Thursday, April 19th, 2012...6:23 pm

5 Key Points in China Guodian Power Development Co. Report

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China Guodian Power Development Co. released its 2011 Internal Control Assessment Report, highlighing the following “high risk areas”.  It seems to me that these points are true sector-wide in China.

1. Growth in power consumption slows down.

China’s economy enters a phase of “slow development, deep adjustment”. The speed of economic growth will continue to slow down. As the 2012 GDP growth falls to below 9%, the growth in power consumption is expected to fall down as well. The economic slow down will also have very negative effect on the coal-chemical market and multicrystalline silicon market.

2. Capital markets constrained.

Even though China has set active fiscal policy and stable currency policy, but so far as lending policy is concerned, low income housing and social enterprises lending are the key theme of targeted-easing.

3. Coal power price conflict remains unresolved.

Affected by the excessive global liquidity, China’s coal companies still have a strong impetus for price raise. Even though the government has promulgated comprehensive measures to supervise the price of coal and to raise the electricity price, but it hasn’t addressed the deep rooted problems such as the irrational setting of the electricity price. At the same time, the price difference between market coal and key planned coal remains considerable. [For more on China’s coal market, see this Stanford working paper] Key contract coal price is bound to rise. Other distorted price-raising methods have become more rampant: contract fulfillment rate keeps slipping down, and the quality of the coal has been going down.

4. Significant increase in pressure to reduce emission and conserve power.

The new “Thermal Power Plants Atmospheric Pollutant Emission Standards”, effective from Jan. 1, 2012, is much stricter than before. [See Chinese version here, NRDC’s English translation here] For areas and companies not meeting the emission reduction, the Ministry of Environmental Protection will impose a halt or termination of all project licensing in the area or/and of certain industries. As a result, the company is under a lot of pressure be it in environmental assessment of new development projects or in modifying and opearting existing projects.

5. Speed of wind energy development iconstrained.

National Energy Agency has limited local authority in wind power project approval. The process has been lengthened, and the difficulties increased. Compounded by long-existing difficulties in grid-connection & transmission, and land and forest acquisition, fast-paced wind energy development is considerably constrained.

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