Though trade tensions with the U.S. affected China’s GDP figures in the fourth quarter, demand growth in China’s gas and electricity sector is still “phenomenal,” Wood Mackenzie says. Total electricity demand in 2018 is estimated to have fallen by just 0.5%, or 32 TWh, based on tariffs on US$34 billion of goods with effect from July.
And while the escalation of tariffs to US$200 billion of goods in September has put pressure on power demand growth, the stronger-than-expected rebound in exports will dampen the impact, forecasts Wood Mackenzie's Frank Yu.
The escalating tariffs caused little harm in China’s energy sector for three reasons: “First, the majority of China’s manufacturing is weighted towards domestic markets not exports. Second, the US remains small in China’s export mix for many commodities and China is developing alternative markets. And, finally, the US is primarily targeting high value-add industries,” Yu argued. Hence, “it is an easier win for the US, but it also lowers the disruption to China’s power demand.”
Over the first 10 month of 2018, electricity demand surged 8.7% year-on-year, mainly driven by the industrial sector which contributed 55% of the total growth until October. The four energy-intensive industries – ferrous and non-ferrous metallurgy, construction materials and chemicals – alone accounted for 20% of the total growth.
China’s clean air policy and subsequent close scrutiny of new coal-fired power projects resulted in fewer curtailments for renewables. The government is moving away from the feed-in tariff system to competitive auctions for new solar and wind projects. To support this, China aims to implement long-overdue renewable portfolio standards (RPS) starting from 2019, after three rounds of extensive public consultation.
Market-based power sales reached 28% of the total output in Q4, though most transactions were intra-province.
“We expect these restrictions to gradually disappear and the government seems committed to ending the equal-share generation quota system,” Mr. Yu said.
Key things to watch in 2019, in his view, will be the implementation of the RPS, day-ahead power trading in Guangdong and the readiness of the national carbon market launch.