Monday, May 21, 2007

Emerging opportunity in China's power industry 2007-05-21 13:54:28

BEIJING, May 21 -- To fuel China's rapid economic development, the country's demand for power is seeing an astonishing surge. However, the industry is facing a dilemma brought on by fast development and higher efficiency requirements.

What is the future development strategy of China's power industry? And what opportunities can global investors find in the blooming market?

Francois Nguyen, senior policy advisor from the IEA, or the International Energy Agency. He joined energy experts from around the world over the weekend in Beijing to attend the China Power and Alternative Energy Summit.

"For many countries, China has a golden opportunity for investment in clean and more efficient power plants."

Francois says his organization has estimated that in the near future the electricity sector will account for a larger part of the global investment in the energy infrastructure sector."In terms of the generation sector, there will be a global requirement of 5.2 trillion U.S. dollars, China alone will account for 23 percent of the global generation investment. The investment for China will reach 1.2 trillion dollars over the 2005-2030 period."

In accordance with the global economic growth, demand for power is urging, especially in emerging developing countries. Therefore, diminishing finite fossil fuel resources and the increasing cost of oil, gas and coal have become a significant threat to future energy security worldwide.

The serious environmental problems caused by traditional sources have also attracted more and more attention.

"It is a good time, it is a golden opportunity to implement more efficient generation technologies in most countries, as they are going to enter a new face of investment and those investments will remain for 30 to 50 years, or may be more."

As one of the fastest growing economies and a major power consumer, China is seeking to build a more intelligent structure for energy production.By the end of 2006, the country's total installation capacity reached 622 million kilowatt, rising 20 percent compared with the same period the previous year. The total electricity generation topped 2.8 trillion kilowatt last year, up 13.5 year-on-year.

China's power generation mainly relies on coal-fire generation.Sha Yiqiang, a Chinese energy expert, says such a fact is mind-disturbing.

"China's consumption of electricity has seen an average growth rate of over 10 percent over the past several years. If it continues to follow this rate, by 2020 China's overall electricity demand will reach 11trillion kilowatt. Therefore, the relative demand of coal will exceed 3 billion tons, which is 3 times the current amount. This is unpractical and unsustainable."

The electricity industry has long been a major resource consumer and polluter. It consumes over half of China's coal supplies, 40 percent of the water used by industry, and it also discharges over 60 percent of the overall sulfur dioxide emissions.China's power industry is facing challenges to achieve a sustainable development.Wang Qiang, a senior official from the state electricity regulatory Commission, says the situation must be changed.

"The problems accumulated during the recent development will limit the industry's healthy development, thus the requirement to accelerate the reform will become more and more urgent."

To move away from the current reliance on coal-fire generation, China is promoting the development of alternative energy, including nuclear energy and all kinds of renewable energy such as wind power, solar power and bio-fuels. According to the guidelines of China's renewable energy development, by 2020, renewable energy will account for 30 percent of the overall power generation.But, so far, alternative energy only accounts for a small part of China's energy structure.

The Association of China Electricity Enterprises has said that nuclear power currently only accounts for nearly 2 percent of the total installation capacity, while wind power accounts for even less, 0.5 percent. Sha Yiqiang says the gap may mean opportunities for business.

"To promote the development of alternative energy is an important target and challenge for China's power sector. Therefore, there are lots of good business opportunities for all the global companies who want to participate in building China's alternative energy industry."

For businesses eyeing China's power market, IEA's Francois Nguyen believes it is a good time to choose the right technology and the smart investment. But to do that, investors need sound policy signals to support their decision.

"The market mechanisms work if reforms are properly implemented. The ingredients necessary for efficient investments are competitive market drive, a good competitive framework and cause reflecting pricing. These are required for efficient initial investment, therefore the government should commit to a clear, stable and predictable energy strategy to provide confidence for the market."

The state electricity regulatory Commission's Wang Qiang says building a more energy efficient power industry is of major importance to build an energy-efficient and environmentally friendly country, following the blueprint of China's 11h five year program.

"Reducing energy consumption and pollutant emissions has been highlighted in China's electricity industry's reform agenda. For example, pricing mechanisms will be used to encourage cleaner energy development. Some measures will also be taken to ensure the priority of renewable energy development."