Eric Ng, SCMP – Updated on Dec 11, 2008
China Guodian Group and Huaneng Power International have received approvals to build coal-fired power plants costing an estimated total of 7.5 billion yuan (HK$8.47 billion), despite concerns of oversupply next year.
China Guodian, the country’s fourth-largest power producer by capacity and parent of mainland-listed GD Power Development, got the green light to construct two 600-megawatt (MW) generating units in Xingyang, Henan province, the company said.
A prerequisite of their construction is the closure of small plants in the area as part of Beijing’s “build large, shut small” policy, aimed at raising fuel efficiency and cutting pollution in the power industry.
The 2.52 billion yuan, 600 MW phase two of Huaneng’s Jinggangshan plant, 200 kilometres from Jiangxi province’s capital, Nanchang, has also been approved by the central government, Huaneng said.
Dao Heng Securities analyst Fan Yunfeng and a Huaneng spokesman said the projects were part of a long pipeline of applications made much earlier and not part of Beijing’s 4 trillion yuan economic stimulus package.
The energy spending component of the stimulus plan focuses on expanding renewable power generation and power grids in which there has been insufficient investment.
Beijing has slowed approval of new coal-fired power projects in view of sharply lower demand growth due to the global economic downturn and its desire to steer the addition of new capacity to clean-energy projects.
Industry-wide output slumped a worse than expected 7 per cent year on year for all fuel types last month, and coal-fired plants showed an even steeper 14 per cent decline, according to a BOC International research report.
Coal-fired output tumbled 5.2 per cent in October, according to a Nomura Securities research report.
“We think the sharp deceleration in power demand for nine consecutive months heralds a significant industrial slump to be confirmed later, as downstream industries, like steel, metals mining and cement, among others, take time to clear inventory and close factories,” wrote Peter Yao of BOC International.
He expected power demand growth to rebound only in next year’s second half and projected it to average 4.7 per cent next year and 6.2 per cent in 2010, down from 8 per cent this year and 14 per cent last year.
Oversupply could see industrywide capacity utilisation fall to 53.5 per cent next year, close to the trough in 1999 and compared with 57.2 per cent last year, he added.