By Siân Green
In spite of economic recession, electricity demand continues to grow in many Asian countries. Together with plans for deregulation, this translates into investment opportunities in one or two key markets. With the USA’s market bubble slowly deflating, equipment manufacturers and power developers are looking to new growth regions for opportunities. Perhaps surprisingly, their next port of call could be Asia.
Speaking at Power-Gen Europe, Del Williamson, president of global sales for GE Power Systems, said that GE is expecting to see growth in Asia’s power markets in 2003, and is forecasting the addition of 145 GW of new capacity in the region from 2002 to 2005.
China’s restructured power sector could attract foreign investment to the market
This upbeat forecast is not the kind of analysis associated with Asia since the fall of the tiger economies in the late 1990s. While some new capacity additions have been made, opportunities have been limited and most of the region’s markets still have more generating capacity than they require.
This is a view reflected by Mary Ellen Olsen of Standard & Poor’s. “Most countries in Asia are suffering from overcapacity, while others are small markets that don’t offer much opportunity,” said Olsen. Malaysia, the Philippines and Thailand in particular are over-supplied.
The Philippines has new generating capacity coming on line this year, including the Ilijan project which recently started operating, and is still trying to resolve disputes with independent power producers whose projects were stalled at the height of the region’s economic crisis. “There is no driving need for new capacity in this market,” said Olsen.
Nevertheless, GE sees the potential for 30-40 GW per year of growth in Asia over the next few years. Leading the way will, says GE, be China and South Korea, although it also sees some potential in Japan and Taiwan.
China itself has suffered from overcapacity in recent years leading to the closure of many small thermal power plants. Nevertheless, capacity construction has continued – most notably of hydropower and nuclear capacity.
China’s economy is growing rapidly, however, with official government figures putting GDP growth at 7.3 per cent for 2001 and forecasting 7.0 per cent for 2002. This translates into an electricity demand growth rate of five to six per cent per year, although some regions are growing more rapidly than others.
Electricity demand growth rates in China’s coastal provinces are growing rapidly, says Raymond Woo, analyst at Standard & Poor’s, while other regions are experiencing more moderate growth. The coastal provinces also have tighter supply margins than other regions, where supply and demand are generally in balance or excess capacity exists.
Foreign investment in China’s power sector has been limited in recent years, but China’s entry into the WTO as well as its plans to restructure its power industry could change this. According to GE, if the government’s ‘bundle buy’ programme goes ahead, around 10-12 GW of capacity per year could be committed in China.
Gas availability in China could also be a factor in the development of its power sector. In spite of its large domestic reserves, natural gas accounts for only three per cent of total energy consumption in China. Several factors, including environmental concerns, have driven the government to develop natural gas infrastructure, and projects in the pipeline include the ‘West-to-East’ pipeline, a pipeline to bring Russian gas to southeast China, and LNG terminals. The construction of new gas-fired generating capacity is likely to go hand-in-hand with such projects.
Another potential growth market in Asia is South Korea, where steady economic growth has continued in spite of economic problems elsewhere. As a result, the country’s electricity demand growth rate stands at around 4-5 per cent and is expected to grow at four per cent until 2010.
Korea’s Ministry of Commerce, Industry and Energy stated in May that it is planning to increase its total electricity generating capacity by around 50 per cent by 2015 to meet growing power demand. It said that the country needs to grow its generating capacity to 76 930 MW from its 2001 level of 50 860. It is aiming to channel private money into this expansion.
In order to attract private financing to the power sector, Korea is in the process of restructuring and privatizing the industry. It has already split up the generating unit of state utility Korea Electric Power Corporation (Kepco) into six separate companies, five of which will be privatized starting later this year. Kepco’s distribution division will meet a similar fate next year, and the country’s gas industry is also scheduled to be restructured.
Companies such as BP, Mirant and Tractebel have already expressed an interest in participating in the restructured Korean power market. The IEA has praised the country’s reform efforts, but has also warned that for the programme to succeed and to attract investment, several issues need to be cleared up in order to ensure transparency.
One major issue is the operation of the nuclear generating company, which will remain in state hands, and how this will affect competition in the market. In addition, the IEA has warned that an independent regulator should be appointed to prevent the heavy hand of the government from interfering with the market.