In every sector of China’s power industry colossal plans are unfolding. The global power industry must be prepared for the impacts yet remain flexible enough should events turn out differently, writes Janet Wood.

China’s current per capita installed power capacity is just 0.303 kW – half the world average, and between one tenth and one fifth that of countries in the developed world. It expects to double that figure between now and 2010: a huge undertaking for a country that recently welcomed inhabitant number 1.3 billion into the world. It doesn’t take much mental arithmetic to agree with Siemens’ CEO Randy Zwirn, that “if you are going to be a big player you have to be in China.” To put it another way: “as much as 25 per cent of all the capacity additions in the world could be coming from China over the next ten years”.

China’s power plans between now and 2010 anticipate bringing installed power capacity to 650 GW, which means the addition of an average 40 GW of generating capacity every year. It certainly achieved that and more in 2004, when nearly 50 GW came on line.

In every sector of the power industry gargantuan plans are unfolding. But for China, coal is still the ‘most important energy resource’. In the last 18 months, according to US-based analysts McIlvaine, China started up more coal fired power plants than the US has built in the last half century. There are practical problems, however, as a glance at the map reveals. China’s industry, and its power demand, is based in the south and east, while almost all the coal is in the north and west. It began work on a so-called ‘coal by wire’ policy in the late 1990s; essentially a fast-track programme to develop a high voltage grid network that would make it feasible to install mine-mouth power stations and move power across the network, instead of moving coal across the country. The distance is vast, but the policy also fitted development plans for China’s second resource: its hydro potential. China currently estimates technically achievable hydro capacity at nearly 400 GW, with nearly 200 GW coming from the Yangtze River alone. But once again, that power has to be transported from hydro projects across China to the major demand centres in the south and east. That is why in the period 2001-2003, the first three years of the current (tenth) Five-Year Plan, some 250 billion Yuan ($30.2 billion), nearly half the total investment, was made in power grids. Major priorities are the so-called ‘northern channel’ that will transport power from the coal mining areas of Inner Mongolia, Shaanxi and Shanxi to the Beijing power grid and a second major route from the west to the south. It also included a 500 kV line to connect the Three Gorges hydro project to the East China Power Grid and a second line connecting it to Guangdong. By 2010 China expects to have put in place around 119 000 km of high voltage line rated at 300 kV or above.

Electricity consumption in China
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The impact of China’s “huge endeavour” on markets will be “both substantial and long lasting” McIlvane said, and the effects will be felt far outside the power market. In fact, “It will cause shortages in materials and labour worldwide.” For example, the company notes that the 100 000 MW of coal fired stations planned in China will also mean “$2 billion in orders for electrostatic precipitator equipment and $5 billion for installed precipitator systems”. That translates to 80 per cent of the market over the next few years, making it likely that Chinese precipitator manufacturers will become major exporters once the domestic surge in orders has been met.

McIlvane also illustrates the effect of China on world commodity markets. The flue gas desulphurization equipment required to reduce emissions from China’s coal plants will “cause shortages of equipment and materials in the US and Europe,” McIlvane predicts, along with “worldwide shortages of nickel alloy stainless plate, belt filters, large pumps and ceramic nozzles”.

That commitment in resources and components will be repeated on a broader scale as China’s development proceeds. The huge undertaking on coal stations, on power generation as a whole and on developing the transmission network is not an isolated development programme for China but a small part of the wholesale industrialization and development that has engulfed the country and in the process has put China at the heart of the world’s trade. It is not yet the world’s biggest trading nation, but its gross domestic product grew at around 9 per cent in 2003 and again in 2004 – twice that of the USA – and that growth is currently fundamental to world trading decisions. It’s an effect that led William Rees Mogg, writing in the London Times, to conclude: “What is the prospect for the dollar? That depends on China. The euro? China. The oil price? China. Industrial commodities? China. Global equity markets? China. Bond prices? China. World trade? China. World growth? China.”

Is that situation sustainable? For anyone who recalls how Asia’s so-called ‘tiger economies’ were tamed by the currency crisis in the late 1990s it is clear that there are concerns. China has been trying to cool down growth and address destabilizing factors such as its looming energy shortage, but it is not clear how much control can be exerted. In the longer term it is possible China will be balanced by three other fast-developing nations – India, Brazil and Russia – that with China represent around 40 per cent of the world’s population. But there are no certainties.

In this situation no company can afford to be without a Chinese sensibility, if not a Chinese presence. But most important is the ability to alter strategy as the situation unfolds. We are on a development expressway, and must be prepared to change lanes.