Fast pace developments expected in all segments, with huge potential for coal, nuclear and renewable generation capacity
Electricity consumption in China, which at 3,600 TWh today is second only to that of the USA, is set to roughly about 6,400 TWh by 2020. Concurrently, power generation capacity will increase in a similar extent to over 1,400 GW, involving expansion in highly efficient coal-based power generation plant and, with oil and gas in limited supply, expansion in nuclear and alternative sources such as wind, solar and small hydro-plant, a study by KPMG reveals today.
The potential growth in China's electricity sector is "awesome," the report states, with the required investment in the sector estimated to be a staggering USD 2,765 billon in the next two decades that is approximately one quarter of the total global energy sector investment during that period.
"It is astonishing to think all this means China needs to commission one power station per week, every week, for at least ten years" says Peter Kiss, KPMG`s Global Head of Power &Utilities, partner in the Hungarian firm and leader of KPMG`s Global Power & Utilities Knowledge and Resource Center, which was responsible for the study.
The study, which questioned and collated the views of industry professionals in China, is one of four published today as part of KPMG's power industry research under the title ‘Think BRIC! Key considerations for investors targeting the power sectors of the world's largest emerging economies." Together with China, these studies provide wide-ranging insights into the Indian, Brazilian and Russia power-sectors.
"The need for additional generating capacity, plus investment in the transmission and distribution systems and in energy-efficient technology, is a matter of high priority, given that China has already experienced power cuts due to an inability to meet peak demands", says Terry Chu, Power & Utilities Partner with KPMG China.
"Expansion of the electricity sector is a basic need for China to continue on its economic growth path, and to supply the people. As the report notes, household consumption is expected to rise by 50 percent in the next five years as the population experiences a steady increase in the standard of living," Mr Chu says.
Since the country has vast coal reserves, a large proportion of the new generating capacity will be modern, efficient coal-fired thermal plants. China largely has the resources, both physical and human, to carry out this expansion, along with any large hydro-schemes that might be sanctioned.
However the study points out that China's nuclear industry is relatively underdeveloped and lacks the most modern technology. Given the problems of air pollution in some large cities, China, sees nuclear as a clean alternative to coal, and aims to triple the proportion of nuclear production to 6 percent of the total by 2020.
The renewable sector will see significant, wide-ranging expansion, and although opinions on the numbers vary, one government report aims at generating at least 15 percent of electricity from wind, solar, small hydro and other renewable sources by 2020.
As one major financial institution surveyed by KPMG said: "Renewable power will have rapid development in the next 5 years as it not only meets the environmental requirements, with little pollution, but also enjoys great support from the government."
In particular, wind generation offers great opportunities, one study indicating potential onshore capacity at between 700 - 1,200GW (i.e. more than the nation's current total installed capacity of all types) with an additional 250GW offshore.
Solar energy too could prove an efficient and effective means of providing power for smaller, isolated communities. The National Development and Reform Commission (NDRC) has high hopes on solar, its energy research unit forecasting that the 2020 target for solar generation should be 10,000MW or more, although as the KPMG study emphasizes, much may depend on subsidies and future cost of solar panels.
The study also notes that despite the vast developments which have to be undertaken, foreign participation may be limited to areas where China lacks particular technical and manufacturing knowledge.
Furthermore, China views the transmission and distribution grids as "strategic assets", and may not cede ownership rights to foreign companies, despite a need for more advanced technologies and stricter management of operations, although equipment suppliers could find niche markets.
In terms of private sector investments, the generating sector offers the most potential, although this remains dominated by state-owned utilities, cross-subsidies exist and the regulatory environment is still undergoing development.
Yet as Peter Kiss stresses: "Such is the scale of development that anyone involved in the electricity sector must see China as a vast and potentially important market."
For foreign investors to be successful in China, it depends to a large extent on understanding local culture.
"It is imperative in China to have the right advisors and take time and care regarding what the industry wants. On the positive side, the government appears to be willing to provide support and favourable conditions for investors in the power sector" he says.
- Ends -
- About the research:
The 'Think BRIC! - Key considerations for investors targeting the power sectors of the world's largest emerging economies' series of individual market reports and a comparative study summarizing their key findings has been compiled by KPMG's Global Power & Utilities Knowledge & Resource Center, based in Budapest, Hungary. The full report is available as a separate pdf on our website at the this link: http://www.kpmg.com/global/en/issuesandinsights/articlespublications/think-bric/Pages/default.aspx
The research includes the results of a survey of 65 senior executives of the BRICs' power generation, transmission and distribution businesses, regulatory authorities, World Energy Council representatives, financial institutions and technology suppliers offers a multi-stakeholder overview of the investment outlooks of BRICs' power sectors.
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