China’s thermal power output records marginal growth

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Power output rise

China currently faces some major issues. Excessive debt and capacity is part of the global giant’s story. Rising pollution levels forcing people to wear masks outdoors is another. No surprise then that the Chinese government is now pushing for some measure of environmental sustainability.

China electricity output

For the month of July, power output (or production) by the world’s top consumer stood at 504.8 billion kilowatt-hours. This is 3.3% higher than last year’s output, but lower than the 5.7% increase reported in July. The dip is a result of a slowing economy that hit production in power-intensive sectors such as steel, autos, and machinery. On a month-over-month basis, however, China recorded a 10.2% increase thanks to air-conditioner usage during the searing summer heat.

Thermal and hydropower

The cost of hydroelectricity is relatively low, making it a competitive source of renewable electricity. China’s increased output included an annual 29% jump in hydropower generation (113.2 billion kilowatt-hours).

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China’s thermal coal sector has taken a hit from factors including oversupply and Beijing’s aggressive anti-pollution campaign. Gas and renewable energies now enjoy a growing market share of overall power generation. Meanwhile, thermal production fell by 3.3% year-over-year (366.4 billion kilowatt-hours), according to data from the National Bureau of Statistics.

Under the coal-power price linkage system implemented in 2013, tariffs will be adjusted if coal prices rise or fall more than 5% during a six-month period.

“Power output generally rises in summer because of the hot weather,” Li Yan, an analyst with Masterlink Securities, commented. “But the year-on-year increase is below analyst expectation, probably because industrial output and fixed-asset investment growth slowed.”

Looking ahead

Two main drivers suggest investments in renewable energies, nuclear power, and natural gas can be expected to take on greater importance for China. The first driver is the government’s increasing emphasis on pollution control. The second is the country’s transition from an infrastructure-led economy to a consumption-driven economy.

In the month of July, the China Electric Council cut its 2014 power consumption forecast to range between 5.5% and 6.5%, down from the 7% forecast it made in February.

China’s thermal power output is surely at risk. This will no doubt affect the seaborne coal trade and dry bulk shipping companies such as DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Safe Bulkers Inc. (SB), Knightsbridge Tanker Ltd. (VLCCF), as well as the exchange-traded fun (or ETF), Guggenheim Shipping (SEA).

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