From Power Shortage to Excess Supply
Agence France Presse, Feb. 21, 2006
China expects its seemingly perennial energy shortages to end this year, but it risks facing the opposite problem of having too much power generating capacity, state media and analysts said yesterday. The elimination of the country's widespread brownouts will come about as new capacity goes online while growth in electricity demand slows, the China Daily reported.
'This marks a turning point in the electricity supply shortfalls of a few years ago,' said Mr Zhang Guobao, deputy head of the National Development and Reform Commission, the top planning body.
China first reported failures to meet power demand in 2000, and the situation deteriorated steadily. In 2004, 24 of China's 31 provinces and municipalities suffered power outages.
Many major power plants had run low on coal supplies due to bottlenecks in the industry's overburdened transport networks and soaring demand stemming from the country's rapid economic growth.
China's electricity production is expected to reach at least 570GW by the end of the year, which would be enough to meet demand, said Mr Zhang.
On the supply side, the situation is now being relieved gradually, with a total installed capacity of 750GW by 2010, up from 500GW late last year, the paper said.
On the demand side, power consumption is expected to rise by less than 7 per cent annually over the next five years, down from annual increases of at least 10 per cent during the past five years, the newspaper said.
This is a side-effect from a recent government drive to curb overinvestment in energy intensive sectors such as steel and machinery, and to encourage growth in the service and high-tech IT industries, according to the report.
The sharp increase will be initially welcomed by enterprises that have been screaming for more fuel in recent months, but it may backfire, analysts warned.
'They will probably have an oversupply problem very soon after investing heavily in the power sector in recent years,' said Mr Huang Yiping, an economist with Citigroup in Hong Kong.
'So what they will likely have to do is start rationing new investment (in power plants).'
Power is not like more tangible commodities that can be transported easily, and it is not an option to bring down the excess supply by selling it cheaply inside or outside China's borders.
There are already signs that power producers are getting jittery, lobbying for the right to price their products higher when their own input, overwhelmingly coal, gets more expensive.
'The government should introduce a system that will pass the high fuel costs to end users,' said Mr Wang Yonggan, secretary general of the China Electricity Council, an industry consortium. 'Otherwise, electricity producers will suffer severe losses as fuel prices fluctuate.'
Although market conditions could be tough for electricity producers, they might be able to find a market among companies that have so far resorted to stop-gap measures such as using their own diesel generators to keep up production.
But the vast increase in new generating capacity has done little to change China's energy mix.
Most new capacity is coal-fired, and the fossil fuel will remain China's main energy source for decades.