Experts: Formal China Energy Plan Favors Grid, Nuclear Firms, Not Coal Generators

A report presented to China’s legislature on Monday by Premier Wen Jiabao could have positive implications for the country’s centrally owned grid and nuclear firms, but they could leave "thermal generators out in the cold," experts said.

In his formal report to the National People’s Congress, Jiabao said the government would optimize the country’s energy structure, promote the clean and efficient use of traditional energy sources, resume its plans for new nuclear power plants, and increase the share of renewables in the country’s total consumption.

Jiabao also confirmed implementation of market pricing for oil products, city gas, and some electricity tariffs over the next three years.  "We will prudently carry out the reform of electricity prices by implementing progressive pricing for household electricity consumption and improving pricing mechanisms for nuclear power, hydropower and power generated from other renewable energy sources," Jiabao, who made no mention of thermal generation, was quoted as saying by the China Daily.

As ratings agency Fitch noted, moreover, because the plan leaves room for the National Development and Reform Commission (NDRC) to direct the market by ad hoc adjustments, it could mean that the "the government will continue to favour the centrally owned grid and nuclear power companies over the more fragmented thermal generators."

Highlighting that China would "safely and effectively" develop nuclear power, the government report officially signals China’s intentions, for the first time since the Fukushima nuclear crisis, to resume plans and have more than 70 reactors in operation by 2020, experts said. After the Great Japan Earthquake in March 2011, no nuclear power projects had been approved by the government.

"We believe this is a clear vote of confidence for nuclear to be the main plank of China’s non-carbon energy drive and gain further momentum after total nuclear generation grew by 16.9% in 2011," said ratings agency Fitch in a statement today. "Favourable adjustments to nuclear on-grid pricing will ensure the cash flows of the nuclear generators remain healthy, and provide support for overseas uranium acquisitions."

The plan also calls for tighter emission controls and monitoring of fine particulate matter (specifically in the Beijing-Tianjin-Hebei region, the Yangtze River delta, and the Pearl River delta). According to Fitch, this could indicate not just higher capital expenditure burdens for thermal generators, but also "that coal will remain out of policy favour."

Coal will continue to remain the backbone of China’s power generation for the "foreseeable future," the agency said, however. The government plan specifically outlines a clean thermal power program that has been estimated by the Ministry of Environmental Protection to cost the industry 260 billion yuan ($41.2 billion) by 2015.

Sources: POWERnews, Fitch Ratings