Far East Wind Power Corp. has entered into a binding Letter of Intent with Taitong Energy Limited ("Taitong") in order to acquire certain rights to a wind farm located in Yunnan Province of the People's Republic of China ("Yunnan").
Highlights of the LOI are as follows:
- FEWP will fund up to $20.0 million for development, agreement with Taitong that FEWP will be repaid if and once the wind farm receives financing from a PRC bank
- Commitment from Taitong to execute business plan and work to obtain all necessary remaining permitting and authorizations for the wind farm, and secure low interest rate bank debt financing of up to $80.0 million
- FEWP's ownership interest in the wind farm, to be structured as a sino-foreign joint venture (the "JV"), will be 49%, Taitong will own 51%
- FEWP will consolidate all assets, liabilities and results operations under applicable accounting principles due to specific control provisions negotiated into the LOI by FEWP
- A monthly dividend distribution plan is agreed to whereby the maximum allowable dividend is distributed to FEWP and Taitong based on ownership percentages
- Initial plans are for development of a 49.5 megawatt wind farm with installed capacity to potentially generate $11.8 million in revenues on an annualized basis if fully utilized
- FEWP obtained a right of first refusal on remaining 99 megawatt ("MW") preliminarily approved wind farms controlled by Taitong in Yunnan. If all 148.5 MW are developed in Yunnan, potential revenue from the Yunnan wind farms are projected to total $34.4 million in revenue on an annualized basis if fully utilized.
The Wind Farm Industry in China:
In December 2009, revisions to China's original 2005 renewable energy law were adopted by the National People's Congress and were effective on April 1, 2010. The revisions contained three main provisions:
- The renewable energy law was strengthened to guarantee that electric utilities purchase all renewable power generated, including wind farm-generated electricity. Previously, utilities were only obligated to purchase renewable energy if there was sufficient power demand on the electrical grid. Now, utilities must buy the power in any circumstance. The revisions to the law also add deadlines and economic penalties for utilities failing to comply with this guaranteed-purchase requirement.
- The requirement for detailed planning and coordination, including coordination of renewable energy with overall electric power sector development and transmission planning, coordination of local, provincial and national level development plans. Additionally, the roles and responsibilities of the five main electric power companies are to be redefined in relation to electrical grid interconnection of renewable energy generators such that the five main electric power companies are responsible for assisting with the development of renewable energy. The law revisions also address topics such as energy storage and smart grids.
The grid-related provisions included in the December 2009 legislative revisions were as a result of the fact that the renewables sector has been growing so fast, especially wind power. In the past few years the growth of wind power in China has been so significant that transmission planning and interconnection of the Chinese electric grid was falling and electrical power generated through wind farms was being lost before being transmitted to the electrical grid.
- The revisions to the renewable energy law also strengthened a renewable energy fund under the Ministry of Finance. Previously, this fund was collecting a $0.06/kilowatt hour surcharge on electric power sales on a nation-wide basis (some customers still remain exempt from the surcharge). The Ministry of Finance applies those funds to the costs of government-supported renewable energy projects and the costs of grid connections. However, thus farm the surcharge has not been enough, so the new revisions allow the Ministry of Finance to supplement the renewable energy fund from general revenues.
Many other energy policy changes have also occurred recently:
- China has instituted a target of 15% for renewable energy and non-fossil fuel sources of electricity share of all final energy consumption by 2020.
- In December 2009, China announced that it would reduce the carbon intensity of its Gross Domestic Product by 40%-45% by 2020, relative to 2005 intensity levels.
- China also recently instituted a three year tax holiday from local and provincial tax for renewable energy projects. Subsequent to the tax holiday, the tax rate will be 12.5% for three years, and 25% thereafter.