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.

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Economic Downturn = Slowing Electricity Demand
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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.

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Downturn an Opportunity for Capacity to Catch Up
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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.

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Energy-Efficiency Initiatives
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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.

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Downturn Still Hurts the Bottom Line
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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