China power glut to linger for five more years

Beijing: China’s electricity overcapacity will continue for another five years as demand growth slows and new projects come online, according to IHS Market.
China started showing signs of ‘bad overcapacity’ in 2013 and 2014, and hit a high in 2015 due to new plants coming online, according to Xizhou Zhou, head of China energy research at IHS Markit. The overcapacity will likely remain as it would be too difficult to reverse construction plans for new power plants, he said in a phone interview.
"That doesn’t bode well for anybody,” including power generators or fuel suppliers, Zhou said. "Power demand is still growing, but a lot of the plants are going to be much less utilised than what they had planned for.”
The overcapacity, coupled with environmental policies, will hit coal-generated power the hardest, according to Zhou. With more coal plants coming online, average utilisation rates — which fell below 50 per cent last year — will continue to drop, he said. Wind and solar projects may also be curtailed.
President Xi Jinping’s government has prioritised cutting the country’s industrial overcapacity, focusing mainly on coal mining and steel production. The National Energy Administration (NEA) last month urged northeast China to cancel or postpone about 7.5 gigawatts of planned coal-fired facilities, according to Xinhua News Agency.
The nation’s worst economic slowdown in a quarter century has led to a slump in the rate at which demand for power had been growing, according to Zhou. Electricity demand growth at 2.7 per cent is less than half the pace of gross domestic product, according to a Bloomberg Intelligence report from July.
Power consumption, which rose by 15 per cent in 2010, only increased by about 6.1 per cent over the last two years, according to the NEA. Meanwhile, power capacity increased by about 22 per cent in the same period.
The doubling of China’s power capacity between 2004 and 2010 "was needed because the demand was growing so fast, and it helped guarantee the energy supply for the extraordinary economic expansion,” Zhou said.
"The big industries are without a doubt decelerating, and that’s created a supply, demand imbalance in the market today. People were still making decisions to build big power plants in 2011 and 2012, and those are all coming online now.”