The power industry has entered the era of overcapacity?

Since 2008, China's newly-increased generating units have reached 100 million kilowatts per year. At the end of 2013, the total installed power generation surpassed the United States for the first time in the world. However, in stark contrast to this, the growth rate of electricity consumption in our society has dropped substantially. This means that the unbalanced trend of China's electricity supply and demand structure is becoming more and more obvious, and the nationwide power surplus may come earlier.

At the beginning of this year, the China Electricity Council predicted that China’s electricity consumption in the whole society will increase by 7% in 2014. However, in the first three quarters of this year, this figure was only 3.9%, which was much lower than expected. At the same time, the number of hours of equipment use has also dropped sharply. In the first three quarters of the year, the nationwide power plant equipment for 6000 kW and above averaged 3,204 hours, a year-on-year decrease of 174 hours.

According to the regulations of the electric power industry, if the number of hours spent on equipment in a certain area is higher than 5,500 hours, it means that the power consumption in the area is tight and the power investment can be increased; if it is less than 4,500 hours, it indicates that there is surplus power in the area. Generally, no additional power generation capacity can be installed.

In 2013, the cumulative average utilization hours of power generation equipment in China was 4,511 hours, which was already at the edge of saturation. According to the current situation of decline, it is a foregone conclusion that this figure is less than 4,500 hours in 2014, and individual regions such as Jilin even hover around 3,500 hours. In other words, the current electricity market in China is already in a relatively surplus state.

In spite of this, China’s newly added infrastructure power generation capacity in the first three quarters of China was still as high as 52.5 million kilowatts. In August, the National Development and Reform Commission also announced 25 newly verified thermal power projects. Why is the investment impulse of power construction still difficult to control under relative saturation of electricity?

It is not difficult to answer this question. Since 2012, China’s coal prices have fallen sharply, and thermal power plants, which had been in a state of long-term losses, have obtained development opportunities and become new profit growth points for enterprises. In the context of long-term bearish coal prices, despite the surplus in the electricity market, it is still difficult to curb corporate investment enthusiasm for thermal power. On the other hand, new energy projects based on wind power are not only supported by policies but also have exclusive investment characteristics. For example, although the power supply in the northeastern region is serious, the wind power project is still being launched. The reason is that in the face of limited high-quality wind resources, no company is willing to voluntarily give up, because abandoning the layout means that there will be no opportunity for participation in the future.

In addition, some power projects with a relatively long investment cycle, such as the successive commissioning of hydropower and nuclear power, have also contributed to the rapid increase in power supply data. However, if the imbalance between electricity supply and demand is not regulated and optimized in policy, future conflicts may be concentrated.

China’s economy has entered a new normal characterized by “medium high speed and excellent structure”. Economic growth has entered a “shift period,” and the growth of electricity demand will naturally slow down. As China's industrial electricity consumption accounts for 70% of the total electricity consumption in the society, the electricity consumption of high-energy-consuming industries such as steel and electrolytic aluminum accounts for about half of the electricity consumption in the industry. Therefore, with the adjustment of China's industrial structure and the restrictions on high-energy-consuming industries, the future growth in electricity demand will also enter the middle and low-speed range.

At the request of changing the functions and decentralizing power, the National Energy Administration recently decentralized the approval of thermal power projects. However, the risk of this decentralization is that local enthusiasm for investing in thermal power may be reactivated.

The China Electric Power Enterprise Federation recommends that the size of power supply in areas with more power surplus should be strictly controlled to concentrate on the existing power supply capacity. We will strictly control the development of wind power, solar power generation, and other developments in areas where water is severely discarded, and strictly control the scale of power generation including coal-fired power and wind power in the northeastern region where electricity is abundantly surplus. If the power industry does not take precautions, it will not repeat the mistakes of excess capacity in other industries.