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TERRAFORM GLOBAL, INC. filed this Form 10-K on 06/15/2017
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The green component of the tariff is paid from a renewable energy development fund administered by China’s Ministry of Finance, which in turn collects a surcharge that the grid companies charge to their end users. Payment of the green component is not made on the same schedule as payment of the base load component. Generally, payments of the base load component are made monthly while payments of the green component are required under law to be paid quarterly, but in practice in some provinces may be made only two or three times per year. Additionally, there is typically a gap, often of longer than one year, between an energy plant’s commercial operation date and the date on which it receives its first payment of the green component of the feed-in tariff.
In late 2016, the Chinese government began to gradually reduce the government incentives that solar and wind power plants are eligible to receive from the feed-in tariff programs. For example, the feed-in tariff for solar power plants to be constructed after January 1, 2017 and onshore wind power plants to be approved for construction after January 1, 2018 will be reduced by approximately 20%. In addition, the NDRC and NEA have encouraged that tariffs for solar and wind power plants be determined through market competition, which may push the tariffs paid to solar and wind power project developers down and may also result in a reduction of the green component that solar and wind power plants are eligible to receive.
The Chinese government has also introduced “green electricity certificates” as an alternative to the feed-in tariff program. Eligible solar and onshore wind power plants may apply for green electricity certificates, which are calculated based on electricity generation, and sell such green electricity certificates to other entities at a price that is not higher than the green component. The solar and onshore wind power plants are no longer entitled to the green component for the amount of electricity that they generate but that is applied to the green electricity certificate program. The green electricity certificate program will be effective as of July 1, 2017.
In addition to the incentive programs described above, the solar industry has also benefited from the “Golden Sun Program” demonstration program that launched in 2009 as a strategy to support and further the development of the technology progress and scale of the national solar industry. Under the Golden Sun Program, the central government provided subsidies to eligible solar power plants interconnected to the power grid in an amount of 50% of its total investment and to eligible off-grid solar power plants located in remote areas without electricity supply at the amount of 70% of its total investment. Solar power plants participating in China’s feed-in tariff program were not eligible to participate in the Golden Sun Program. The Golden Sun Program expired in 2013.
Chinese financial institutions may offer preferential loans with a financial interest subsidy to renewable energy development and utilization facilities that are listed in the national renewable energy industrial development guidance catalog and satisfy certain conditions for granting loans.
Finally, under applicable Chinese tax law and regulations, an enterprise engaged in public infrastructure facilities approved after January 1, 2008, including solar and wind power plants, that satisfy certain requirements are entitled to a three-year full exemption from the enterprise income tax followed by a three-year 50% exemption commencing from the first year it generates operating income. In addition, solar and wind power plants are entitled to a 50% refund of the value-added tax levied on their electricity sales.
The main incentives available to encourage the use of renewable energy in Brazil include: (i) tax benefits; (ii) discounted transmission and distribution tariffs; (iii) special public funding provided by the National Bank for Economic and Social Development (“BNDES”); and (iv) research and development investment.
Tax benefits. Renewable energy power plants may benefit from an exemption of monthly federal income taxes and may also be eligible for the exemption of certain import taxes. For example, the purchase of items needed for the construction of the wind and solar plants are exempted from certain import and value added taxes.
Discount on transmission and distribution tariffs. Solar plants injecting up to 30 MW into the grid that start commercial operation prior to December 31, 2017 benefit from an 80% discount on transmission and distribution tariffs for the first ten years of operation and 50% thereafter. Wind plants injecting up to 30 MW into the grid are also eligible for 50% discounts.
Special public funding. Subject to certain limitations, BNDES may finance up to 70% of all renewable energy power plants investments at reduced rates. Repayment of such loans may only commence once construction of the energy plant has finished and the plant is operative. BNDES also provides special public funding for manufacturers willing to commence Brazilian productions of the supply chain in connection with the renewable energy industry.