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China Power Report Q3 2011
Business Monitor International, June 2011, Pages: 57
The China Power Report provides industry professionals and strategists, corporate analysts, power associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on China's power industry.
The new power industry forecasts indicate a moderation in the growth rate of consumption and generation of electricity. BMI forecasts that annual average growth of total electricity generation will be 6.5% between 2011 and 2015, while consumption will grow by 6.4% over the same period. The report sees downward risks to the forecasts for consumption stemming from the government's plan to impose strict controls on industry's carbon emissions and energy intensity. That said, China's overall electricity generation and consumption will remain considerable and in a league of its own.
In terms of fuel mix, conventional thermal sources are expected to continue dominate electricity generation in the coming years, as many projects under construction or planned will use coal or gas. Coal currently fires 78% of total power generation and 98% of thermal, and given China has vast coal reserves, much of which have yet to be developed, coal projects tend to be much cheaper than gas or other sources. This considered, coal is expected to show the largest increase in absolute terms, but forecasters suggest that gas will see the greatest percentage rise in installed electricity generation capacity over the next decade. In its 12th five-year plan, covering the period 2011-2015, China expects to raise the share of natural gas and other cleaner technologies in the country's energy mix and close several smaller coal-fired plants. The government is believed to have met its annual target to remove 10GW of inefficient and pollutive coal-fired generation in 2010, and more than 70GW was retired between 2006 and 2010.
In the new China power forecasts, the report also factors in the policy changes that seem likely to be implemented in the coming years as a result of the Fukushima Daiichi nuclear accident in Japan. While BMI still sees nuclear as a necessary part of China's future energy mix, this report has moderated expectations on growth in output and nuclear capacity. Consequently, China is not anticipated to be able to meet its goal of reducing thermal power generation to below 80% of the country's power mix by 2020.
Renewables, specifically wind power, is set for the most impressive growth. China had the fastestgrowing wind power market in the world in 2010 and has overtaken the US as the country with the most installed wind power capacity.
On top of the policy changes affecting the nuclear sector, key themes for China's power sector this quarter include:
- The country is bracing itself for the one of the worst summer power crunch in years. Hydroelectricity generation in the Southern parts of the country, including Guangdong Province, has been negatively affected by a lack of rainfall. Furthermore, rising prices of coal, combined with tightly regulates on-grid and retail power prices (which restrain the ability of generators to pass on rising coal costs to power users) are eroding profitability at power plants, causing generators to cut production or even shut. According to Reuters, China's five state-owned power generating groups lost more than CNY10bn (US$1.5bn) on their thermal power operations in the first four months of 2011. The current electricity shortage has prompted manufacturers to increase the use of diesel-fuelled generators.
- The government increased on-grid power tariffs in parts of the country in April 2011 (according to Reuters), but the rise appears too small to restore profitability for many coal-fired power generators.
- In April 2011, China's largest electricity transmission and distribution company, State Grid Corporation of China, announced plans to boost its investment into China's power grid by 68% during the country's next five-year plan (2011-2015) as compared to the previous period. BMI believes this will add further impetus to the bullish outlook for power equipments manufacturers in China, while addressing concerns about electricity wastages.
- China's National Development and Reform Committee (NDRC) has significantly ramped up its targets for China's solar output to 2020. While China is the largest manufacturer and exporter of photovoltaic panels (PV) globally, it has not yet developed any solar capacity domestically, due also to a very unclear pricing regime. The report expects that the new targets, which stipulate solar PV capacity to reach 50GW by 2020, will create a major new market for Chinese manufacturers, offsetting a deceleration in investments in developed markets.
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