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[Foreign Language] [interpreted] Good afternoon, ladies and gentlemen. On behalf of Huaneng Power International Incorporated, I would welcome all to the conference call regarding the third quarterly results announcement of 2022.
Now may I introduce the management of the company today. The Vice President and Board Secretary to the company, Mr. Huang Chaoquan.
[Foreign Language]
[interpreted] Supervisor and Assistant to the President Mr. [ Li Shuqing ].
[Foreign Language]
[interpreted] People in charge of the related departments are also joining us in this meeting. First of all, the Vice President and Board Secretary to the company, Mr. Huang Chaoquan will review the business performance for the third quarterly results of 2022, followed by Q&A session.
May we have the honor to invite Mr. Huang to review the business performance and Ms. [indiscernible] will conduct the English interpretation.
[Foreign Language]
[interpreted] Ladies and gentlemen, good afternoon. Welcome the third quarter results conference call of Huaneng Power International. Please let me briefly introduce the operating results, and my colleague and I would like to answer your questions.
[Foreign Language]
[interpreted] The company has just released the operating results. In the third quarter, the company actively responded to the power consumption growth and tight supply of coal, orderly push forward the operations, transformation and development. The company has fulfilled the duty of suppling sufficient, reliable and environmentally friendly power. In the first 3 quarter, the company results were affected by a significant increase in coal prices, which resulted in a loss. Under the Chinese accounting standards, the company achieved the consolidated operating revenue of CNY 183.953 billion, increasing by 26.59%. Net profit attributable to the company's shareholders was negative CNY 3.942 billion. The earnings per share was negative CNY 0.35.
[Foreign Language]
[interpreted] In terms of power generation, in the first 3 quarter, the company's domestic power sales was 320.146 billion kilowatt hour, decreasing by 1.15%. The average tariff was CNY 507.01 per megawatt hour, increasing by 21.32%. The average utilization hours was 2,864 hours, a decrease of 205 hours year-on-year.
[Foreign Language]
[interpreted] In terms of fuel supply, with government support, the company moved forward the contract signing and implementation, however, affected by the overall situation the procurement price increased significantly, especially for the power plants that consume [ C brown ] coal. The unit cost in the first 3 quarter was CNY 378.64 per megawatt hour, a year-on-year increase of 37.26%.
[Foreign Language]
[interpreted] In terms of the development, the company is pushing forward clean energy development. In the first 3 quarter, the company added 3.99 gigawatts of units, including 3.57 gigawatts of renewable, 2.15 gigawatts of wind power, and 1.42 gigawatts of solar power. The company's installed capacity reached 122.57 gigawatts, among which 24.65% is low carbon clean energy. Wind and solar capacity reached 17.44 gigawatts.
[Foreign Language]
[interpreted] In terms of overseas operations, Tuas Power overcame the disadvantage of soaring fuel prices, maintained safety operation, optimized competition strategy and explored retail markets. In the first 3 quarter, the profit before tax was CNY 1.159 billion, increasing by [ CNY 1.174 billion ].
[Foreign Language]
[interpreted] In the fourth quarter, the company will continue to ensure the safety operation, power and heat supply. On the premise of the energy security in winter peak, the company will make efforts in signing and the fulfillment of long-term co contracts, optimize the strategy, coordinating volume and price, and strive for profitable power generation, overcome the difficulties of pandemic and module prices, move forward the clean energy development and construction, implement supporting financial policies to secure the fund, optimize the funding structure to reduce the operating cost. Facing completed market situation, the company will seek progress while maintaining stability focusing on quality and profitability. And complete the full year target in production, operation and development.
[Foreign Language]
[interpreted] Now my colleague and I would like to answer your questions. Thank you.
[Foreign Language] [interpreted] Thank you, Mr. Huang. [Operator Instructions] The first question comes from [indiscernible] of Citibank.
[Foreign Language]
[interpreted] I have 3 questions. First, could you please provide us with the proportion of long-term coal contracts in the third quarter? And what was the honor rate? And could you please let me know the changes comparing to the second quarter?
And my second question is about the company's guidance. Could you please provide us the guidance of unit fuel cost in the first quarter and the year 2023? And the company has said that 8 gigawatts of renewable energy target in the beginning of the year. Will the company change the target?
[Foreign Language]
[interpreted] The company has signed 150 million tons of long-term contract coal with our upstream supplier by the end of September. It has a 5.92% increase comparing to the month of June.
[Foreign Language]
[interpreted] In the first 9 months, the company have implemented 69 million tons of coal with a honor rate of 71.8%. In the third quarter alone, the company has implemented 26 million tons of coal with a honor rate of 81%.
[Foreign Language]
[interpreted] We have made progress, and the 81% honor rate is 9% higher than the first half of the year.
[Foreign Language]
[Foreign Language]
[Foreign Language]
[interpreted] Firstly, let me introduce the unit fuel cost in the third quarter. The unit fuel cost of coal-fired units was CNY 374 per megawatt hour and standard coal price was CNY 1,193 per ton.
[Foreign Language]
[interpreted] Please let me answer the question about the 8 gigawatts renewable capacity plan.
[Foreign Language]
[interpreted] In the third quarter, the capacity of renewable energy added to the company will slowed down. In the third quarter, we have added 485 megawatts of renewable energy that have shrunk when comparing to the first and second quarters.
[Foreign Language]
[interpreted] Please let me introduce some numbers to you. In the first 9 months, the company has approved 3.57 gigawatts of renewable energy into operation. And now still there are 7 wind projects and 67 solar projects under construction with a total capacity of 4.79 gigawatts.
[Foreign Language]
[interpreted] There might be uncertainty in the following quarter, because we set 8.03 gigawatts of target in the beginning of the year, but currently, we are affected by several factors.
[Foreign Language]
[interpreted] First, the COVID pandemic led to poor labor organization and management. Second, the increase in PV module prices had some impact on our construction. So in order to maintain a certain investment hurdle rate, our construction process was affected.
[Foreign Language]
[interpreted] Government is taking measures to deal with the module prices. We're still under looking of future changes in the market.
[Foreign Language]
[interpreted] Now about renewable energy construction. The company is at full preparation for the construction and with our ongoing 4.79 gigawatts of renewable energy construction, we are striving to achieve this year's target.
[Foreign Language]
[interpreted] Affected by certain risks, for example, the COVID pandemic, we still face uncertainty, but the company won't change this year's target.
[interpreted] The next question comes from [indiscernible] for Huatai Securities.
[Foreign Language]
[interpreted] I have 2 questions. First about the coal price. Could you please provide us the unit fuel cast and standard coal price for the blended cost for the thermal units? And second question is about our long-term contract. You just said our honor rate was 81%, but by how much percentage was in the government regulated reasonable range? And if the company's unit fuel cost was a little than the upper level of this range?
[Foreign Language]
[interpreted] In the third quarter, the unit fuel cost for thermal units was CNY 381.6 per megawatt hour and the standard coal price was CNY 1,239 per ton.
[Foreign Language]
[interpreted] The company has signed 1,500 million tons of long-term contract coal and 91% was under the government regulated price range.
[Foreign Language]
[Foreign Language]
[interpreted] My other questions are, could you please provide the breakdown for the net profit and net profit attributed to equity holders in the third quarter for different energy sources? And does the company feels like the PV module price have dropped in the first quarter?
[Foreign Language]
[interpreted] The following numbers are only for your reference. In the third quarter, first, let me introduce the net profit breakdown. The net profit for coal sector was negative CNY 2.05 billion. For gas sector, it was CNY 10 million. And for the wind sector, it was 8.2 -- was CNY 820 million. And for the solar sector, it was CNY 480 million. And for the hydro sector, it was CNY 20 million. And for the biomass sector, it was negative CNY 40 million. For the wind sector, it was CNY 920 million.
[Foreign Language]
[interpreted] The net profit attributable to equity holders is as follows. First, for the gas sector, it was negative CNY 1.83 billion. For the gas sector, it was CNY 19 million.
[Foreign Language]
[interpreted] For the wind sector, it was CNY 880 million, and for the solar sector was CNY 420 million.
[Foreign Language]
[interpreted] For the solar -- for the hydro sector, it was CNY 19 million. And for the biomass sector, it was negative CNY 33 million.
[Foreign Language] The next question comes from Huang Xiujie of Guosen Securities.
[Foreign Language]
[interpreted] I have 2 questions. First about the solar power. What is the reason for the company's solar power profit increase in the third quarter? And second question is about the coal. What is the percentage of the company's imported coal and what was the price? And what is the substitutional effect of imported coal to the domestic coal?
[Foreign Language]
[interpreted] The following reasons attributable to the solar profit increase. First, the power generation. In the third quarter, the power generation for the solar sector was 1.8 billion kilowatt hours. And in the second quarter, it was 1.64 billion kilowatt hours.
[Foreign Language]
[interpreted] And the average tariff in the first quarter was CNY 545 per megawatt hour. For the third quarter, it was CNY 534 per megawatt hour.
[Foreign Language]
[interpreted] The company has purchased imported coal of 30.39 million tons, decreasing by 32.45%. And the coal price was CNY 867.41 per ton, increasing by 40.6%.
[Foreign Language]
[interpreted] The company expected in the short term, will still need the imported coal affected by the domestic production and transportation. The company will continue to purchase from overseas market.
[Foreign Language]
[Foreign Language]
[interpreted] In the following year, the company still faced great risks from the imported coal, but the company will optimize our purchasing strategy to resist the risk from the supply -- from the price and the company will make full use of emergency contracts to be substitutional for the imported coal.
[Foreign Language]
[Foreign Language]
[interpreted] 2 questions. First about the renewable energy. What is the market based renewable energy proportion? And what's the price spread between the tariff to benchmark tariffs? And second question is, what's the price spread between the imported coal and domestic coal?
[Foreign Language]
[interpreted] In the first 9 months 2022, the market-based volume for renewable energy was 6.42 billion kilowatt hour. It accounts for 22.6% to total renewable energy generation, and it has a 7.5% increase year-on-year.
[Foreign Language]
[interpreted] The average tariff for market-based wind -- of wind power was CNY 470.15 per megawatt hour, decreasing by CNY 29 per megawatt hour compared to the benchmark. And for the solar power, the market-based tariff was CNY 499.6 per megawatt hour, decreased CNY 40 per megawatts hour comparing to the benchmark. And the price spread has been narrowed down.
[Foreign Language]
[interpreted] There are differences of price change for different heat values of coal. For the coal with high heat value, it was affected by the European market. And with the coal from Indonesia with medium to low heat value, they were benchmarked against Chinese domestic coal.
[Foreign Language]
[interpreted] If we compare the Indonesia coal to the spot market coal price, we can see a CNY 200 to CNY 300 per ton lower than the domestic coal price.
[Foreign Language]
[interpreted] About the PV module price, we have experienced a price rise in the third quarter. The market price for PV module reached CNY 2 per watt, but the company cost was CNY 1.85 per watt in the third quarter. And in the fourth quarter, our cost may reach CNY 1.9 per watt, but there might be a decreasing trend under the government policy.
[Foreign Language] [interpreted] The next question comes from [indiscernible] and Securities.
[Foreign Language]
[interpreted] I have 3 questions. First, what is the company's situation about renewable energy subsidy collection in the third quarter? And second, what is the company's thermal power capacity plan in the future? And third, what is the company's capacity with flexibility retrofit and what would be the company's guidance on the flexibility retrofit?
[Foreign Language]
[interpreted] About the renewable subsidy collection situation, in the first 3 quarter, the company's outstanding subsidy was CNY 13.9 billion. In this term, we have had CNY 5.5 billion subsidy, but collected CNY 8.8 billion subsidy and with a settlement of CNY 10.4 billion subsidy.
[Foreign Language]
[interpreted] Please let me answer about the company's thermal capacity plan. This year, the company plans to add 1.4 gigawatts of thermal units, including 2 units in Dalian with 350 megawatts and 2 units in Qingdao with 50 megawatts. And we strive for the construction for the gas-fired units in Hainan also 2 units. And for the next year, the company is under preparation for the thermal unit capacity plan, and we estimate to add capacity in Guangdong, and now are in the primary preparation stage.
[Foreign Language]
[interpreted] About the flexibility retrofit, by the end of September, the company has 58 coal-fired units have the flexibility retrofit with a capacity of 18.926 gigawatts and accounts for 21% of the company's total coal units.
[Foreign Language]
[interpreted] We plan to have the flexibility retrofit for our units in [indiscernible].
[Foreign Language]
[interpreted] Other than that, the company has closely followed the policymaking process about the ancillary services and capacity services, and the company has also followed the renewable capacity add with our peak adjustment ability.
[Foreign Language]
[interpreted] We will continue the flexibility retrofit for our coal units and pay close attention to the policy changes.
[Foreign Language]
[interpreted] Please let me add 2 questions. First, you just said about the thermal capacity. Are they approved by the government? Second, about the flexibility retrofit, what will be the CapEx plan for those retrofits and what will be the return?
[Foreign Language]
[interpreted] Those 2 projects have already been approved by the government, and we are estimating to put them into operation next year.
[Foreign Language]
[interpreted] About the flexibility retrofit, because the technology or the technician was very complicated, so the costs are different between every unit. Our CapEx is strictly under our investment hurdle rate for thermal renovation.
[Foreign Language] [interpreted] The next question comes from [indiscernible] of Citic Securities.
[Foreign Language]
[interpreted] I have 3 questions. First about the coal price. In the third quarter, the company had a net drop in the coal price, however, the profit decreased more. And could you please provide us with the tariff breakdown to different energy sources? Second, about the company's long-term coal contract. So what percentage of long-term coal will fluctuate with the spot market? Third question, as the Chairman of the Huaneng Group has been changed, what was the new plan for the company's development and the Huaneng group?
[Foreign Language]
[interpreted] About the tariff breakdown to the third quarter, the coal-fired tariff was CNY 492.5 per megawatt hour. For the gas sector, it was CNY 695.5 per megawatt hour.
[Foreign Language]
[interpreted] For wind sector, it was CNY 568.2 per megawatt hour. For solar sector, it was CNY 545.8 per megawatt hour.
[Foreign Language]
[interpreted] For hydro sector, it CNY 373.70 per megawatt hour. For biomass sector, it was CNY 738.3 per megawatt hour.
[Foreign Language]
[interpreted] The company has signed 156 million tons of coal, and it covers 94%.
[Foreign Language]
[interpreted] Now 140 million tons are in line with government regulated price range, accounts for 86% of the company's demand.
[Foreign Language]
[interpreted] On September 27, Mr. Wen Shugang became the Chairman of Huaneng Group. In the context of current carbon neutrality, Huaneng Group will continue to ensure the energy supply, moving forward growing transformation, develop renewable energy as a priority, swiftly develop nuclear power, orderly develop hydro power, optimize coal-fired power, and improve the company's core competitiveness.
Huaneng Group highly respects shareholders' rights and strictly complies with regulatory requirements. Huaneng Power International is an important member and platform for Huaneng Group. Huaneng Group will be actively fulfilling its commitments and support the company's high-quality development creating more value to the shareholders.
[Foreign Language] [interpreted] The next question comes from [indiscernible] of [ ELCI ].
[Foreign Language]
[interpreted] I have 3 questions. First is about the company's gas-fired units. Is the company's unit fuel cost for gas-fired units increased in the first quarter? And what will be the company's procurement strategy for the natural gas and will the company suffer a loss in the first quarter? Second, about energy storage, for the 3 gigawatts of renewable energy added in the company, what was the percentage of energy storage and what would be the energy storage percentage for the upgoing 4 gigawatts in fourth quarter?
And for other methods of energy storage, what is the company's view about other methods? And third question is about the capacity tariff for the thermal power. Could you please provide us with some insights of capacity tariffs? And what kind of thermal power is suitable for the capacity tariff?
[Foreign Language]
[interpreted] About energy storage, in the company's decision-making process, we have already taken the energy storage into consideration and in our investment. And in different regions, they have different criteria like 10% or 15% of the total capacity. The company hasn't had the exact number for the energy storage capacity. But the company always puts into consideration about the investment hurdle rate of this energy storage.
[Foreign Language]
[interpreted] The major energy storage for the company now is the chemical battery storage, and the company will keep following up with the other kinds of technology of the energy storage. And the company has centralized shared energy storage in provinces like Shandong and Hunan. And the company also plans to add pump storage in provinces like Hubei, Shanxi, Jilin.
[Foreign Language]
[interpreted] Under the government's policy, the company has moved forward the contract signing of natural gas. For now, the company has signed 94% of natural gas volume to our total demand.
[Foreign Language]
[interpreted] From the natural gas price in September, the company has an average price of CNY 2.68 per cubic meter. It increased by 21% and lower than the spot market price.
[Foreign Language]
[interpreted] We estimate in the first quarter, the gas price will maintain stable.
[Foreign Language]
[interpreted] So now the government is considering the capacity tariff for only the large-scale base project. Now this is under research and negotiation.
[Foreign Language] [interpreted] The next question comes from [indiscernible].
[Foreign Language]
[interpreted] I have 2 questions, first about the coal price. If the company's number just provided a local price or standard coal price? And what is the percentage of the actual purchase of the coal that is from the long-term contract? And second is about gas profit breakdown -- it's about the energy breakdown. I calculated for CNY 400 million from other departments other than the coal fired, gas fired or other energy resources. Could you please provide some details? And could you please provide the Tuas Power net profit breakdown to different quarters? And what is the guidance of the profit in Tuas in the fourth quarter?
[Foreign Language]
[interpreted] About the net profit breakdown. The numbers I provided before does not include the profit from the Tuas Power and difference is from the [indiscernible] power sector of the company.
[Foreign Language]
[interpreted] Let me explain about the Document 303, a reasonable range for the long-term coal. The coal price was for the 5,500 kcal coal in the north port. And for [ HP TAD ], it should calculate it, respectively.
[Foreign Language]
[interpreted] Please let me answer the question about the profit before tax for Tuas Power. In the first quarter, it was CNY 445 million. In the second quarter, it was CNY 296 million. In the third quarter, CNY 418 million. And in the first 9 months, Tuas Power has a profit before tax of CNY 1.159 billion.
[Foreign Language]
[interpreted] The company has strengthened its management and controlled its coal cost. In the third quarter, Tuas Power has increased its profit by CNY 1.174 billion.
[Foreign Language]
[interpreted] In the third quarter, the power consumption in Singapore market increased by 3%. In the [ fourth ] quarter, the company will continue to strengthen the management and strive for better profit for the whole year. The company will continue to contact with the Singapore government and authorities.
[Foreign Language]
[interpreted] The company will continue to maintain safety operation and increase our reliability of operations. The company will optimize our strategy both in the wholesale and the retail market, and the company will have full control about of our cost in fuel market and in transportation.
[Foreign Language] [interpreted] The next question comes from of [indiscernible] of JPMorgan.
[Foreign Language]
[interpreted] I have 3 questions. First is about the breakeven point. What is the company's profit breakeven for the coal price? Second, what's the company's guidance is for the fourth quarter's tariff and coal price? Third, about the coal price. Could you please provide us with a number of the spot market coal price as well as the average coal price nationwide?
[Foreign Language]
[interpreted] First, let me introduce the actual number. In the first 9 months, the total power sales was 275.5 billion kilowatt hour. The average tariff was CNY 489 per megawatt hour. The unit fuel cost was CNY 374 per megawatt hour, and standard coal price was CNY 1,271 per ton.
[Foreign Language]
[interpreted] Calculated by the first 9 months' numbers, the breakeven point for unit fuel cost was CNY 330 per megawatt hour. That is CNY 1,075 per ton standard coal price.
[Foreign Language]
[interpreted] Because there's not a great change in the demand and supply in the coal market, we estimated the fourth quarter tariff will maintain at the same level comparing to the third quarter.
[Foreign Language]
[interpreted] In the first [ 3rd ] quarters, the average tariff was CNY 507 per megawatt hour. We estimate in the fourth quarter, it will stay the same.
[Foreign Language]
[interpreted] About the next year's tariff, it will fluctuate with the coal price.
[Foreign Language]
[interpreted] About the coal price guidance, we believe in the [ fourth ] quarter, the supply both in the domestic market and overseas market will maintain at the same level to the first 3 quarter.
[Foreign Language]
[interpreted] Affected by the extreme weather of dry winter -- dry autumn and cold winter, in the first quarter, we believe the coal consumption will increase.
[Foreign Language]
[interpreted] With both high supply and high demand, and sufficient inventory in the fourth quarter, we believe the demand and supply will reach equilibrium and the price will fluctuate at relatively high level.
[Foreign Language]
[interpreted] What is the difference between the breakeven point in the second quarter and third quarter considering the different utilization hour and what is the percentage of our spot market purchase of coal?
[Foreign Language]
[interpreted] Yes, as you just said, affected by the utilization hour of thermal units, the breakeven point in the second quarter is quite different from the breakeven point in the third quarter. The number was calculated, we estimated other features are fixed in the first 3 quarter's numbers. So the power generation's increase and decrease will impact our breakeven point.
[Foreign Language]
[interpreted] The purchasing cost in the first 9 months for long-term contract was CNY 1,159.12 per ton. The purchase from spot market as CNY 1,484.54 per ton.
[Foreign Language] [interpreted] Due to time constraints, we allow the last question to be asked. The next question comes from [indiscernible].
[Foreign Language]
[interpreted] My question is about the debt ratio. If we excluded the perpetual bond, debt ratio may reach 90%. And is there a target for debt ratio as required by the SESEC? And what's the impact for the company's future investment?
[Foreign Language]
[interpreted] The government have new policies about the capital for the thermal units -- for the thermal suppliers, The company -- the government has the policy support bound for energy safety, in total, about CNY 20 billion to the company as a capital injection.
[Foreign Language]
[interpreted] For Huaneng Power International, we might have CNY 30 billion of this emergency bound for the company.
[Foreign Language]
[interpreted] The company's average operating cash inflow is about CNY 40 billion a year.
[Foreign Language]
[interpreted] The company will make efforts in our operation to have inner accumulation of capital and the company will maintain a healthy debt ratio to help with the future development.
[Foreign Language] [interpreted] Thank you so much for all the questions and participation today. Finally, [indiscernible] would like to give us a summary.
[Foreign Language]
[interpreted] Thanks for participating, and thank you for your continued support. Here we come to the end of today's conference call. Please contact our IR department if you have any further questions.
[Foreign Language] [interpreted] Thanks again for your attendance of the conference call regarding the third quarterly results announcement of 2022. We are looking forward to meeting with all of you in our next results announcement. Thank you. [Portions of this transcript that are marked [interpreted] were spoken by an interpreter present on the live call.]