BMI View: Government efforts to diversify China's power mix away from coal in a bid to reduce pollution are gaining traction and we have revised our 10-year power generation and capacity forecasts accordingly. The implementation of policies to reduce coal generation, continued support for the renewables sector and a robust nuclear reactor pipeline underpin our outlook for the Chinese power sector over the coming decade.
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
A planned IPO by China National Nuclear Power Corp (CNNPC), one of China's two state-owned nuclear companies, aligns with our bullish view of the Chinese nuclear power sector. The IPO will strengthen China's nuclear ambitions - enabling CNNPC to tap the buoyant domestic capital markets to finance its nuclear power capacity expansion plans. We expect CNNPC to use the financing to cover the rising cost of its delayed Westinghouse AP1000 reactor, which is being deployed at sites on China's east coast, and also to export Chinese-developed nuclear technology abroad.
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 US.
China's plans to launch a series of large-scale construction projects in the power sector are squarely aimed at bolstering the country's slowing economy. The focus on the power sector aligns with our view that China's leaders will resist large-scale stimulus measures for now and will instead adopt a piecemeal approach to stimulus - offering support to certain critical sectors.