The Chinese Power Sector

Abstract

International sponsors and lenders contemplating investment in the Chinese power sector are tempted with the greatest growth story in the worldwide power industry, but discouraged by a landscape scarred with great risk and uncertainty, and bureaucratic complexity. Until the Chinese authorities put in place a coherent legislative and administrative framework to address at least some of their concerns, the current “cost-plus” tariff structure offering generators 6%-8% on capital and operating expenses, and the thin margins offered to lenders, seem to be scant reward for the risks sponsors and lenders must assume to develop Chinese power projects. In the meantime, with the Chinese government behind them, a more sanguine view of risks over which they probably have greater control, and in an environment with which they are more familiar, domestic sponsors and lenders will continue development of Chinese power infrastructure.