As China gets closer to meeting its energy needs, its reliance on fossil fuels is likely to decrease due to lessened pressure to boost economic growth and greater governmental will to address environmental concerns, according to fresh research by Moody's.
In a report released this week, the rating agency states that the country's large population, as well as its ongoing industrialisation and urbanisation, will keep power generation as a key focus for the world's second-largest economy. China’s installed capacity tripled in the last decade and Moody’s forecasts it will produce between 90 and 100 gigawatts (GW) in annual output over the next three years.
While additional new capacities totaled about 95GW annually between 2008 and 2013, however, the share represented by additional thermal generating capacity, most of it coal-fired, fell to 39 percent in 2013 from 71 percent in 2008, the study stated.
Renewable energy plants are pacing up, the report said, with hydro and wind spearheading the trend and the government encouraging new facilities through favorable regulatory measures.
Under the recently-passed Renewable Energy Law, grid companies are required to purchase all electricity generated from renewable power plants approved by the government. Tariffs for wind and solar power generating companies, in addition, are significantly higher than those for thermal power facilities based in the same regions.
An agreement between China and Russia signed last May, providing for Russia to supply China with gas over the 30 years to 2048 and contribute the necessary transportation infrastructure, should also boost gas-fired power generation, which only accounted for 2 percent of total power generated in the country by end of 2013.
Acknowledging the strategic importance of state-owned groups to the Chinese economy, Moody's thought these would continue to benefit from considerable support from the government. As onshore interests rates continue to rise, however, state-owned groups would seek to tap offshore bond markets to meet their important needs for funding and refinancing, the report said.
This may be emphasised by their recent effort to position themselves as global players: investing in overseas power projects would not only diversify their revenue sources but also facilitate outbound investments, said Ivan Chung, senior vice president at Moody's and author of the review.
With the Chinese government apparently committed to introducing market reforms in various sectors, Moody's expected greater clarity in determining and adjusting tariffs to encourage private sector participation in the power sector – though the agency did not expect a rule-based tariff mechanism to emerge before two to three years.