Economy

Markets

Industries

Insights

Reports

Events

Energy sector rises to the challenge

By Fu Jing (China Daily)
Updated: 2009-02-16 07:56

The deepening financial crisis has put China's energy industry in a tougher situation: energy demand is dwindling, production is sagging, stockpiles are rising, and energy companies are competing to cut prices. Meanwhile, the nation's giant oil and electricity firms are losing money by a large margin.

Related readings:  Export of high energy-consuming products down 16.2% in 2008  Automakers are plugging into green energy  Energy: Steel sector poised for rebound  Official: China's energy industry needs more reform

However, the temporary energy glut will not stop China from expanding energy output: it needs more when its economy starts to recover.

This simple fact means that the nation's energy watchdog is well prepared for the upturn in economic development.

China recently decided to step up the construction of nuclear power stations, wind farms and solar power stations. This is a welcome policy change in this coal-dependent country as it will help restructure the nation's energy mix and offer more green jobs for floods of laid-off workers.

As part of China's stimulus package to revive its economy, National Energy Administration Director Zhang Guobao announced that the nation plans to work on "at least" four nuclear power stations in 2009.

His announcement came after China launched construction of three nuclear power stations in October last year. This really is a U-turn in power policy compared to the past three decades, when China built less than 10 nuclear power plants in coastal areas.

Construction workers build power lines in East China's Fujian province. [Xinhua]

This change is being promoted by the economic downturn and China's growing ownership of key technologies in nuclear power construction. Further boosting the development of nuclear power, according to Zhang, is an important way for China to restructure its energy mix.

Compared with coal-fired, which now accounts for over two-thirds of the country's power generation, nuclear energy is more energy-efficient and environmentally friendly. China is aiming to have a nuclear power capacity of 60 gigawatts by 2020, a 50 percent jump from the earlier target outlined in its energy blueprint.

The National Development and Reform Commission (NDRC), China's top economic planning body, is considering revising the target in its medium- and long-term plan (2005-20) in the first quarter of 2009 and submitting the revised plan to the State Council.

According to the earlier plan for the industry, China would increase its nuclear power capacity to 40 gigawatts by 2020, accounting for 4 percent of the nation's total power capacity. China currently has only 9 GW of nuclear power capacity, or about 1.3 percent of its total.

Meanwhile, construction of nuclear projects is an effective way to boost domestic demand, as they require large amounts of investment and can boost many industries such as steel and cement. As a result, nuclear power companies have recently received capital injection both from the government and banks.

China National Nuclear Corp, China's largest nuclear company signed agreements with eight domestic banks, under which the company got bank facilities of 350 billion yuan, and it also signed agreements with 10 banks for 11.8-billion-yuan in loans in 2009.

At the same time, industry insiders said that too many coal-fired power plants are in the process of being built, which will further contribute to the overcapacity situation. China's power capacity will exceed 800 GW in 2009, up from a little over 700 GW.

The Chinese government is well aware of this problem. Recently, it introduced stricter environmental standards to stop the construction of polluting coal-fired plants. At the beginning of January, the Ministry of Environmental Protection revealed that 11 big projects in the country's stimulus package, involving more than 40 billion yuan in investment, had not won its approval following environmental impact assessments. Most of them are coal-fired projects.

This appears to be a continuation of the policy implemented in 2008, as statistics indicated that the country slowed down investment in coal-fired plants. The China Electricity Council said in January that the country's nuclear and wind power investment soared in 2008, while investment in coal-fired plants declined year-on-year.

Nuclear and wind power investment increased by 71.85 percent and 88.10 percent respectively compared with the same period in the previous year, while thermal power investment dropped 21.99 percent, according to the council. China's total power generating capacity reached 790.25 million kW in 2008, up 10.3 percent year-on-year.

However, China's electricity consumption fell 8.6 percent from a year earlier in November and 3.7 percent from the same month the year before in October - its first such decline since 1999.

Meanwhile, two large solar power plants will be built in the western provinces of Qinghai and Yunnan in 2009, as China cuts its reliance on coal and oil. Construction of the first phase of the Qinghai project, a gigawatt-level solar station, will begin this year. The plant, funded by an initial investment of 1 billion yuan, could become the world's largest when completed, according to a recent statement by its developers.

In December 2008, the southwestern Yunnan province announced it would begin construction of a 166-megawatt solar plant with an investment of 9.1 billion yuan - the largest in China at the time.

Overseas cooperation

Meanwhile, Chinese energy investors have been encouraged to "become bold" in acquiring stakes in overseas enterprises. That's the message from Zheng Xinli, vice-director of the Policy Research Office of the Central Committee of Communist Party of China.

He suggested recently that China should use its 2-trillion-dollar foreign exchange reserves to encourage overseas mergers and acquisitions, especially in energy and resources.

He said that the foreign exchange reserve should be invested in removing energy and resource bottlenecks that have hindered the country's development for so long. Zheng said the Chinese government should cooperate with investors, if necessary, by offering preferential loans to improve infrastructure of the destination countries.

As an advisor directly serving China's highest leadership, Zheng's suggestions are likely to become the central government's policy to boost overseas investment with the priorities being exploring overseas oil, gas and other mineral resources.

Amid global recession, many resource-exporting countries have pinned their hopes on manufacturing-led countries. This is a mutually beneficial solution for China and the rest of the world.