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2 January 2006

China's oversupply of electric power worrisome


    In October 2005, output of electric power in East Chinas Shanghai area was only 4.993 billion kWh when there was no short supply of coal and no disruption in any generating unit, posing a drop of 14.8 percent from the 5. 86543 billion kWh in the same period of the previous year,

 

According to information from the East China Power Grid System, the drop of electric power output was not only in Shanghai, but also other four provinces and one city under the East China Power Grid. Output of electric power in Anhui Province was 4.84686 billion kWh in October, down 0.8 percent year on year, and that of power stations directly under its leadership and managed by the grid was 2.155 billion kWh, down 8 percent.

 

The situation has brought the issue, which has been a worry for industry experts for a long time, to the surface: Chinas shortage of electric power has come to an end, and supply of electric power will change from the shortage of supply to a balance between supply and demand.

 

The Three Gorges Power Station is estimated to generate more than 360 billion kW of electric power during the 2006‑2010 period, 45.8 billion more than originally planned. Total installed capacity of the power station is 18.2 million kW. At present, generating units with installed capacity of 9.80 million kW have been put into operation, about one‑tenth of the total installed hydropower capacity in the country.

 

  The operation of the generating units in 2003 has made the Three Gorges Power Station famous as a sweetie‑pie in China, which had suffered shortage of power for many years. At the same time, the Three Gorges Corporation has sped up construction. All generating nits on the left bank have started production, and those on the right bank are expected to start operation in 2007. Furthermore, the underground power station of the Three Gorges is under construction. Fundamental changes are expected to take place in Chinas electric power market during the 11th Five‑Year Program (2006‑2910). Generating capacity will exceed 70 million kW in 2006, and the scale of operational capacity will reach 80 million kW after 2006.  

 

According to a report on the forecast of electric power industry in Central Chinas Hubei Province, the province will maintain a balanced supply and demand of power in 2007. Later, with more generating units starting production, the province will face an oversupply of electric power. Oversupply of electricity will emerge in some areas of the country in 2006, and overall surplus of electricity is likely in the country in 2007. Such a glut is expected to be even more serious in areas under the Central China Power Grid.

 

Starting from 2002, China has been seen frenzied construction of power source facilities stimulated by the shortage of electric power and heavy investment by various electric power giants. Some experts said that the installed capacity of power source facilities including those under construction and starting production will be more than two trillion kW during the 2002‑2007 period; and this is only a conservative forecast.

 

However, even industry insiders find it difficult to arrive at the exact figure of the installed capacity of power facilities under construction because of different statistical methods. Actually, many power stations have started construction with no approval from related departments. According to published statistics, China was to have power facilities of about 1.2 trillion kW starting operation in 2004 and 2005. According to the National Development and Reform Commission, the total installed capacity of power projects which are now under construction is 70 million kW. Putting the three figures mentioned above together, the installed capacity is about two trillion kW.

 

Starting from 2004, several governmental departments have made joint efforts to cool down the heated construction of power source facilities. But actually, many projects which have been asked to halt construction have not stopped. The construction of one electric power project needs at least about RMB12 billion, and many investors of power projects are state‑owned enterprises. So it is difficult for them to stop construction easily.

 

How much of the money in the construction of electric power projects is from the banks? If each kW installed capacity is estimated to cost RMB5,000 and deducting the 20 percent project construction capital funds, the two trillion Kw needs input of bank funds exceeding RMB800 billion. In fact, the construction capital funds of many projects are also borrowings from the banks. Adding those unapproved projects, the actual funds from banks in the electric power sources sectors should be more than RMB1 trillion. When the sellers market turns into a buyers market, the power industry will sink into a difficult situation as large amount of funds from banks, enterprises and public sectors have flown into sector, possibly bringing about financial and social risk.   

 

By our correspondent Zhang Mingquan

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