Good afternoon, ladies and gentlemen. On behalf of Huaneng Power International Incorporated, I would like to welcome you all to the conference call regarding the interim results announcement of 2024. [foreign language] . Now, may I introduce the management of the company today? [foreign language] the Chairman of the company, Mr. Wang Kui. [foreign language].
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[foreign language], The vice chairman of the company, Mr. Wang Zhijie. [foreign language].
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[foreign language]，The independent director of the company, Ms. Deng Ying.
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[foreign language] The vice president of the company, Mr. Qin Haifeng。[foreign language]。
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[foreign language]，The vice president and the board secretary to the company, Mr. Huang Chaoquan. [foreign language]。
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[foreign language]，The vice president of the company, Mr. Du Daming . [foreign language]。
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[foreign language]，The chief accountant of the company, Mr. Zhu Daqing。[foreign language]。
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[foreign language]。People in charge of the related departments are also joining us in this meeting. [foreign language]。irst of all, the Chairman of the company, Mr. Wang, will review the business performance for the interim results of 2024, followed by the Q&A session. [foreign language]. May we have the honor to invite Mr. Wang to review the business performance, and Ms. Liu Tianyu will conduct the English interpretation.
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Ladies and gentlemen, good afternoon. Welcome to the Interim Results Conference Call of Huaneng Power International. Yesterday, the company has released its interim results. Please let me give a brief introduction.
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In the first half of the year, the company centered on the annual target, seized the market opportunities, pushed forward operation and development, and achieved good operating results.
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Under the Chinese accounting standards, the company achieved a consolidated operating revenue of ¥118.8 billion, decreasing by 5.73%. Net profit attributable to company shareholders was ¥7.45 billion, increasing by 18.16%. The earnings per share was ¥0.38.
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In terms of power generation, the company researched the power market and arranged proper operation and maintenance to ensure the power supply in peak season. The power generation of wind and solar increased along with the growth of installed capacity and contributed to a narrowing of the decline in generation.
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In the first half of the year, the company's domestic on-grid power generation was 210.678 billion kWh, decreasing by 0.22%. The average tariff was ¥498.7 per MWh, decreasing by 3.21%.
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I n terms of the coal supply, the company seized the opportunity, utilized contracted coal to ensure the supply and control cost, optimized imported coal and inventory structure when the market was relatively sufficient. The company's fuel control has been effective.
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The unit fuel cost of the first half of the year was ¥300.51 per MWh, a year-on-year decrease of 11.18%.
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In terms of the development, the company continues to pay attention and actively responds to the policy of energy transition and push forward the clean energy development.
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In the first half of the year, the company added 3,102.2 MW of units, including 1,054.5 MW of wind power, 1,989.7 MW of solar power, and 58 MW of gas-fired power.
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By the end of June, the company's installed capacity reached 138.57 GW. Wind and solar capacity reached 31.6 GW. Low carbon clean energy accounts for 32.78% of total capacity.
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In terms of overseas operations, in the context of a plentiful power supply in Singapore and a year-on-year decline in wholesale and retail tariffs in the first half of the year, the profit before tax of Tuas Power was ¥1.724 billion, decreasing by ¥1.166 billion.
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Tuas Power researched the power and fuel market, actively responded to the market change, continued refined management, and strived for appropriate gross profit. The operating performance stands at a relatively high level among the historical performance.
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The performance of Sahiwal Power Plant in Pakistan reached a record high. The profit before tax was ¥429 million, increasing by ¥117 million.
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In the second half of the year, the company will implement the spirit of the Third Plenary Session of the 20th Central Committee and policies of building a new power system, continue to focus on the 14th Five-Year Plan and the company's development strategy, push forward the green transition and upgrade the asset structure by deepening the reform and operation, further drive the performance to a new level.
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The company will continue the green energy development and accelerate the transition, analyze the supply and demand of power markets, seize the chance of peak seasons, and optimize the timing and structure to strive for possible power generation.
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The company will track the coal market and develop procurement strategies, optimize the supply structure and control the fuel cost, expand access to finance, make use of green financial policies to reduce cost and improve efficiency.
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Now, my colleague and I would like to answer your questions. Thank you.
[foreign language] Thank you, Mr. Wang. Have a good Q&A session. [foreign language]. For the questions, please write down followed by 1 and press 1 and the pound key [foreign language]。Please state your name and your organization before questions arise. [foreign language]。The first question comes from Tony Fei of BOCI, please.
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I have two questions. First, related to the company's renewable sector. In the second quarter, the company's renewables capacity as well as the generation volume have a rapid increase; however, the profits have decreased. Could you talk about the wind and solar tariffs and curtailment issue in the first half of the year, and what policies may the government have to help tackle this issue? Second is about the government currently releasing working plan of the coal power unit decarbonization renovation and construction. Does the company have a statistic that how many of our projects may have to have this renovation? As the government sets the 50% decarbonization goal and three pathways towards the decarbonization, we think the investment and operating cost will be relatively high; however, the return cannot meet our requirement.
What is the company's capacity plan, and how will the company balance between the renewable energy capacity and the renovation to the thermal units?
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[foreign language] Please first let me answer questions about the wind and solar curtailment. In the first half of the year 2024, the wind curtailment of the company was 5.66%, increasing by 1.16 percentage points. [foreign language]。The curtailment of solar was 6.05%, increasing by 3.42 percentage points. [foreign language]. In the first half of the year, the average tariff of our wind sector was 511.89 yuan per MWh , decreasing by 6.04%. [foreign language]. The average tariff of our solar sector in the first half of the year was 426.98 yuan per MWh , decreasing by 9.77%. [foreign language]. As for the consumption issue, at the beginning of the year, a series of documents has been released by the government. First is to add some consumption facilities to the power system. [foreign language]
The government document has required that the curtailment should not be higher than 10%. The company has our operation in line with the government request.
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Please let me answer your questions about the working plan of decarbonization of our coal units. The SBNEA have released this working plan. The company have contacted the authorities at the first time to see the government policies trend.
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The government goal is to cut our carbon emissions for the coal units to about the same level as the current existing gas units.
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The three main pathways: first is to blend the biomass resources, second is to blend the green ammonia, third is to apply CCUS.
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However, those three pathways won't have a sound return to the company. That's why the document for now is out for public opinion, and for the company we need to have some subsidies to ensure our profit.
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The company has reserved some projects in different pathways; we are planning to report to the authorities, however we will have further development to see the detailed policy situation.
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The company has also explored other ways such as the industrial sludge to use in our blending, and our target and our goal is in line with the government, that is to decarbonize the coal units emission.
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Thank you. [foreign language]。 The next question comes from Huang Xiu Jie of Guoxin Securities, please.
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I have two questions. First, could you talk about the company's unit fuel cost divided into coal units and gas units, and the company's combined unit fuel cost in the second quarter alone? And could you talk about why the company's standard coal price in the second quarter is significantly higher than the first quarter? Second, about the company's tariff, could you talk about the company's thermal, wind, and solar tariff as well as the market-based tariff? What is the proportion of the market-based tariff in each energy type, and what is the market-based tariff, and what is the decrease compared to the benchmark? And could you talk about the capacity payment situation for the company?
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[foreign language]. First, please let me give you the unit fuel cost of the company in the first quarter. The blended unit fuel cost of the company was ¥297.08 per MWh . For coal it was ¥288.08, for gas it was ¥411.7. [foreign language]。And in the second quarter, the unit fuel cost of our blended fuel was ¥304.6 per MWh . For coal it was ¥295.7, gas ¥433. [foreign language]. About the coal price increasing, first please let me give you the standard coal price of the company. The standard coal price in the first quarter was ¥1,038.25 per ton; for coal it was ¥978 per ton; gas ¥2,322.6. [foreign language] . For the second quarter, the blended standard coal price was ¥979.7 per ton; for coal it was ¥933.6; for gas it was ¥1,980.5. [foreign language] .
So the standard coal price have a 10% quarter on quarter decrease. [foreign language]. The main reason is the end of the heating season. The company's coal consumption rate in heating season is usually 20 grams lower than the coal consumption rate in non-heating season.
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[foreign language]. First, let me give you the average tariff of the coal sector. In the first half of year 2024, the tariff of coal was ¥483.52 yuan per MWh , decreasing by 2.7%. [foreign language]. The power purchase agreement that settled yearly, the average tariff was ¥452.45 yuan per MWh . [foreing language] For the power purchase agreement settled monthly, the average tariff was ¥432.03 yuan per MWh . [foreign language]. About the spot market trading volume in the continuous spot market, in total have five regions, the company operates in four regions including Shanxi, Shandong, Guangdong, and Gansu. In those areas, the spot market volume was about 5% to 6% of our total power sales. [foreign language]. The average tariff of the spot market trading was ¥452.89 yuan per MWh.
[foreign language] What is the proportion of the company's market-based volume in the first half of the year?
[foreign language]. The market-based volume settled yearly accounts for 67.2%.
[foreign language]。The next question comes from Liang Hong of Huatai Securities, please.
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I have three questions. First, as the company announced in the previous conference call that 15% of units will enter the life extension process, could you talk about the timing of this issue and what will be the capex the company will put into the life extension for our units and could you talk about the difference of the profit from the life extension and power generation power peak adjustment generation? Second, about the company's tariff, could you talk about the company's expectation of the signing of the power purchase agreement in 2025 as the monthly bidding price have dropped rapidly, what will be the company's judgment in the tariff next year or could you talk about in which provinces that will have a higher decrease of the tariff? Third, could you talk about the coal consumption rate for our coal units in fourth quarter and second quarter?
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About the life extension of our thermal units, for now the company has 51 units that are operating more than 25 years, including 49 coal units and two gas units, so that is to say for all the life extension units they are all old outdated units that may be operating for more than 30 years. For now 17 units have been approved by the local government and 11 units are now under the approving process.
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For the units that are already being approved by the government including Shang'an, Huangtai, Dalian, Yueyang.
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For our units such as the units in Dezhou and number three, number four in Yangluo and Shang'an and Luohuang, those units are under the approving process.
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For those units that are approved for life extension by the government, they have no difference from our other units in power generating and profit.
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According to the difference between provinces' policy, some units may get five years life extension, some ten years.
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[foreign language] About the company's tariff in next year, usually when we talk about the tariff we think about the supply demand in power market as well as the coal price; however, because of the introduction of the capacity payment for now, the power generation are highly correlated to the tariff。[foreign language]. For now the company haven't had any assignment for the next year's power purchase agreement, it's the work usually begin in the fourth quarter; the company's principle is to have more profitable power assigned and being stable in the tariff, unless there is a great drop in the coal price, the company's tariff we would like it to stay stable。
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In the first half of the year, the company's coal consumption rate for coal units only was 284.28 grams.
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Thank you.
[foreign language] So could you talk about the capex we need in the life extension renovation?
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There is no great expenditure for the life extension other than the evaluation fee that's paid to our evaluator.
[foreign language] The next question comes from Qinzhi Liang of CITIC Securities, please.
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I have three questions. First about the renewable development of the company. In the whole industry as well as in our company, the return rate of renewable has decreased, so how will the company balance between the company's development and the return of our renewable? As the company has set a 10 gigawatts target in the beginning of the year, will the company continue to achieve this target and under what circumstance will the company adjust the company's target of renewable development? Second about the coal consumption rate, could you talk about the difference quarter on quarter, and could you give us the number of our coal consumption rate for the first quarter and second quarter last year? Third, could you talk about the hydro output influence to our thermal units as this year we have great hydro output, it has dampened our thermal generation. Will this situation continue in the third quarter that will lead to an increase in our depreciation and how does the company view our unit cost considering the generation decline?
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This year in the first half of the year, the government renewable energy policy has had some changes. The company keeps a close track of the policy changes.
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From what we see in the first half of the year, the renewables decision-making process and the newly installed renewable capacity have remained very stable in return.
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Currently the government hasn't released any policies on the relevant issue and the detailed policy for the provincial government also hasn't been released yet.
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Therefore, the company's targets haven't been changed under the current circumstances of carbon peak and carbon neutrality and current profit level.
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Next, the company will have the following measures taken according to the government and provincial government policy release.
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First, the company will keep close track of the policy release of the government, also the provincial government, but now we can see the great impact will be taken in the northwest area that was different from the company's geographic layout.
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Second, the company will insist on our standard investment hurdle rate of renewable and ensure our efficiency and profitability.
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Third is to optimize our layout. The company will select from the resources that have great consumption or great connection.
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Fourth is to strengthen the refined management and operation to have a more accurate forecast for our power generation and to have an intelligent maintenance and operation to increase the efficiency of our operation and decrease the consumption.
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Fifth is to keep close contact with great companies to have synergistic work with great companies to tackle the issue together to diminish the risk we face.
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About the coal consumption rate in the first half of the year, the coal consumption rate per power for power supply was 297.98 grams in the first half of the year and 287 grams in the first quarter. The number in the second quarter will be released after this meeting.
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As you just said, yes, because in the first half of the year the great output of the hydro power has dampened the power generation for the thermal. In the first half of the year the water resources were relatively good and that dampened the power growth rate for the thermal for our thermal units. However, we can take the following measures to help tackle this problem. First, the capacity payment system will help us to maintain a stable profit.
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The company has a certain stable revenue if we can maintain a healthy availability ratio.
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Second is the company can have some gain from the ancillary services market because for now the thermal unit is still the most economical and useful way of ancillary services.
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Third is the company will seize opportunity in the peak season such as when supply demand it was in a tight balance, the company can make some gain in the cross regional spot market.
[foreign language] The next question comes from Tommy Hui of Guotai Junan Securities please.
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I have three questions. First, about the company's coal power tariff in the second quarter, the company has just announced the tariff was ¥480 per MWh . We think it has some increase comparing to the first quarter, so could you talk about the reason for that and what is the company's guidance of coal tariff for the third quarter and fourth quarter? Second, we noticed that in the second quarter the R&D and administration expense of the company have increased year over year, so could you talk about the reason? Is there any particular project that we should take into notice? And third, about the company's total power, as the company's total power capacity, what proportion is coal and what proportion is gas? And we can see that the company's profit have exceeded ¥700 million for continuous quarters, so could you please give us the reason for that and will the company's total power maintain such level, such high level of profit in the following quarters?
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First let me correct your number. The ¥483 per MWh tariff is for the first half of year, but you are correct that the second quarter the tariff have increased quarter on quarter. The most important reason for that is comparing to the first quarter, the power generation have declined in the second quarter. However, the company receive a fixed capacity payment, so the average tariff have increased.
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About this company's tariff guidance for the third and fourth quarter, because in last year the capacity payment have been introduced to the market. But if we see from the historical data, the fourth quarter's tariff have been usually higher than the tariff in third quarter. However, because of the lack of capacity payment implementation, it's very hard for the company to anticipate the tariff in the second half of the year.
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About the company's R&D expense in the second quarter, some of our research projects have been implemented, so the fees have been paid, then this leads to an increase in the R&D expense.
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About the capacity mix in Singapore Tuas Power in our 2010 net worth of units, 93% are gas and others are coal.
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About the continuous seven quarters of great profit for us, we can see from two tiers. First, from the fourth quarter of 2022, the natural gas supply entered into a fluctuated trend and there is tightness in the power market. Our growth margin have increased. The tariff in the spot market also increased.
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Entering the third quarter 2023, the policy environment as well as market environment have changed for us.
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From the policy side, the government has introduced the temporary pricing cap for the power market to smooth out the tariff. It is introduced by the energy authority in Singapore.
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From July 2023, the supply of natural gas was more sufficient because some suppliers have additional supply to the power producer.
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Affected by the above factors, in the third quarter the fluctuation in the wholesale markets have been smoothing out and the tariff in the wholesale market have decreased to a proper level that also leads to a decrease in the retail tariff.
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In the context of the certain circumstances of this market, we have actually adjusted the strategy and optimized our management in the second half of 2023, and we have achieved stable operation.
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Next, the company will enhance its competitiveness and ensure profitable power generation to strive for better operating results in the current circumstances. Thank you.
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Could you talk about the power tariff excluding the capacity payment for our thermal units in the second quarter?
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The unit tariff capacity tariff in second quarter was ¥25.8 per MWh . You can exclude that from the ¥483 per MWh tariff.
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[foreign language] .The next question comes from Song Yingying of China Merchants Securities, please.
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I have two questions. First, about the market participation of our wind and solar capacity, so could you talk about the proportion of the market participation of our capacity and by what % is involved in the green market? And could you talk about the green premium for our renewables in the second quarter and what was the year-over-year change? Second, about the power generation in different provinces, could you - as we can see that in Jiangsu and Shanghai they all have some decrease or decline in the power generation - so could you talk about in which regions it is because the maintenance or renovation that happened, in which regions it's because the hydro output increase that dampens the generation?
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First, please let me give you the number of the market-based power sales for renewable for wind sector. The market-based volume was 6.62 billion kWh hours. It accounts for 35.07% of our wind power sales.
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For solar sector, the market-based volume was 2.648 billion kWh accounting for 32.3% of our solar generation.
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In the first half of 2024, the volume that participated in the green market amounted to 2.2 billion kWh , increasing by 86 million kWh .
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The average tariff of the green market was ¥441.68 per MWh .
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The green premium comparing to the benchmark of our coal units was about ¥50 per MWh . Thank you.
[foreign language]The next question comes from Wu Jie of Haitong Securities, please.
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I have three questions. First, about the capacity tariff, you just said the unit capacity tariff was around ¥25.8 per MWh . Could you divide it into the first quarter and second quarter? In my calculation, if we exclude the impact brought by the capacity payment, the second quarter's tariff have also increased comparing to the first quarter. So could you talk about in which provinces our tariff have increased, or it's just a structural adjustment of this tariff? Second, could you talk about the loss situation of our coal units? Third, in the second quarter, some other companies have some asset impairment. What is the company's consideration of the company's assets impairment? Will the company smooth out the assets impairment in the whole year?
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The ¥25.8 per MWh capacity tariff was for the first half of the year. The capacity tariff for the first quarter was ¥24.4 per MWh . For the second quarter it was ¥28.6 per MWh .
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Oh we will have some follow-up information after this meeting. Thank you.
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Please let me give you some information about our loss situation of the coal units. The company have 71 power plants, coal power plants that have been operated, and 20 of them made loss in the first half of year.
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28% of our power plants made loss.
[foreign language] About the company's asset impairment, the company has always attached great importance to the asset impairment.
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The company will follow the request of the accounting standard as well as the request from our listed authorities that the company will strictly control the asset impairment and have evaluated the signs of impairment in a very prudent measure.
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The company will evaluate all of our assets at the end of each quarter, and if there's an impairment sign, the company will have asset impairment accordingly.
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In the third quarter and fourth quarter in 2023, the company made some asset impairment based on the asset status.
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In the third quarter and fourth quarter this year, the company will continue the asset impairment manner and combining the policy arrangement by the government both on the coal side and renewable side and see through our changes in operation and strictly implement all the requests by relevant authority to have asset impairment.
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Will the asset impairment be better compared to last year in our judgment?
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And if we see the last year's impairments, there are some impairments for the small units that under 300 MW that have a greater possibility than other units to have asset impairment.
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What I mean is that our asset impairment will be based on the authority documents that determine whether units will be shutting down or backing up, and our operation performance this year will be determined by each unit, so it's very hard for us to predict now what asset impairment we will have this year.
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[foreign language] Your time consumes, we invite the last investor to ask the last question comes from Liu Songyang of Guosheng Securities , please.
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I have two questions. First, about the company's carbon market trading: as the government have released a document that will begin a new cycle of carbon trading quota allowance allocation, what will be the company's profit based on the new allocation? Because as we see, there might be some fulfillment pressure for the company. The quota might shrink in the future, and does the company have any research on that? At the same time, will the company have any CCER or green markets related certificates applied by our wind and solar project? Second, in the first half of year, the company operating cash flow have a great performance. What will be the company's guidance for our dividend payout? Will the company have any interim dividend payout in the future, and what is the company's view on the market value management?
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Please let me answer questions about the carbon trading and first about the policy situation. The government have released certain notice to have at punishment to those that who cannot fulfill their obligation and manipulate the market.
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The policy has been out for public opinion, and in our estimation, the quota have been kept shrinking and the gap will be enlarged. For the power industry in 2023, the quota gap will be around 25 million tons, and in 2024 it will enlarge to 50 million tons.
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The working plan also has some requirements for the fulfillment cycle. It changed the cycle to once a year and also has some restrictions on the further allocation for the quota.
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Under the current policy, the carbon trading was around 25 million tons and the volume was around 25 million tons and the trading number was about ¥220 billion with an average price of ¥87.8 per ton and currently the price was around ¥91 per ton.
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For the CCER, the government has launched the trading this year. The relevant methodology and some agencies have been established by the government.
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For now we think in this year we are able, the government may be able to launch and issue the CCER in this year, and if it is launched we think it will help with the carbon trading.
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Currently the thermal power plants may face great pressure to fulfill the contract.
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Now the company has kept close track of the supply and demand as well as the carbon price. The company is working on the plan for the trading and organizing our subsidiaries to actively participate in the market.
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Currently the company's 600 MW units may still have deficit quota. It's break even for the company's 300 MW units, and from the current capacity structure, the company still may lack quota this year and it may bring some pressure for the company's carbon trading and cost control.
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About the company's participation in the green market, as we just announced that 14 of our partners have participated in the green market. The total volume was about 2.2 billion kWh . The company subsidiaries, including Zhejiang, Liaoning, Guizhou, Henan, and Jiangsu, have a trading volume exceeding 100 million kWh.
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The company's average trading price of green certificates was ¥7.6 per certificate in 2023, and it's all issued in 2023.
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For now the only the company's offshore wind can apply for the CCER and the company have complete all the evaluation for our current units and with a compound consideration of profit the company will optimize our management in the CCER application and try to have a more premium in the environment environmental area and try to control our cost. [foreign language]. About the company's dividend policy the company have always attached with importance to the dividend payout and try to have a stable increasing return for our shareholders and from 1998 the company has paid out dividends amounted to ¥62.7 billion. [foreign language]
In the company's dividend policy, if the company has profit this year and the distributed profit is positive and the company's operating cash flow can meet the requirement of the company's operation and development, the company will pay out dividends in cash form. The payout ratio will be not less than 50%. [foreign language] In 2023, after considering the company's current operating status, the company's payout ratio is higher than 50%, near 60%. [foreign language]. After the authorities have released some regulation in the dividends, the company will further keep close attention to the dividend payout and try to push forward the changes in multiple dividend payouts in one year and have some research on that and also study from our peer company that have already payout interim dividends. [foreign language]
The company now is under the research of the dividend payout policy however the company will insist on our current dividend payout policy and some of our work has been already exposed in our notice. [foreign language] Further information will be provided if there are any updates the company will strive for a reasonable return to our shareholders and have positive arrangement on the dividend payout thank you. [foreign language]
Thank you so much for all of the questions and the participation today. [foreign language] Finally Mr. Wang would like to give us a summary. [foreign language]
Thanks for participating in the conference call. Thank you for your continued support. Thank you for your question raised and thank you. Thanks to our colleagues that have that accuracy in the answers. Here we come to the end of today's conference call. Please contact our IR department if you have any further questions. Thank you.