Slowing Economy Eases Guangdong's Electricity Crunch

UNCLAS GUANGZHOU 000087 SENSITIVE SIPDIS EMB BEIJING FOR DOE USDOE FOR OFFICE OF THE SECRETARY USDOE FOR INTERNATIONAL AFFAIRS USDOE FOR FOSSIL POLICY AND ENERGY STATE FOR EAP/CM, EB/TRA, AND EB STATE ALSO PASS USTR FOR CHINA OFFICE E.O. 12958: N/A TAGS: ENRG ECON EMIN SENV PGOV TRGY CH SUBJECT: Slowing Economy Eases Guangdong's Electricity Crunch REF: A) Guangzhou 80, B) 08 Guangzhou 0175 ¶1. (U) Summary. One unintended consequence of the global economic downturn: it's easing Guangdong's power shortage. With slowing demand for electricity, power grid construction is catching up, spreading electrification to more remote rural areas. Increased energy-efficiency among power producers and distributors is also helping to ease the gap between supply and demand. Experts predict that the gap will continue to shrink through the beginning of 2009; however, slowing demand and price controls will strain the profit margins of Guangdong's major power distributor. End Summary. -------------- - Economic Downturn = Slowing Electricity Demand -------------- - ¶2. (SBU) The global economic downturn is slowing Guangdong's thirst for electricity. Media reports indicate that demand for power has declined for four straight months. This is helping Guangdong's main power distributor to close what had been a widening gap between supply and demand. After storm-induced power shortages in the winter of 2008 (ref A),Guangdong struggled to meet demand as coal supply shortages continued through the spring, according to Qian Hua, Deputy Division Chief for Power-Saving Management at China Southern Power Grid (CSPG). The start of the global economic downturn and recent increased hydropower generation caused by heavy precipitation have both helped dramatically narrow the difference between supply and demand. ¶3. (SBU) Qian said that for many areas with large-scale shortages, the problem had more to do with a lack of grid capacity than electricity supply. According to Qian, electricity demand in 2008 increased by just 4 gigawatts or 3.6%, 9.7 percentage points lower than last year's growth. Power transmission capacity, on the other hand, increased by 11 gigawatts. Zhang Mianrong, Deputy Director of China Southern Power Grid's Market and Trade Department predicts that in 2009, the situation will be similar. -------------- --- Downturn an Opportunity for Capacity to Catch Up -------------- --- ¶4. (SBU) Power grids in Guangdong are stretched to capacity, but the slowdown in demand increase is helping to alleviate the pressure. According to Qian, the slowing of electricity demand has given CSPG a chance to speed up grid construction. In 2008, CSPG invested RMB 52 billion (USD 7.6 billion) in grid construction and plans to invest RMB 88 billion (USD 12.87 billion) in 2009, focusing on three main areas: the West-to-East Electric Power Transmission Project and distribution networks in both urban and rural areas. ¶5. (SBU) Although the media have reported that the Guangdong government plans to invest RMB 30 billion (USD 4.4 billion) in grid construction over the next year, this investment will actually be financed by corporations like CSPG, not the provincial budget, said Qian. Zhang noted that the government's estimate of RMB 30 billion fell far below the investment needed for Guangdong. He emphasized that CSPG's investment will triple this amount and significantly relieve power shortages over the next 1-2 years. -------------- Energy-Efficiency Initiatives -------------- ¶6. (SBU) The CSPG executives touted the company's efforts to promote energy-efficiency both internally and through outreach programs, noting the national government's 5-year goal of reducing energy consumption per unit GDP by 20%. CPSG has established energy-efficiency accountability contracts with its subsidiary companies. It encourages the closure of energy inefficient coal-fired power plants and plans to upload more nuclear power to electricity grids (ref B). CSPG has been combating electricity transmission loss by retrofitting outdated equipment and strengthening internal assessments. CSPG's energy-efficiency campaign also includes public education campaigns and outreach to area enterprises, providing free-of-charge energy-efficiency diagnosis and equipment modification advice. In addition, the CSPG executives highlighted nationally mandated differential power tariffs that are higher for inefficient and heavy polluting customers. -------------- Downturn Still Hurts the Bottom Line -------------- ¶7. (SBU) Nevertheless, Zhang commented that slowing demand in the downturn would hurt the company's profitability well into 2009. Government price controls at the provincial and national levels compound the company's problems. Two nationally mandated tariff increases in 2008 had forced CSPG to pay power producers higher prices to offset surging coal prices. However, CSPG was only allowed to pass on one of the two increases to consumers. In addition, Guangdong regulations impose lower tariffs for consumers in 14 remote municipalities, boosting consumption there but cutting into CSPG profits. GOLDBERG