BMI View: The Chinese government's commitment to reducing coal use and tackling pollution - combined with the slowing economy and subdued power consumption - has prompted us to downwardly revise our electricity consumption and coal generation forecasts t his quarter . We expect electricity consumption to grow by an annual average of 4.1% between 2015 - 2024, and coal power generation to decline 3.45% in 2015.
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. Energy poverty is a key concern in the country and coal will remain the only realistic option for providing cheap and abundant energy for the local population over the medium term. Yet, rising coal prices are once again a key threat to the profitability of power generation companies operating in the domestic segment and Chinese utilities have placed collective pressure on the government to moderate proposed restrictions on imported coal, highlighting the difficulties China has in balancing the interests of its mining and power sectors as growth slows.
Besides short-term considerations, and while it should be kept in mind that China will remain in a league of its own, macroeconomic and sector-specific factors also point to an equally moderate long-term outlook.
Key Trends And Developments
We believe China's push to reduce its carbon emissions profile continues unabated; highlighted in late August by an agreement between the US Department of Energy (DOE) and China's National Energy Administration (NEA) to jointly develop 'clean coal' technologies for commercial use. The memorandum of understanding (MoU) will pave the way for both governments to collaborate on clean coal technologies such as carbon capture, utilisation and storage (CCUS) projects. Despite our belief that clean coal technology, such as CCUS, remains a long way from being commercially viable, due to the high costs and the immaturity of the technology, it still sends a strong signal regarding China's commitment to reducing pollution.
China's slowing economy is having a greater impact on power consumption than we initially expected. Our long-held view that structural weaknesses in the Chinese economy will slow GDP growth continues to play out - and we had already factored this into our power consumption forecasts. However, data reports from the first half of 2015 suggest that electricity consumption increased by just 1.3% y-o-y, much lower than our 2015 forecast for GDP growth of 6.7%. Typically power consumption has been a strong barometer of economic growth, and the two indicators have previously aligned relatively closely. However, they now appear to be decoupling - with power consumption falling faster - most likely due to increased efficiency in the power sector.
Our view that China will maintain its position as the fastest growing and largest market, in terms of installed renewables capacity globally, remains in play. Capacity installations continue to soar and the government remains strongly committed to expanding its domestic renewables industry, in line with the government's energy diversification strategy. According to our non-hydro renewables capacity forecasts, China will dominate the global renewables market, contributing over 30% to the global total in 2024 - with almost triple the installed capacity of the world's second largest market, the US.