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China Power Report Q1 2012
Business Monitor International, Dec 2011, Pages: 75
Business Monitor International's 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.
BMI View: Data released by China's National Development and Reform Commission in November 2011 confirmed a significant drop in the country's hydropower generation, a risk highlighted by BMI since the second quarter of 2011. With the utilisation of hydropower capacity largely lower than average, China has being forced to rely heavily on its thermal capacity, exposing the country's utilities to the rising price of coal. BMI thus notes that a hike in electricity rates cannot be discounted, especially as concerns about inflation have abated following the latest inflation data, and BMI 's CR service forecasts a much steeper fall in CPI over the coming months.
With a view to account for the steeper-than-expected drop in hydropower generation, China's power industry forecasts have thus been revised this quarter, pencilling in a -1.6% growth in 2011. BMI also expects that hydro generation will remain subdued in first months of 2012, owing to low levels of adjustable water and hydropower reserves. This considered, BMI anticipates that the country's utilisation of its thermal capacity will remain at higher-than-average levels, further eroding the profitability at power plants.
Despite the changes introduced over the composition of the electricity mix in the short-term, BMI highlights, however, that its main view on the market remains unchanged. China's overall electricity generation and consumption will remain considerable and in a league of its own. Yet, BMI anticipates that growth rate of consumption and generation of electricity in the country will moderate in the coming years, especially as its Country Risk service anticipates that real GDP growth will fall significantly to 8.1% in 2012, from 9.2% in 2011, as the investment boom comes to an end and the growth in global trade flows cool. According to BMI's forecasts, annual average growth of total electricity generation will be 7.84% between 2011 and 2016, while consumption will grow by 7.93% over the same period.
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. Yet, policy developments in the second half of 2011 confirmed BMI's previous analysis, and prompted us to assume an even more bullish posture with regard to renewables, especially wind and solar.
Considering this key themes, major trend and changes for China's power sector this quarter include:
- In October 2011, the Chinese government took a further step towards reforming the electricity sector, by forming two new companies (China Energy Engineering Group (CEEG) and PowerCorp). Yet, BMI believes that given the scale of inefficiencies in the Chinese power sector, much bolder steps are needed rather than just the spinoff of the design and engineering arms of some of its most inefficient national champions.
- According from data from the National Energy Administration, in the first ten months of 2011, the country invested CNY276bn (US$43.53bn) in power projects. The total included CNY70.8bn for hydroelectric power projects, CYN81.8bn for thermal power projects, CNY60bn for nuclear power projects and CNY55bn for wind power projects.
- Chinese state media announced in August 2011 that the government will increase renewable energy targets for 2015 (accelerating the roll out of new renewable capacity as part of its next five-year plan) as it seeks to beef up efforts to curb greenhouse gas emissions. According to China Securities Journal (quoted by Business Green), the government is now planning to further increase its targets to 100GW of wind capacity, 260GW of installed hydropower capacity and 10GW of solar energy capacity by the end of 2015.
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