gorges hydropower plant, have already achieved automated management. In the future, more intelligent technologies will be applied to the hydropower plants in order to increase the power supply efficiency and enhance system flexibility. With the higher level of power operation requirements and the rapidly growing market share of renewable energy in the power market, the power system faces the problems of larger power consumption and the wider gap between peak and valley time. Due to the characteristics of the hydroelectric pumped storage power plants, they can transform the surplus power during the valley time into the high-value power in the peak time and increase the utilisation hours of other energy source power plants. However, the current installed capacity of hydroelectric pumped storage is still low. Therefore, increasing the proportion of hydroelectric pumped storage installed capacity will be the target in the future development of hydropower, which has also been mentioned in the "13th Five-Year Plan of Hydropower". With the development of renewable energy power generation technology, the cost of renewable energy power generation in the rich-resource areas with low construction cost and good investment climate is approaching the cost of thermal power. Under this circumstance, the government is planning to cancel the subsidies for renewable-energy power and encourage the development of the renewable-energy power plants. FROST & SULLIVAN Source: Frost & Sullivan 60#61Analysis of China's Power Operation Market Development Trends of Power Supply 1 Restructuring of Power Supply The concerning situation of climate change and the intensified control of air pollution required the development of clean energy power plants. Meanwhile, power generators are also dedicated to improve the electricity efficiency, reduce the cost of electricity generation and increase return on investment of power plant through technology innovation. Structural Reform of 2 the Coal-fired Power Sector Prioritised Dispatch 3 of Power Generation • In order to reduce the overcapacity in the coal-fired power industry, China has issued several policies to promote the supply-side reform in the coal-fired power industry. Many of the small coal-fired power plants tend to be phased out. The newly installed coal-fired power capacity is under strict control. Additionally, China has been facilitating the implementation of emission reduction policies. • Furthermore, particularly in southwest China, in order to deal with and better utilise the abundant hydropower capacity, central government, inclusive of NDRC and NEA, issued regulatory guidance (such as Notice on Promoting Hydropower Consumption in Southwest China (ĦLKALMA promoting the optimised allocation of hydropower resources and prioritising hydropower generation. For instance, regarding the cross-region power supply and power receiving, hydropower in southwest China shall enjoy certain level of priorities for power generation and transmission. Moreover, power grid constructions for hydropower transmission from southwest to the rest of China (Guangdong, Guangxi and Jiangxi provinces) are encouraged and emphasised to ensure the unimpeded power transmission in future. FROST & SULLIVAN Source: Frost & Sullivan 61#62Analysis of China's Power Operation Market Development Trends by Sectors Sector Hydropower Coal-fired Solar Wind Major Trends Industry Vertical Integration: With the deepening of commercialisation reform of China power industry, there will be more hydropower companies acquiring, investing in or establishing downstream business to increase the efficiency of power sale, reduce cost of distribution and have more competitive selling prices. Ecological Protection: According to the 13th five-year plan on development of hydropower from NEA, the government requires to control the development of small size hydropower stations at the developed areas such as eastern China for the purpose of ecological protection. Additionally, the government also emphasises on the environment assessment, especially on the ecological system, before the construction of hydropower station. Technology Advancement: The technology advancement of hydropower may focus on further improving the efficiency of the water turbine, as a result, the high-performance and large capacity water turbine units will be the next technological breakthrough. Additionally, although the hydropower is considered as one of the clean power generation methods, it will still have negative impacts on the ecological system. Therefore, in order to construct environment-friendly hydropower plants, ecological protection technology will be developed. Development of CHP and CCHP: In order to improve energy efficiency, CHP and CCHP facilities are constructed to replace the traditional coal-fired heating system. CHP and CCHP facilities use the waste heat in the power generation process to realise heating or cooling, which can fully utilise the primary energy and improve energy efficiency. Zero-emission: With the increasingly strict environment pollution control, the government puts a higher requirement on the emission of coal-fired power plants, as a result, many coal-fired power plants started to explore the "zero-emission". In order to reduce the emission of coal-fired power plants, the supercritical and ultra-supercritical technologies have been applied to the coal-fired power plants. Supercritical and ultra-supercritical thermal power plants operate at temperatures and pressures above the critical point of water, requiring less coal per MWh and leading to lower emissions, higher efficiency and lower fuel costs per MW. Development of Distributed Power Station. It is noticeable that the installation of distributed power station accounts for a growing share of the total annual PV installation of China. Driven by the favorable policies issued by both central and provincial governments, distributed PV station is expected to gain a more important role of PV stations in the near future. Technological Advancement. The development of PERC technology can largely reduce the loss of solar energy by increasing the conversion efficiency of photovoltaic cells. In addition, materials like monocrystalline silicon and black silicon can better trap the light incidence and reduce the reflectance, which improves the energy conversion rate. The application of these new technologies and materials will greatly improve the efficiency of photovoltaic power and reduce the cost. Coordinated Development of Onshore and Offshore Wind Power. Currently, onshore wind power in China is developing faster than offshore wind power which is mainly limited by technical restrictions. According to China Wind Energy Roadmap 2050 issued by NDRC and IEA, during 2021 to 2030, both onshore wind power and offshore wind power will be the emphasis. Continuous Advancements in Technologies. The shipment data of wind turbines indicate that the average unit capacity of wind turbine has been increasing for years. Among newly installed capacity since 2014, the turbine of 2.0 MW has become the major model and keeps expanding its share. Additionally, turbine manufacturers and developers are developing technologies of energy storage, power dispatching, power transmission, etc. The latest industry technologies, such as "large-capacity" wind turbine, low-wind-speed adaptable turbine and optimised dispatching technology, may result in lower costs of equipment, higher utilisation and operating efficiency, as well as more stable electricity generation. FROST SULLIVAN Source: Frost & Sullivan 62#63Analysis of China's Power Operation Market Policies and Regulation (1/5) Key Policies and Regulations of Power Operation Market in China Issuing Time Issuing Authorities 2019.05.30 NEA 2019.05.21 NDRC 2019.05.10 NDRC, NEA 2019.04.28 NDRC Industry Guideline Notice on the Work Concerning Construction of Wind Power and Photovoltaic Power Generation Projects in 2019 《关于2019年风电、光伏发电项目建设有关事项的 通知》 Notice on Improving the On-grid Pricing Policy for Wind Power 《关于完善风电上网电价政策的通知》 Notice on Establishing and Improving the Guarantee Mechanism of Renewable Energy Power Consumption 《关于建立健全可再生能源电力消纳保障机制的通知》 Key Contents Local governments and related energy departments should prioritise the approval and development of wind power and photovoltaic power generation projects with relatively low or no subsidies. Local governments and related energy departments should prioritise the transmission and consumption of power generated from the wind power and photovoltaic power generation projects with relatively low or no subsidies. The policy changes the original benchmark on-grid tariff for wind power to the guiding price. All newly approved on-grid tariff for centralised onshore wind power projects shall be determined through competition and shall not be higher than the guiding price in the resource area where the project is located. Meanwhile, the guiding prices of onshore wind power and offshore wind power in different resource regions have been announced. The notice proposes to establish and improve the guarantee mechanism of renewable energy power consumption, and to determine the proportion target of renewable energy power consumption in each provincial region, namely "renewable energy power consumption responsibility weight". The purpose is to encourage all provincial regions to give priority to the consumption of renewable energy, accelerate the solution of the problem of abandoning water, wind and light, and at the same time urge all kinds of market entities to equally assume the responsibility of consumption, so as to form a long-term development mechanism led by renewable energy power consumption. The notice changed the original benchmark on-grid tariff for photovoltaic power stations into the guiding price, and the newly added on-grid tariff for centralised Notice on Improving the On-grid Pricing Mechanism photovoltaic power stations shall be determined in principle through market for PV Power Generation 《关于完善光伏发电上网电价机制有关问题的通知》 competition, and shall not exceed the guiding price in the resource area. At the same time, the circular announced the guiding price of photovoltaic power in different resource areas and appropriately reduced subsidies for new photovoltaic power generation Source: NPC, NDRC, NEA, Frost & Sullivan FROST & SULLIVAN 63#64Analysis of China's Power Operation Market Policies and Regulation (2/5) Key Policies and Regulations of Power Operation Market in China Issuing Time Issuing Authorities Industry Guideline 2019.09.26 State Council 2019.01.07 NDRC, NEA 2018.12.29 NPC 2018.11.13 NEA 2018.10.30 NDRC 2018.06.24 State Council Decisions of Standing committee of the State Council Meeting on September 26th, 2019 《2019年9月26日国务院常务委员会会议决议》 Notice on Actively Promoting the Work concerning Subsidy-free Grid Parity for Wind Power and Photovoltaic Power Generation 《关于积极推进风电、光伏发电无补贴平价上网有关 工作的通知》 Electric Power Law of the People's Republic of China (2018 Amendment) 《中华人民共和国电力法(2018修正)》 Notice on the Implementation of Renewable Energy Power Quota System 《关于实行可再生能源电力配额制的通知》 Clean energy absorption action plan (2018-2020) 《清洁能源消纳行动计划(2018-2020)》 Opinions on Comprehensively Strengthening Ecological and Environmental Protection and Resolutely Fighting for Pollution Prevention and Control 《关于全面加强生态环境保护坚决打好污染防治攻坚 战的意见》 FROST & Key Contents Starting at January 1st, 2020, for part of the power output of coal-fired generators, which is not included in the market-based electricity transactions, the linked pricing of coal and electricity will be canceled. The current benchmark on-grid pricing mechanism will be replaced by market- based system of benchmark price and floating price. Local governments should summarise the experience and promote the grid parity of wind power and photovoltaic power pilot projects, combined with resources and new technologies. Power grid enterprises should ensure full use of the output from wind power and photovoltaic power projects and monitor the abandoned wind and solar energy. Governments encourage the development of non-subsidy projects of wind power and photovoltaic power. The power industry should meet the needs of the development of the national economy and the society, and should therefore develop slightly ahead of the other sectors of the economy. The government encourages adoption of advanced scientific, technical and managerial methods for construction, generation, supply and use of electric power and shall give awards to those units and individuals have achieved remarkable successes in research, development and adoption of advanced scientific, technical and managerial methods. File has been clear about how the renewable energy power quotas will be implement and calculated Meanwhile, the file announced the provincial renewable power quotas and the provincial renewable power quotas of non- hydropower renewable energy electricity quotas, which were divided into binding and some bonus By 2020, the national hydropower utilisation rate should reach above 95%; the national average wind power utilisation rate should strive to achieve 95%, while the wind power curtailment rate to be controlled at a reasonable level, i.e. at around 5%; the national average solar power utilisation rate should be higher than 95%, while the solar power curtailment rate to be under 5%. It proposed to increase the use of clean energy, broaden the channels of clean energy consumption, and implement the policy of full guarantee purchase of renewable power generation Source: NPC, NDRC, NEA, Frost & Sullivan SULLIVAN 64#65Analysis of China's Power Operation Market Policies and Regulation (3/5) Key Policies and Regulations of Power Operation Market in China Issuing Time Issuing Authorities Industry Guideline 2016.12.26 NDRC, NEA 2016.12.10 NDRC Plans for Energy Development During 'the 13th Five-Year Plan' Period 《能源发展“十三五”规划》 Plans for Renewable Energy Development During the 13th Five-Year Plan' Period 《可再生能源发展“十三五”规划》 Key Contents Major goals to be achieved by 2020 for energy development are depicted as below: ➤ Total energy consumption shall be no more than 5 billion tons of standard coal equivalent, consumption of coal shall be no more than 4.1 billion tons, and electricity consumption by the whole society is expected to be 6.8 to 7.2 trillion kwh; ➤ Self-sufficiency rate of energy supply shall be kept above 80%; ➤ Non-fossil energy consumption shall be raised to above 15% of total energy consumption, and the proportion of coal consumption shall be below 58%; ➤ Emission of CO2 per unit of GDP shall be 18% less than that in 2015. NDRC specifies several major goals regarding energy, renewable energy and hydropower energy development as the following: ➤ Non-fossil energy consumption in percentage of primary energy consumption shall reach 15% and 20% by 2020 and 2030 respectively; ➤ Annual renewable energy consumption shall reach 730 million tons of standard coal equivalent by 2020; ➤ Total installed capacity of power plant using renewable energy shall reach 680 GW, and the power generation shall reach 1.9 trillion kwh, accounting for 27% of the total power generation by 2020; ➤ Installed capacity of hydropower plant shall reach 340 GW, with power generation reaching 1.3 trillion kwh by 2020; ➤ Constructions of six hydropower bases (including upstream of Yangtse River, upstream of Yellow River, Wu River, NanPan River, Yalong River and Dadu River)shall be almost completed by 2020, with total installed capacity exceeding 100 GW. During 13th FYP, newly-built hydropower plant capacity shall be 60 GW, and newly-operating hydropower plant capacity shall be 40 GW. Source: NPC, NDRC, NEA, Frost & Sullivan FROST SULLIVAN 65#66Analysis of China's Power Operation Market Policies and Regulation (4/5) Key Policies and Regulations of Power Operation Market in China Issuing Time Issuing Authorities Industry Guideline 2016.11.07 NDRC, NEA 2015.11.26 NDRC, NEA 2015.08.20 NDRC 2015.07.31 NEA Plans for Electric Power Development During 'the 13th Five-Year Plan' Period(2016-2020) (Œƒ “+=" (2016-2020 ) » Implementation Opinions of Advancing the Building of the Electric Power Market 《关于推进电力市场建设的实施意见》 Several Opinions of Further Deepening the Reform of the Electric Power System 《关于进一步深化电力体制改革的若干意见》 Distribution Network Construction and Transforming Plan (2015-2020 ) 《配电网建设改造行动计划(2015—2020年)》 Key Contents The State deepen reforms and opens up to development. And adheres to the direction of market-oriented reform, improve the market system, foster market players, promote the reform of electricity prices, improve operational efficiency, and build an efficient, fair, open and competitive power market. In accordance with the basic laws of the market economy and the objective laws of the operation of the power industry, cultivating market players actively, persisting in energy conservation and emission reduction, establishing a fair, standardised and efficient power trading platform, introducing market competition, breaking down market barriers, and opening up the power grid without discrimination. Increasing funding support. Leverages the financial resources of governments at all levels to drive investment from enterprises and the general public, expands the scale of investment, and forms a long-term mechanism to support the development of distribution networks. The state reviews the inclusion of distribution network construction and renovation projects in the list of enterprise income tax incentives. The State considers the tax support policies for projects that utilise clean electricity for central heating, electric vehicle charging infrastructure, and distributed power supplies for access to supporting power grids, encourages local governments to formulate policies to support the construction and renovation of distribution networks in light of local conditions and increase their support. Source: MEE, NDRC, NEA, Frost & Sullivan FROST & SULLIVAN 66#67Analysis of China's Power Operation Market Policies and Regulation (5/5) Key Policies and Regulations of Power Operation Market in China Issuing Time Issuing Authorities 2014.09.19 NDRC, MEE, NEA 2014.08.20 NDRC 2014.05.10 Industry Guideline Coal Power Conservation and Emission Reduction Transforming Plan 《煤电节能减排升级与改造行动计划》 Notification of Resolving Pricing Problem for Green Electricity 《关于进一步疏导环保电价矛盾的通知》 Key Contents The plan makes clear the leading idea and goal of coal power conservation and emission reduction transforming activity, and it also points out 30 detailed tasks for the transformation. Several major tasks are depicted as following: ➤ As for newly-built thermal power plant, coal consumption per kwh of power generated shall be below 300g of standard coal equivalent. ➤Coal consumption shall account for no more than 62% of primary energy consumption by 2020. ➤To optimise the distribution of thermal power plant. Newly-built thermal power plant shall be strictly complying with environmental protection standard. ➤By 2020, to eliminate those outdated thermal power plants with aggregated capacities of more than 10 million kw. ➤ Optimise the power dispatch. Prioritise those adjustable power generation units utilising hydro energy. The on-grid tariffs for DeSOx generators in some regions are reduced. Cross-region power grid transmission price is also reduced. Industrial and commercial electricity start to share the same price in Guangdong Province. MEE, NEA Notification of Accomplishing Environmental Protection in Hydropower Construction 《关于深化落实水电开发生态环境保护措施的 通知》 The notification points out detailed environment protecting methods in aspect of river hydropower engineering, hydropower construction and immigrant settlement, etc. Source: NPC, NDRC, NEA, Frost & Sullivan FROST & SULLIVAN 67#68Analysis of China's Power Operation Market Breakdown of Cost for Power Generation Breakdown of Power Generation Cost (thermal power by coal), China, 2018 12% 9% 14% 64% Fuel Cost Depreciation Cost Payroll and Maintenance Cost Other Cost Breakdown of Power Generation Cost (hydropower), China, 2018 31% 65% 4% Depreciation and Financial Cost Payroll Cost Other Cost • Highlights Power generation cost structure is significantly different between thermal power and hydropower. Close to 64% of the power generation cost by thermal power is consumed by fuel. Other significant cost components include depreciation cost (14%) and payroll and maintenance cost (12%). As for hydropower facilities, a majority of the power generation cost is contributed by depreciation expenses, relating to the initial capital investment on constructing dam, spillway and water transfer tunnels, together with purchasing and installing mechanical equipment. Financial expense which is incurred for capital raising to finance hydropower project is also a major cost component. Payroll accounts for around 4%. The rest of the amount mainly includes repair and maintenance, tax, etc.. FROST & SULLIVAN Source: Frost & Sullivan 68#69Analysis of China's Power Operation Market Analysis of Fuel Prices (1/3) Market Price of Steam Coal*, China, 2013-2023E RMB per Tonne 611.3 593.1 573.0 546.8 536.9 527.2 517.6 650 592.2 600 550 523.5 500 459.4 450 427.2 400 350 300 CAGR(13-18) CAGR(18-23E) 250 Steam Coal 0.0% -2.7% 200 150 100 50 0 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E • • Highlights Market price for steam coal bottomed out in 2015, resulting from various factors such as the slowdown of China economic growth, reduced consumptions by downstream industries(e.g. steel industry) and substitution effect by new energy resources. Furthermore, fierce competition in coal mining industry further pulled down the coal price, indicating the urgency to resolve the excessive capacity issue. The market price of steam coal increased from 2016 to 2018, signalling a rebalance between coal supply and demand to be reached, after the completion of removing excessive capacity exercise within the coal industry. coal price is anticipated to decrease gradually in the foreseeable future. On one hand, advance in coal mining and production technology will drive down production cost of coal thus further lead to price decrease, and on the other hand, tightening environmental protection requirements may force downstream industries to reduce coal consumptions and turn to alternative energy solutions. * Steam coal is represented by steam coal with calorific value of 5,500kcal/kg from Qinhuangdao, China Source: Frost & Sullivan FROST SULLIVAN 69#70Analysis of China's Power Operation Market Analysis of Fuel Prices (2/3) Market Price of Natural Gas, China, 2013-2023E RMB per Cubic Meter Highlights 4.0 3.5 3.5 3.4 3.3 3.5 3.3 3.2 3.2 3.3 3.3 3.0 2.5 2.0 1.5 1.0 0.5 0.0 T T 3.3 3.3 Natural Gas CAGR(13-18) CAGR(18-23E) -0.3% 0.3% 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022 2023E Market price of natural gas decreased form with a CAGR of -0.3% during 2013 to 2018. Going onwards, market price of natural gas is anticipated to stay relatively stable, with a slight increase during the forecasted period. Due to central government's promotion on increasing the usage of natural gas and reducing carbon emission, i.e. the "Notice on Acceleration of Natural Gas Utilisation" by NDRC ( 然气利用的意见), market demand on natural gas is increasing, and applications inclusive of natural gas for power generation, industrial manufacturing, transportation are strongly encouraged. As the pricing mechanism for non- residential-use natural gas is to move further towards market driven, natural gas price is to increase in future. FROST & SULLIVAN Source: Frost & Sullivan 70#71Analysis of China's Power Operation Market Analysis of Fuel Prices (3/3) Market Price of Crude Oil, Global, 2013-2023E US Dollar per Barrel 104.1 96.2 110 11 100 90 80 70 76 60 52.8 50.8 42.8 50 50 40 40 32 30 74.0 72.0 69.0 69.1 69.2 69.3 CAGR(13-18) CAGR(18-23E) 20 Crude Oil -7.1% -0.8% 10 10 0 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E • • . Highlights Historically, a decline in crude oil price is observed during 2013 to 2016, which can be attributed to the slowdown of global economic growth, oversupply of crude oil by OPEC countries, and reduced reliance on crude oil from U.S. due to the shale gas discovery. Price of crude oil started to recover gradually after 2016 and bounced back to US Dollar 72.0 per barrel, as OPEC countries and Russia reached agreement on cutting oil production. Moreover, the rejuvenation of global economy particularly the emerging countries has further increased demand on crude oil for industrial production and manufacturing, resulting in crude oil price increase. In future, oil price is expected to remain relatively stable while factors such as global trade disputes, U.S.'s tightening monetary policy and slowdown of European economies may add uncertainties to the prospect of global economy and oil price. FROST & SULLIVAN Source: World Bank, Frost & Sullivan 71#72Analysis of China's Power Operation Market Production Level of Major Fuels (1/3) Production Volume of Coal, China, 2013-2018 Million Tonnes CAGR:-0.7% 4,000 3,874.0 3,680.0 3,684.8 3,545.9 3,445.5 • 3,500 3,364.0 3,000 2,500 2,000 1,500 1,000 500 0 2013 2014 2015 2016 2017 2018 Highlights • • As one of the major coal consumption countries in the world, China has witnessed fluctuations of the domestic production volume of coal during past years. During 2014 to 2016, following the central government's guidance on initiating supply-side reform and removing the excessive capacity in coal production industry, small-scale coal production enterprises have been shut down, leading to a decline in coal production volume from 3,874.0 tonnes to 3,364.0 tonnes. The overall coal production industry has improved since 2017, together with the central government's focus shifting to stablising coal price and supply. Therefore, production volume of coal has recovered and bounced back to 3,545.9 million tonne in 2018. FROST & SULLIVAN Source: Frost & Sullivan 72#73Analysis of China's Power Operation Market Production Level of Major Fuels (2/3) Production Volume of Crude Oil, China, 2013-2018 Million Tonnes CAGR:-1.9% 220 208.1 211.4 214.7 199.7 200 191.5 189.1 180 160 140 120 100 80 60 882 40 20 0 2013 2014 2015 2016 2017 2018 Highlights During past years, production volume of crude oil in China fell from 208.1 million tonnes in 2013 to 189.1 million tonnes in 2018, representing a CAGR of -1.9%. Particularly, the continuous decrease in the production volume of crude oil during 2016 to 2018 is mainly contributed by limited reserves of fossil resources, deteriorating business profitability due to low crude oil price and high excavation cost. Lacking technological breakthrough relating to the exploration of unconventional oil field together with the increasing difficulties on excavating existing resources affected the production volume of crude oil in China, not even to mention the gloomy investment sentiment on oil exploration, as more capitals are flowing into clean energy (e.g. natural gas) exploration projects. Source: NBS, Frost & Sullivan FROST & SULLIVAN 73#74Analysis of China's Power Operation Market Production Level of Major Fuels (3/3) Production Volume of Natural Gas, China, 2013-2018 Billion Cubic Meters 180 161.0 160 CAGR:+7.4% 147.4 136.8 140 127.1 123.4 120 112.9 100 60 80 60 40 20 20 0 2013 2014 2015 2016 2017 2018 Highlights During 2013 to 2018, production volume of natural gas in China exhibited a rapid increase, from 112.9 billion cubic meters in 2013 to 161.0 billion cubic meters in 2018, representing a CAGR as high as 7.4%. Driven by the nationwide trend towards clean energy consumption, natural gas industry has expanded considerably in recent years, with widening applications and increasing penetration into people's daily life and industrial manufacturing processes. Under the circumstances that the domestic power generation structure is continuously optimising and the urgency of building up low-carbon- emission power generation system, the exploration of natural gas is to accelerate, to replace some fossil resources such as coal and fossil oil. FROST & SULLIVAN Source: Frost & Sullivan 74#75Analysis of China's Power Operation Market Carbon Trading Price Average Carbon Trading Price and Volume, China, 2013-2018 90 10 -60 50 50 40 40 10 • • Highlights In China, the carbon market saw a significant growth in trading volume, increasing from 0.4 million tonnes in 2013 to 59.1 million tonnes in 2018, presenting a CAGR of 178.6%. On the contrary, the average carbon trading price decreased from RMB 64.6 per tonne in 2013 to the lowest point, RMB 17.2 per tonne in 2017, and then bounced to RMB 21.1 per tonne in 2018, with a CAGR of -20.1%. Since the carbon market in China is still at the early stage, the majority of emission allowance quota allocated freely to emission companies. In the future, with the maturity of carbon trading in China, the proportion of non-gratuitous emission allowance will increase, additionally, the supervision of emission will increasingly strengthen, which will lead to increasing carbon trading price. In 2017, the NDRC issued the "National Carbon Emission Trading Market Construction Plan (Power Generation Industry)”(全国碳排放权交易市场建设方案 ()), which indicated the completion of the overall design of China's carbon trading system. As a large carbon emitter, thermal power sector will be important in the carbon trading market which will encourage the development of low-emission technology for thermal power. On the other hand, clean energy power plants will benefit from carbon trading due to its characteristics of zero emission. SULLIVAN Source: Frost & Sullivan 75 Million tonne RMB/tonne 80 100 CAGR (13-18) Average Price -20.1% 70 Trading Volume 178.6% 80 59.1 60 70 50 50 64.6 40 40 30 50 20 20 10 10 47.3 51.7 47.6 30 21.1 19.5 17.2 26.0 20 28.8 6.6 0.4 0 2013 2014 2015 2016 2017 2018 Trading Volume Average Price FROST#76Analysis of China's Power Operation Market Green Certificates Scheme Procedure of Application for Green Certification, China Renewable Energy Power Plants The Information Management System of National Renewable Energy Power Generation Project Operational Documents Approval of Projects Construction Situation • • Operation Condition Financial Documents Power Settlement Statements • Invoice Bank Transfer Certification Application for Green Certification Issuance of Green Certification Trade Green Energy Subscription Platform The Public Highlights Currently, the development of renewable energy generation in China relies on government subsidies. However, The long settlement time of tariff for renewable power generation has become a common phenomenon in China, and the settlement time of tariff for PV power generation in China can be range from one to three years. One reason for the long settlement time is the complex procedures of application and approval. Another important cause for this phenomenon is the deficits of the renewable energy development fund. Currently, the financial source of the renewable energy development fund is the renewable energy surcharge in the power retail segment, which is RMB 0.019 per kWh. Additionally, the delay of the application for the subsidies of renewable energy subsidies is another reason for the long settlement time. In Mar 2017, the MOF just started the application for subsidies of renewable energy power plants which were approved after 2006 and connected to the grid before the end of Mar 2016. Until June 2018, the MOF issued the result of this application. In order to alleviate this problem and facilitate the healthy development of the renewable energy industry, the government started to promote the green certification and renewable energy power quota policy. In 2017, the NDRC issued the "Notice of the Trial Implementation of Green Certification Issue and Voluntary Subscription Trading System" (* 于试行可再生能源绿色电力证书核发及自愿认购交易制度的通知)which marked the beginning of green certification trade. Currently, the subscription of green certification is voluntary. In Nov. 2018, the NEA issued the notice about the implementation of the renewable energy power quota policy, which stipulated the proportion of renewable energy power in the total power consumption at the province level and the subscription of green certification can be calculated into the quota. Source: Frost & Sullivan FROST & SULLIVAN 76#771. Analysis of Macro Economy in China 2. Analysis of Global Power Market 3. Analysis of China's Power Operation Market 4. Competitive Landscape of China's Power Operation Market FROST & SULLIVAN 77#78Competitive Landscape of China's Power Operation Market Overview China's power operators can be categorised into two types, namely state-owned power operators and private power operators. Top ten state-owned companies, account for close to 60% of the total installed capacity in China 2018, while private power operators only make limited contribution. Competitive Landscape of China's Power Operation Market State-owned Power Operators 中国华能 唐 CHINA HUANENG 国家能源集团 大唐集团公司 中国华电 CHD 華潤電力 CR Power CHN ENERGY SDIC LI 国投电力 中国三峡 国家电投 SPIC 中广核GP E 浙能电力 . The state-owned power operators are the major players in China's power operation market and account for the majority of both total installed capacity and power generation volume. The representative state-owned power operators are five giant power generation groups including China Energy Investment Group, China Huaneng Group, China Datang Group, China Huadian Group, and State Power Investment Corporation. Private Power Operators • v = 永泰能源股份有限公司 WINTIME ENERGY CO., LTD. B 通威集团 TONGWEI GROUP BOIWA 嘉泽新能源 JIAZE NEWENERGY Private power operators are supplementary to the state- owned power operators in China and only account for very limited proportion of total installed capacity and power generation volume. Representative companies include Wintime Energy, BOIWA, Tongwei Group and Jiase New Energy. FROST & SULLIVAN Source: Frost & Sullivan 78#79Competitive Landscape of China's Power Operation Market Ranking and Market Share of Power Operators (1/6) Top 10 Power Operators, China, 2018 Total Installed Capacity: 1,899.7 GW Company Consolidated Renewable Market Rank Installed Capacity Energy Share (GW) Share* China Energy 1 Investment Group 238.0 12.5% 24.5% (国家能源集团) China Energy Investment Group China Huaneng 12.5% 2 Group 176.6 9.3% 27.1% China Huaneng Group (华能集团) China Huadian Group China Huadian Group 9.3% 148.0 7.8% 39.5% 43.7% State Power Investment Corporation China Datang Group (中国华电) State Power Investment 7.8% 4 China Three Gorges Corporation China General Nuclear Power 140.0 7.4% 48.9% Corporation (国家电投) 7.4% China Datang Group 1.8% 1.7% 2.7% 7.3% /2.1% 3.7% China Resources Power The Company 5 138.9 7.3% 32.0% (大唐集团) China Three Gorges Guangdong Energy Group Others 6 Corporation 70.3 3.7% 96.3% (三峡集団) China General The power operation market is relatively concentrated in China, and the top 10 operators accounted for approximately 56.2% of total 1,899.7 GW installed capacity in 2018. China Energy Investment Group ranked as the largest power operator in China in 2018 with 238.0 GW installed capacity and 12.5% market share. As one of the top 10 power operators in China, The Company operated 34.1 GW installed capacity as the end of 2018, which accounted for 1.8% of the total installed capacity in 2018. China power operators are accelerating the deployment of renewable energy. SDIC Power ranks second among the top ten power operators in terms of the proportion of renewable energy installed capacity to total installed capacity. As at 31 December 2018, SDIC Power's renewable energy accounted for approximately 53.7% of the total installed capacity. *Renewable energy is defined to include hydropower, wind power, and solar power FROST من 7 Nuclear Power 51.2 2.7% 52.6% (中广核) China Resources 8 Power 39.7 2.1% 20.4% (华润电力) 9 The Company 34.1 1.8% 53.7% Guangdong Energy 10 Group (广东能源集团) Others 32.0 1.7% 10.2% 830.9 43.7% Total 1,899.7 100.0% Source: Company reports, Frost & Sullivan SULLIVAN 79#80Competitive Landscape of China's Power Operation Market Ranking and Market Share of Power Operators (2/6) Top 10 Power Operators of Hydropower, China, 2018 Rank Consolidated Installed Market Company Capacity Share (GW) Total Installed Capacity: 352.3 GW China Three Gorges 1 Corporation 57.6 16.4% China Three Gorges Corporation (三峡集団) 16.4% China Huadian Group China Huadian Group 2 27.2 7.7% (中国华电) China Datang Group China Datang Group 7.7% China Huaneng Group 3 27.0 7.7% (大唐集団) 42.5% State Power Investment Corporation China Huaneng Group 4 26.1 7.4% China Energy Investment Group (华能集团) 7.7% 0.2% The Company State Power Investment 5 Corporation 24.5 6.9% 0.5% 7.4% Guangdong Energy Group 0.7% (国家电投) 4.7% 6.9% 5.3% Gansu Electric Investment Sichuan Chuantou Energy Others China Energy Investment 6 Group 18.7 5.3% (国家能源集团) The Company 16.7 4.7% . The hydropower operation market is relatively concentrated in China, and the top 10 operators accounted for approximately 57.5% of total consolidated installed capacity in 2018. China Three Gorges Corporation ranked as the largest power operator in China in 2018 with 57.6 GW installed capacity and 16.4% market share. As one of the top 10 power operators in China, the Company operated 16.7 GW hydropower installed capacity as the end of 2018, which accounted for 4.7% of the total hydropower installed capacity in China in 2018. Jinping | Hydropower Project's arch dam is 305 metres in height, which is the world's highest double-curvature arch dam. FROST SULLIVAN Guangdong Energy Group 8 2.3 0.7% (广东能源集团) Gansu Electric Investment 9 Group 1.7 0.5% (甘肃电投) Sichuan Chuantou Energy 10 0.7 0.2% (川投能源) Others 151.0 42.5% Total 352.3 100.0% Source: Frost & Sullivan 80#81Competitive Landscape of China's Power Operation Market Ranking and Market Share of Power Operators (3/6) Top 5 Power Operators of Hydropower, Sichuan Province, 2018 Total Installed Capacity: 79.1 GW Rank Company Consolidated Market Installed Capacity Share (GW) China Three Gorges 1 Corporation 20.3 25.6% 26.1% 25.6% China Three Gorges Corporation The Company (三峡集団) 4.4% 18.6% 11.0% China Energy Investment Group China Huadian Group China Datang Group Others 2 The Company 14.7 18.6% 14.3% The hydropower operation market is relatively concentrated in Sichuan Province, China, and the top 5 operators accounted for approximately 73.9% of total 79.1 GW installed capacity in 2018. China Three Gorges Corporation ranked as the largest hydropower operator in Sichuan in 2018 with 20.3 GW installed capacity and 25.6% market share. As the second largest power operator in Sichuan Province, the Company operated 14.7 GW hydropower installed capacity as the end of 2018, which accounted for 18.6% of the total hydropower installed capacity in Sichuan Province in 2018. FROST China Energy Investment 3 Group 11.3 14.3% (国家能源集团) 4 China Huadian Group (中国华电) 8.7 11.0% China Datang Group 5 3.5 4.4% (大唐集团) Others 20.6 26.1% Total 79.1 100.0% & SULLIVAN Source: Frost & Sullivan 81#82Competitive Landscape of China's Power Operation Market Ranking and Market Share of Power Operators (4/6) Top 10 Power Operators of Thermal Power, China, 2018 Rank Consolidated Installed Market Company Capacity Share (GW) Total Installed Capacity: 1,143.7 GW China Energy Investment 1 Group 179.7 15.7% 15.7% China Energy Investment Group China Huaneng Group (国家能源集团) China Huaneng Group 2 128.7 11.3% (华能集团) China Datang Group China Datang Group State Power Investment Corporation 3 94.5 8.3% 41.5% 11.3% (大唐集团) China Huadian Group State Power Investment Zhejiang Zheneng Electric Power 4 Corporation 82.4 7.2% 8.3% China Resources Power (国家电投) 1.0% 12.5% 1.4% 2.8% T China Huadian Group Guangdong Energy Group 5 63.3 5.5% (中国华电) 7.2% 2.8% 5.5% The Company Zhejiang Zheneng Electric Jingneng Power 6 Power 31.8 2.8% Others (浙能电力) China Resources Power 7 31.6 2.8% The power operation market of thermal power is relatively concentrated in China, and the top 10 operators accounted for approximately 58.5% of total 1,143.7 GW thermal power installed capacity in 2018. China Energy Investment Group ranked as the largest power operator in China in 2018 with 179.7 GW thermal power installed capacity and 15.7% market share. As one of the top ten power operators in China, SDIC Power's thermal power installed capacity reached 15.8 GW as at 31 December 2018, which accounted for 1.4% of the market share. (华润电力) Guangdong Energy Group 8 28.7 2.5% (广东省能源集团) The Company 15.8 1.4% Jingneng Power 10 11.5 1.0% (京能电力) Others 475.8 41.5% Total 1,143.7 100.0% FROST & SULLIVAN Source: Frost & Sullivan 82#83Competitive Landscape of China's Power Operation Market Ranking and Market Share of Power Operators (5/6) Top 10 Power Operators of Wind Power, China, 2018 Rank Consolidated Installed Market Company Capacity Share (GW) Total Installed Capacity: 184.3 GW China Energy Investment 1 China Energy Investment Group China Huaneng Group Group (国家能源集团) 38.3 20.8% China Huaneng Group 20.8% 2 18.1 9.8% 25.0% State Power Investment Corporation China Datang Group (华能集团) State Power Investment 3 Corporation 17.4 9.4% China Huadian Corporation (国家电投) 2.2% 9.8% China General Nuclear Power China Datang Group 4 16.0 8.7% 2.6% China Resources Power (大唐集団) 3.2% 3.9% Tianrun New Energy China Huadian Corporation 5 14.2 7.7% 9.4% (中国华电集团) Power Construction 6.7% 8.7% Corporation of China China General Nuclear Power 6 12.4 6.7% 7.7% (中广核 ) China Three Gorges Corporation Others China Resources Power 7 7.1 3.9% (华润电力) • . The overall market concentration of wind power operation market is relatively high. In 2018, the top 10 players were responsible for 75.0% of the market in terms of wind power cumulative installed capacity, while other players accounted for 25.0%. In 2018, the top 3 players were China Energy Investment Group, China Huaneng Group and State Power Investment Corporation whose market shares respectively accounted for 20.8%, 9.8% and 9.4%. Tianrun New Energy 8 6.0 3.2% (天润新能) Power Construction 9 Corporation of China 4.7 2.6% (中国电建) China Three Gorges 10 10 Corporation 4.1 2.2% (三峡集団) Others 46.0 25.0% Total 184.3 100.0% FROST & SULLIVAN Source: Frost & Sullivan 83#84Competitive Landscape of China's Power Operation Market Comparison of Publicly Listed Power Companies (6/6) Top 5 Publicly Listed Companies (by Consolidated Installed Capacity of Hydropower), China, 2018 Top 5 A-share Listed Companies* (by Unit Gross Profit of Hydropower**), China, 2018 Rank Company Consolidated Installed Capacity of Hydropower (GW) Rank Company Unit Gross Profit of Hydropower (RMB/kW) 1 China Yangtze Power (长江电力) 45.5 1 The Company 819.6 Huaneng Hydropower China Yangtze Power 2 21.0 2 705.6 (华能水电) (长江电力) Guiguan Electric Power 3 The Company 16.7 3 493.7 (桂冠电力) GD Power Development Datang International Power 4 14.3 4 Generation 489.5 (国电电力) (大唐发电) Guiguan Electric Power 5 10.2 (桂冠电力) сл 408.7 Among all publicly listed PRC power generation companies, SDIC Power was the third largest hydropower company in China in terms of consolidated installed hydropower capacity of 16.7 GW as at 31 December 2018. Hubei Energy Group (湖北能源) The unit gross profit of SDIC Power's hydropower business in 2018 was RMB 819.6 per kW, which was the highest among all A-share listed power generation companies with hydropower installed capacity over 1.0 GW in the same year. *For comparability, only power generation companies with consolidated installed capacity of hydropower over 1.0 GW are included. ** Unit gross profit of hydropower projects is defined as a measure of the profitability of hydropower projects of power generation companies. It is calculated by dividing the gross profit of hydropower projects by average of beginning and ending balance of consolidated installed capacity of hydropower projects during the reference year. Source: Frost & Sullivan FROST & SULLIVAN 84#85Competitive Landscape of China's Power Operation Market Profiles of Major Players (1/5) 国家能源集团 China Energy Investment Group Key Company Information Business Coverage • 2018 Installed Capacity (GW) • • Headquarter Province with Power Plants in Operation Key Company Information Business Coverage 2018 Installed Capacity (GW) Power generation(thermal power, hydropower and new energy power) Coal mining Transportation Chemicals Eco-friendly Technologies • Finance Thermal power: 179.7 Hydropower: 18.7 Other: 39.6 • Power generation(thermal power, • hydropower, nuclear electricity and other new energy power) Coal mining Transportation • Finance Thermal power: 128.7 Hydropower: 26.1 Other: 21.8 中国华能集团 China Huaneng Group Headquarter Province with Power Plants in Operation Source: Company reports, Frost & Sullivan FROST SULLIVAN 85#86Competitive Landscape of China's Power Operation Market Profiles of Major Players (2/5) 中国华电 China Huadian Group Key Company Information Business Coverage • • 2018 Installed Capacity (GW) • Headquarter Province with Power Plants in Operation Key Company Information Business Coverage Power generation(thermal power, hydropower, nuclear electricity, and other new energy power) Coal mining Finance LNG and shale gas technology development and equipment manufacturing Thermal power: 63.3 • 2018 Installed Capacity (GW) • Hydropower: 27.2 • Other: 57.6 • Power generation(thermal power, • hydropower, and new energy power) Coal mining Transportation Technology Finance 大唐集团 China Datang Group • Fuel Thermal power: 94.5 Hydropower: 27.0 . Other: 17.4 Headquarter Province with Power Plants in Operation Source: Company reports, Frost & Sullivan FROST & SULLIVAN 86#87Competitive Landscape of China's Power Operation Market Profiles of Major Players (3/5) 国家电投 State Power Investment Corporation Key Company Information • Business Coverage • Finance • • 2018 Installed Capacity (GW) • • Headquarter Province with Power Plants in Operation Key Company Information Business Coverage Power generation (thermal power, hydropower, nuclear electricity and other new energy power) Coal mining Finance Environment protection Logistics Aluminum • 2018 Installed Capacity (GW) Thermal power: 82.4 • Hydropower :24.5 • Other: 33.2 Power generation(hydropower and new energy power) Engineering and design Thermal power: 2.63 Hydropower: 57.6 Other: 10.0 三峡集団 China Three Gorges Corporation Headquarter Province with Power Plants in Operation Source: Company reports, Frost & Sullivan FROST SULLIVAN 87#88Competitive Landscape of China's Power Operation Market Profiles of Major Players (4/5) 中广核 China General Nuclear Power G Key Company Information Headquarter Province with Business Coverage • Power generation (nuclear power and other new energy power) Nuclear fuel Finance Nuclear technology Nuclear power: 24.3 Power Plants in Operation 2018 Installed Capacity (GW) Other: 26.9 Key Company Information Business Coverage • • • 2018 Installed Capacity (GW) • Power generation (thermal power, hydropower and new energy power) Coal mining, processing and sales Distribution network construction and operation Thermal power: 31.6 Hydropower: 0.4 Other: 7.7 华润电力 China Resources Power Holdings Headquarter Province with Power Plants in Operation Source: Company reports, Frost & Sullivan FROST & SULLIVAN 88#89Competitive Landscape of China's Power Operation Market Profiles of Major Players (5/5) 国投电力 SDIC Power Key Company Information Business Coverage • Key Company Information Business Coverage Power generation (thermal power, hydropower and new energy power) Coal trade Environment protection Headquarter Province with Power Plants in Operation Thermal power: 15.8 2018 Installed Capacity (GW) Hydropower: 16.7 Other: 1.5 Power generation (thermal power, nuclear power and other new energy power) Coal trade Heating 浙能电力 Zhejiang Zheneng Electric Power 2018 Installed Capacity (GW) • Thermal power: 31.8 Other: 0.2 Headquarter Province with Power Plants in Operation Source: Company reports, Frost & Sullivan FROST & SULLIVAN 89#90Competitive Landscape of China's Power Operation Market Entry Barriers Regulation Barrier Power industry in China is implementing the market admittance system, which requires market participants engaged in power generation, transmission and distribution business to obtain government's permission first before conducting power business. Applicants will need to fulfill requirements on financial capabilities, qualifications held by personnel, environmental regulations, etc. in order to be granted with such permissions. Furthermore, initiation of power projects also need to obtain approval from administrative bodies (e.g. Water Affairs Bureau to approve hydropower project). Such regulatory procedures typically require bulk of documents and take long processing time, which is deemed as a significant entry barrier for new market players. Talent Barrier 2 • Regarding the requirement on manpower in power industry, human resources equipped with professional knowledge, proficient skillsets and relevant qualifications are in high demand. Power projects are generally specialised and complicated, which requires intensive involvement of experienced talents with specialties in power industry. To train and foster such employees will consume great amount of time and funds, and moreover, due to the limited supply in market, it is difficult to for new comers of power industry to recruit sufficient number of qualified professionals within a short period of time. Therefore, new entrants have to overcome talent barrier in order to complete with existing power market participants. 4 Entry Barriers 1 • Industry Experience Barrier Due to the significant influence of power industry to the society and human's daily life, power generation facilities and infrastructures must have high level of safety and stable performance during operation, and hence the successful track record of operating and maintain power generation project is highly regarded as a guarantee to ensure that the new power project can be functioning well. Moreover, managing a portfolio of power generation projects using different power sources requires not only unique expertise, but also highly systematic and integrated technical and managerial experiences, which are difficult for new comers to accumulate within short time. FROST & 3 • Capital Barrier Large-scale power projects have a long construction and project return period, which must be supported by sufficient capital for the continuation of business operation and maintenance. Due to lack of efficient funding channels, it is usually difficult for new comers to conquer capital barrier. SULLIVAN Source: Frost & Sullivan 90#91Competitive Landscape of China's Power Operation Market Competitive Edges of the Company 1 2 Leading Position in Hydropower Generation Business Diversification in Power Generation By controlling the entity which possesses the exclusive rights of developing Yalong River hydropower in Sichuan province, the Company forms its core competence in hydropower generation. Yalong River ranks in the third place among 13 national hydropower bases in terms of installed capacity, which offers abundant natural resource advantage to the Company. Moreover, construction of large-scale hydropower generation plant and developing clean power generation in Yalong River are not only strongly encouraged by governmental policy but also in line with the implementation of the "West to East Electric Power Transmitting" strategy. Under the favorable regulatory context, the Company is well positioned to maintain its leading position in hydropower generation sector in China.. The Company diversifies its business operation portfolio in hydropower, thermal power, wind power and solar power generation, which enables the Company to minimise the effect of uncertainties caused by price volatility of different fuels, regulatory requirement change, natural environment change, etc.. Furthermore, backed up by its lucrative core hydropower generation segment, the Company is able to generate a predictable and sufficient cash flow, which can be utilised to finance its business expansion and investment. 3 Abundant Experience in Power Generation Industry The outstanding profit margins and sound financial performance achieved by the Company in recent years can be greatly attributed to wealthy industrial experience held by the company. Participating in the power generation industry for decades, the Company has accumulated abundant experiences relating to investment, construction, operation and maintenance of power generation projects. Moreover, the company possesses high-quality human resources, with employees holding college degrees or above taking more than 70% of all headcounts. Besides, the company has been proactively engaged in overseas power engineering businesses (e.g. offshore wind power generation project in UK) through merge and acquisition, which grants the company more opportunities to succeed when exploring international power market. Source: Company Report, Frost & Sullivan FROST SULLIVAN 91#92Thank You Partner with you on the Road to Growth Your Strategic Growth Partner FROST & SULLIVAN 22 92