SUNPOWER: Eyes Rmb 500 bn centralised heating market

MaMing 2.2016 “We have planned investments of close to a billion yuan. It is possible to get bank financing for 60% to 70% of that sum because the sector is supported by the government. Our internal operating cash flow is strong enough to finance the balance,” said Executive Director Frank Ma.
Photo by Sim Kih

EVERY MORNING before leaving for his office in Nanjing, Sunpower Group Executive Director Frank Ma checks the PM2.5 level for the day.

“I then decide if I should spend more time indoors or outdoors. In fact, I check two times, three times a day. If it gets bad, I will stay in the office and not go out,” he said at the Group's results briefing yesterday (Thursday).

In the spotlight of China's battle against air pollution is smog -- and Singapore-listed Sunpower has seized opportunities to join in the battle.

Smog with minuscule particles known as PM2.5 contains toxic heavy metals, acid oxides, organic pollutants, and other chemicals, as well as micro-organisms such as bacteria and viruses.

They are risk factors for a number of cardiovascular and respiratory problems, and cancer.

The burning of coal is responsible for 60% of PM2.5 in China. In northern China, most of the heating for homes and offices is supplied by coal-boiler heating systems. Coal is burned in a central furnace to heat water which is sent at high temperatures through a system of large diameter pipes before being piped at lower temperatures into individual homes and offices.

In 2013, Chinese authorities implemented a policy to shut down primitive coal-fired boilers (capacity of less than 35 tons of steam per hour) by 2017. These are to be replaced by efficient industrial boilers and centralized steam technology in industrial parks.

"There is clear market demand for the modernisation of these primitive boilers. Government policy support in this area has also been growing," said Mr Ma.

Sunpower, which secured its maiden centralized steam BOT project last December, has estimated the replacement market to be worth some Rmb 500 billion a year from steam generation revenue.

"We put much effort in R&D and feasibility studies for this, but held back on the project until now so that we can benefit from timing that is aligned with government policy implementation," he added.

Maiden mega-sized BOT project

In December and January, Sunpower announced a series of BOO/BOT projects to build centralised steam and electricity facilities in the PRC provinces of Hebei, Jiangsu and Anhui at a total investment cost of Rmb 966 million.

GuoHongXin 2.2016 Sunpower's founder, Executive Chairman and largest shareholder with a 20% stake, Professor Guo Hongxin, is an eminent expert in heat transfer technology development. Photo by Sim Kih
On 23 December, the heat transfer technology specialist announced that it had secured a BOO/BOT contract to build a centralised steam and electricity facility with ultra-low carbon and pollution emission in Hebei.

Known as Changrun Cogeneration Facility, the BOO/BOT project will be located in the Gaoyang Circular Economy Industrial Park in Hebei and supply steam to about 70 factories in Gaoyang County. It will also supply electricity to manufacturing plants and to the national grid.

By leveraging on its proprietary technology, Sunpower will be able to reduce the dust to less than 1%, sulphur dioxide to less than 4% and nitrogen oxide to less than 7% of existing levels emitted by the 73 units of primitive furnaces in Gaoyang County that will be shut down.

Targeted for completion by 1QFY2017, phase I of the Changrun project comprises of an investment amount of Rmb 817 million in the following infrastructure:

Two boilers with steam generation capacity of 220 tons each per hour
Two generators with power generation capacity of 25 megawatts each per hour
Steam distribution pipelines

Subsequent to the announcement of this maiden and mega-sized project, the Group announced two other BOT projects for centralized steam plants as follows.

Jiangsu Lianshui steam plant with an investment cost of Rmb 95 million, to be completed by 2QFY2016
Anhui Quanjiao steam plant (phase I) with an investment cost of Rmb 54 million, to be completed by 3QFY2016

The Group posted a 45.3% year-on-year surge in net profit attributable to shareholders for FY2015 to Rmb 81.5 million. It has proposed a final dividend of 0.12 SGD cents per share.

"We are looking at a leveraged IRR of 15% and a payback period of 6 to 7 years for our centralized steam facilities," said Mr Ma.

For more information on its FY2015 results, click here.

SUNPOWER: Eyes Rmb 500 bn centralised heating market

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