091213 IHS Release, China's Power Market Will Overtake That of the US and Europe by 2035Document Transcript
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By 2035, China’s Power Market Will Overtake That of
U.S. and Europe Combined and its Natural Gas Market
Will Rival That of the U.S. in Size, says IHS report.
China Can Accommodate Cleaner Energy Sources in its Power
Generation Mix without Increasing Energy Prices
BEIJING, China (December 10, 2013) – China’s last decade of robust
economic expansion is unprecedented anywhere in the world, equally
matched by the building out of its electric power infrastructure, which has
more than tripled in the same period—and most of this growth fueled by
coal. Today, however, environmental concerns and urban air pollution are
prompting the authorities to opt for cleaner technologies while demand
continues to surge.
IHS (NYSE: IHS), a global research and analytics firm, recently concluded
a unique study on the future of provincial gas and power markets in China,
titled: ‘Solving the Tangram’, exploring how supply, demand, cost, and
prices in each of China’s 31 provinces will interact with evolving policies to
shape the future of the country’s energy sector.
The phenomenal electric load growth in the past 10 years was met by
roughly 80 gigawatts (GW) of new power plants added each year, or
adding an electricity system the size of Japan’s – the third-largest in the
world – every four years.
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With the majority the additions being coal units, the emissions associated
with this expansion have led to significant degradation in environmental
quality, causing growing public discontent.
Changes are taking place. Structural adjustments in the wider economy
combined with improvements in energy efficiency are expected to
moderate future demand – and even under a scenario of sustained growth
and globalization, electricity consumption increases by 4.1 percent per year
on average from 2012 to 2035, only a third of the rate of the previous
This is still significant by global standards at this growth rate, which still
sees China’s electricity demand doubling by 2026 and its total power load
being larger than that of the United States and Europe combined by 2035.
This means that the nation must continue to build new power infrastructure
while diversifying into cleaner technologies such as natural gas, wind, and
solar, which are all more costly than coal.
For instance, natural gas is only two percent of China’s power generation
mix today owing to its high cost and limited supply, but the volume of gas
consumed in power generation is expected to rise 10 times by 2035. Many
fear that the growing share of more expensive energy sources will lead to a
dramatic increase in power prices.
However, IHS research shows that the average cost of power generation in
the country does not increase despite the rising penetration of these new
fuels and technologies.
One of the conclusions of this bottom-up study found that the cost of power
supply will not rise in China despite rapidly rising penetration of cleaner yet
more expensive sources of energy.
“Rising fuel costs, increased energy import dependency, and growing
dissatisfaction with environmental quality will still have to be addressed, but
it is important for investors to understand that China can no longer be
viewed as a single energy market,” said Xizhou Zhou, director and head of
China Energy at IHS.
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Many Chinese provinces are the size of countries in the European Union or
states in the U.S. in terms of population, size of economy or electric power
For example, Guangxi Province has roughly the same installed power
generation capacity as the Netherlands; the coal consumption in coast
Jiangsu Province is roughly the same as Canada.
There are big differences among provinces in fuel availability and prices,
too; the retail natural gas prices in Ningxia in northwest China is roughly
half of that of Beijing today.
“The Chinese power markets will become increasingly varied provincially,
mirroring the variations in resource endowment, geographic location, and
differing stages of economic development,” said Zhou, who leads IHS
energy research and consulting in Beijing.
“China will find itself navigating one of several energy growth pathways to
diversify from coal into cleaner technologies for its electric power, build a
sizeable natural gas market and secure sufficient energy to sustainably
grow the economy by lowering its energy prices.”
“Our research shows that the clean air drive will not come with a higher
electric power bill as more expensive energy such as natural gas and solar
can be offset by the continued expansion of cheaper sources like hydro. In
other words, China can have its cake—and eat it too!” Zhou said.
Some key conclusions can be found in the summarized version of the IHS
report: “Solving the Tangram”, which is available upon registration at this
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