China is expected to increase its coal-fired capacity in 2014 and 2015 tomaintain power supply security, but that might not significantly boost thermalcoal prices as the market is oversupplied, analysts at UBS Securities said ina research note last week.
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"We expect coal-fired units construction to accelerate in 2014 and 2015,primarily because the coal-fired capacity added of 30 GW in 2013 was too low,compared to 49 GW per annum in the last 10 years," UBS analysts said, addingthat China would need 47 GW of coal-fired capacity per year by 2020 to providea stable supply of electricity.
The analysts expect coal-fired capacity additions of 36 GW in 2014, 42 GWin 2015, 45 GW in 2016 and 47 GW per year starting in 2017.
Thermal coal prices are, however, not expected to rise significantly asthe market continues to be oversupplied, while growth in power demand isexpected to be modest.
China's move to diversify to renewable sources of energy has also eateninto coal's share of power generation, but the analysts said the government'sneed to secure power supply, which is a highly sensitive political issue, willkeep the country's appetite for thermal coal relatively healthy.
"We think it is incorrect to assume that the government's plan to buildmore renewables means China does not need coal-fired units. We believe Chinastill needs coal-fired units as base loads to secure supply," the analystssaid in the note.
Power generation in China totaled 5.35 million GWh in 2013 and isestimated to increase by 7.1% to 5.73 million GWh in 2014. Of this estimatedtotal, coal will account for 73%, followed by hydro with 17%, wind with 3%,and gas, nuclear, and other fuel types with 2% each.
In 2020, total power generation in China is forecast to rise to 8.43million GWh. Coal's share is estimated to fall to 67% in 2020 compared to 2014and hydro to 16%, while nuclear's share is expected to increase to 6%, wind to5%, gas to 4% and other fuel types to 3%.
China's coal-fired capacity utilization rate was at 58% in 2013 -- themost utilized fuel -- and this is expected to edge up to 59% this year, and to60% in 2020.
"The reality is that, no other technologies -- wind, solar, gas, hydroand nuclear -- represent a viable alternative for China in the near- ormedium-term," the analysts said, emphasizing that all other technologies aredependent on intermittent or limited resources.
--Mia Corazon Aureus, firstname.lastname@example.org
--Edited by Geetha Narayanasamy, email@example.com