There was barely time to recover from Christmas but this was a rare opportunity to visit the massive Three Gorges hydropower dam. It was my first time on mainland China and I didn’t quite know what to expect, except perhaps that it might be a little warmer. Yet seeing the the size and scale of Three Gorges, first-hand, highlighted the lengths to which China is prepared to go to tackle its power shortage.
According to Chinese reports, power generation rose by 15.3 per cent year-on-year in 2003. This is the fastest annual growth since the country launched its market-oriented reform in the late 1970s. By the end of 2003, the country had an installed capacity of about 384 500 MW, up 7.8 per cent from a year earlier.
Strong economic expansion has seen China experience the fastest growth in power demand in the world. But output has struggled to meet demand – last year output reached 1.908 TWh while power consumption was 1.891 TWh. Dry weather has reduced output from hydropower stations while coal supply has reduced as a result of government efforts to clamp down on illegal mines.
The government forecasts shortages of 10 to 15 per cent in key manufacturing areas, estimating that China needs about $108 billion worth of new generating capacity to close the gap.
According to state media, blackouts are occurring in many parts of the country. Power shortages first emerged last summer in the coastal provinces at the centre of China’s export boom – Guangdong, Fujian, Zhejiang and Jiangsu as well as the city of Shanghai. They have since spread. Today, 19 of 31 provinces are said to be rationing electricity.
The shortages are expected to worsen in 2004, with power supply outstripping demand in two years. China is now in the midst of a building boom in power plants, although most will not be completed for two or three years. And although the Three Gorges dam – the world’s largest hydropower project – is beginning to provide power, it will not be completed before 2009.
The shortage situation is no doubt leaving a sour taste in the mouth of consumers. There were reports of customers eating by the flame of a burning candle at an electricity-restricted restaurant in Changsha, the capital city of Hunan Province. According to China Power & Energy News, the city of Changsha is suffering acute power shortages and plans to cut power to most homes and businesses for one day out of every four.
In Hangzhou factories have been forced to limit production to four days a week. In December officials barred virtually all production during peak hours of household demand, while forcing the biggest energy users to stop production altogether.
At the Hanggang-Changxing Electrical Arc Furnace Steel-Making Co., production has been slowed by nearly one-fifth. One company official noted: “The effect is huge. Every day, our profits are reduced by 150 000 renminbi.”
For now, most analysts foresee only a marginal impact on China’s economy but note that if the problem persists, it could scare off foreign investment – particularly in energy-intensive industries such as semiconductors and petrochemicals.
But every crisis brings opportunity and equipment manufacturers, power plant owners and operators are already experiencing the sweet taste of success. Last year both GE and Mitsubishi were awarded multi-million dollar contracts to supply gas turbines to China.
Now potential financial investors are also salivating at the prospect of opportunities which are beginning to seriously take shape. China Power International Holding Ltd (CPI) is planning a listing on the Hong Kong stock market this summer in an attempt to raise funds to finance the expansion of its generating capacity. According to reports, the company plans to launch an IPO in July or August this year. The IPO could be one of the largest Chinese privatizations this year and is expected to trigger huge interest. Already a number of international banks are lining up to bid for an advisory role in the IPO.
The listing is expected to value the company at up to $4 billion and raise between $500 million and $1 billion to expand capacity and buy additional plant. Investment bankers said they expected China Power Investment Corporation (CPIC), CPI’s state-owned parent company, to sell about 25 per cent of the company. CPIC has total assets worth Rmb 80 billion ($9.6 bn) across 17 provinces and a total generating capacity of 30 000 MW. In December it took over 10 power plants in the north-eastern province Liaoning and also acquired assets in Shanxi.
Still, there is much work to be done. Three Gorges is an inspiring project and the ‘3G experience’ will always be a memorable one. But I still also recall the cold. The prospect of looming power shortages under the spectre of cold, dark winters is not an appetising one for the average Chinese citizen. Unlike them, I fortunately have the option of scheduling my next visit to coincide with warmer weather.
Junior Isles, Publisher & Editorial Director