Garbage generated by capital

Garbage generated by capital

The cost of waste-to-energy generation is low, and the franchise period exceeds 25 years. The future earnings will continue to grow steadily.

Garbage power is becoming a chase for the capital.

Based on the state's policy support for the solid waste treatment industry, private capital is encouraged to enter, and the waste incineration power generation industry has attracted more and more companies. Its models include the central enterprises’ reliance on capital advancing mergers and acquisitions, the extension of business of machinery and equipment manufacturing companies, and the cross-industry infiltration of sewage treatment companies.

M&A card battle

On July 31, 2014, Shengyun Co., Ltd. issued an announcement: The company acquired the remaining 8.82% equity of China National Kedex with its own capital of RMB 58.2 million. After the acquisition, Zhongke GM became a wholly-owned subsidiary of the company.

In the field of waste power generation, China Scientific General Motors has a completely independent intellectual property rights technology system and rich experience in project construction and operation. Shengyun Co., Ltd. has held shares in Zhongke GM since 2010 and has held control since October 2012. After four acquisitions, it will eventually include 100% equity of Zhongke GM. Shengyungufen acquired the core technology, team and project resources in the waste-to-energy sector through the acquisition of China National General Motors Corporation, and realized the transformation from the equipment manufacturer to the entire waste-to-energy industry chain company.

Compared with traditional landfills, waste-to-energy technologies have great advantages. Landfills are a waste for land resources that are “expensive”, and can easily cause secondary pollution of water and soil.

Faced with the increasing amount of garbage, in May 2012, the General Office of the State Council issued a document stating that the scale of waste power generation needs to increase from 89,600 tons/day in late 2010 to about 307,000 tons/day by the end of 2015, with a compound annual growth rate of 28%. Waste incineration power generation is a typical policy-driven industry as an environmental protection industry. After a series of plans and policies have been issued, the waste incineration industry has ushered in an investment peak.

In recent years, the domestic waste treatment industry is in an opportunity of transition from landfill-based to incineration and power generation. Many companies are optimistic about the industry's prospects and quickly enter the field.

Waste-to-energy is a large-scale municipal project. It requires high capital from investors. According to the ownership system, current market competitors can be roughly divided into three categories: The first category is the central state-owned enterprises, state-owned enterprises, such as China Everbright International, China Energy Conservation, Enfa (MCC Group). Subsidiaries), Green Power (a subsidiary of Beijing State-owned Assets Corporation), Shanghai City Investment Environment, Tianjin Teda, Chongqing Sanfeng Environment, AVIC New Energy (AviChina Heavy Machinery Subsidiary), etc.; the second category is private enterprises, such as Sande Environment, Sheng Transportation shares, Wenzhou Weiming, Hangzhou New Century, Hangzhou Jinjiang, etc.; the third category is a company with a foreign background, such as Veolia, Sino-German environmental protection, Golden State, Hong Kong Crest Group.

Open up the industry chain

Companies that want to make a difference in the waste incineration power generation have supplemented the shortcomings in the industry chain.

The waste power generation industry is a technology and capital-intensive industry. As far as technology is concerned, this field involves many disciplines such as incineration, mechanical transmission, exhaust gas treatment, and power generation. The most important one is the incineration of boilers, whose cost is about 50% of the cost of the entire waste power plant.

At present, grate furnaces and circulating fluidized beds are two mainstream applications for waste incineration boilers. From the perspective of adaptability, grate furnace technology is more suitable for first- and second-tier cities with large amounts of waste and financial strength. Fluidized-bed technology is suitable for third and fourth-tier cities with medium-sized waste and high investment returns.

According to industry sources, as foreign technology is more mature and stable, the domestic incinerators account for more than 60% of incinerator imports, and mainly come from furnace manufacturers in Germany, Belgium and Japan. In China, three major schools of fluidized bed waste incineration, represented by Chinese Academy of Sciences, Zhejiang University, and Tsinghua University, have been formed. The domestic incineration technology is mainly promoted through transfer or cooperation. The company that cooperates with the Chinese Academy of Sciences is China General Motors Corporation, and it cooperates with Zhejiang University in Hangzhou Jinjiang.

The capital-intensive type mainly refers to the relatively large fixed asset investment in the early stage of the waste power generation project. A power plant with a daily capacity of 1,000 tons needs to invest about 500 million yuan. Therefore, investors in this field are generally large-scale central enterprises, state-owned enterprises, multinational companies, or private listed companies that have opened up financing channels in the capital market.

Based on the above characteristics, companies that want to make a difference in the waste incineration power generation have supplemented the shortcomings in the industry chain. A typical example in this regard is the acquisition of green power by Beijing State-owned Assets.

Green Power had previously been a privately owned company. It began to engage in waste disposal in 1993. It is the first domestic company to introduce international advanced waste-to-energy technologies for localization, upgrading and redevelopment. In 2005, Green Power began to introduce Beijing State-owned Assets Corporation until it was fully acquired in 2008 and became a wholly-owned subsidiary of Beijing State-owned Assets. After further restructuring, Hong Kong was listed in June 2014.

The most profitable part

The waste power generation industry chain mainly includes upstream waste power generation equipment providers, downstream waste power power plant construction parties and operators. For equipment manufacturers, due to differences in the level of technology, there is a big difference in the gross profit rate of enterprises in this field, but the gross profit rate of mainstream companies is generally more than 30%.

Garbage operations generally take the form of franchising. The mainstream is the BOT (build-operate-transfer) or BOO (build-own-operate) model. The franchise period is generally 25-30 years. Waste-to-energy operations have the characteristics of regional monopoly and project cash flow stability. The internal rate of return is generally 6%-12%, and the payback period is generally 5-10 years. The sources of income for operating companies are the on-grid electricity bill (collected on the grid) and the garbage disposal fee (which is charged to the government).

Among which, the on-grid tariff revenue accounts for about 70%-85%, and the tariff subsidy standard is 0.25yuan/kWh. In April 2012, the National Development and Reform Commission unified the nationwide comprehensive electricity price for the Internet to 0.65 yuan/kWh.

Subsidies for waste treatment account for about 15%-30%. At present, the level of waste treatment subsidy across the country is most closely related to the type of incineration equipment used. The cost of the grate furnace, the relatively high subsidies, generally 70-150 yuan / ton; and the relatively low cost of fluidized beds, subsidies are relatively cheap, generally 50-90 yuan / ton.

Although the current gross profit of garbage power generation equipment manufacturers is relatively high, the operation is the development direction of the waste power generation industry. According to relevant experts, the peak of waste incineration volume growth will end in 2015, after which the growth rate can only be maintained below 6%. The waste-to-energy generation due to lower operating costs, and the franchise period of more than 25 years, the future profitability is expected to continue and steadily grow.

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