China Power Report Q2 2016
BMI View: The ongoing economic slowdown in China and the government's continued efforts to tackle coal consumption are having a significant impact on China's power sector and we have adjusted our forecasts accordingly. We believe coal-fired power generation will undergo a decline over 2016 and 2017, and then register only slight annual increases thereafter. The outlook for power consumption is similarly muted, with annual average growth rates of 3% between 2016 and 2025, as China's economy shifts away from powerintensive manufacturing.
Latest Updates And Structural Trends
In terms of fuel mix, conventional thermal sources play a key role and are expected to continue to dominate electricity generation as many projects under construction or planned will use coal or gas, and as Chinese efforts in prospecting and exploiting conventional oil and gas resources are set to increase. While other sources of power will play increasingly important roles, China will remain reliant on coal for its power generation over the next decade.
China's power mix continues to evolve, in line with the slowdown in China's economy - which is curbing power consumption - and the ongoing efforts by the Chinese government to tackle pollution, which is resulting in reduced coal consumption. This, coupled with the gain in prominence of cleaner fuels, such as gas, nuclear power and renewable energy, is having a significant impact on China's power sector. Over our forecast period, we expect coal-fired power generation to register just a 2% increase from 2015 to 2025, while other fuels will post much higher growth levels - albeit from a lower base. Natural gas and nuclear power will both increase by over 300% and non-hydro renewables will more than double. Oil power will decline as it is gradually phased out of the power mix over the next decade. • The Chinese government's mandate and environmental regulations will drive consolidation in the country's coal industry over the coming years, 80% of which were loss-making in 2015. On January 21 2016, China announced the allocation of 30bn Chinese Yuan (USD4.56bn) in funds over the next three years to support the closure of 4,300 small and inefficient coal mines to reduce annual production capacity by 700mn tonnes (mnt). This builds forth on the government's plan to redeploy about 1mn workers affected in the consolidation efforts. The newly announced measures, aimed to shrink oversupply and environmental pollution, follows China's decision last month to halt the approval of new coal mines until at least 2019.
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