China Power Report Q3 2012

BMI View: Our view that growth in Chinese power consumption and generation would decelerate in 2012 has been playing out, corroborated by a growing number of indicators. New data released by China's National Energy Administration show that power consumption increased 3.7% in April 2012, the slowest rate in 16 months; meanwhile, trade and GDP figures support BMI's long-held view that the Chinese economy may suffer a hard landing. That said, we anticipate that the power infrastructure project pipeline will remain substantial, with the construction of nuclear power plants close to resuming and ultra-high voltage power transmission lines and smart grids receiving increasing attention.

The intensification of the downtrend in China's GDP growth in 2012, as well as a sharp contraction in import and export growth in April 2012, offer strong support to BMI's long-held view that China will suffer a hard landing. These elements are further corroborated by the significant slowdown in power generation and consumption, a pertinent barometer of economic activity. Taking these developments into consideration, and with BMI's Country Risk analysts expecting continued lacklustre growth, we maintain our forecasts for growth in power consumption of 7.52% in 2012, down from an estimated 11.07% in 2011.

Aside from this expected deceleration in 2012, long-term growth in power generation and consumption is also expected to moderate, as energy intensity declines. That said, China's overall electricity generation and consumption levels will remain considerable and in a league of their own. As such, significant investment in new capacity will still be of paramount importance to the country's power sector – an outlook that finds further support in the forecasts made by BMI's Infrastructure analysts. In terms of the fuel mix, conventional thermal sources are expected to continue to dominate electricity generation over the coming years, as many projects that are planned or under construction will use coal or gas. Yet, policy developments in H112 confirmed our previous analysis, and prompted us to assume an even more bullish posture with regard to renewables, especially wind and solar.

Taking these key themes into consideration, major trends and changes in China’s power sector include:

According to figures released by China's National Energy Administration, the country's power consumption increased 3.7% in April to 389 terawatt hours (TWh), a value 3.3 percentage points lower than that of the previous month and the slowest growth rate reported in 16 months.

China’s state council announced it would most likely hold a meeting before the end of June to approve nuclear safety and development plans. The government will be in a position to restart approving new nuclear plants after the plans are passed.

The transmission and distribution (T&D) sector is also expected to attract significant attention over the coming years as plans to develop ultra-high voltage power transmission lines and smart grids start to materialise. From this perspective, it is worth noting that the construction of an ultra-high voltage power transmission line started in May in China's far western Xinjiang region.