China’s fuel mix will improve further on large investment of renewable energy, says Fitch Ratings in its latest China Power Watch report.

Power consumption growth decelerated substantially to 3.3% yoy in 4Q21, resulting from a higher base in the fourth quarter, controls on energy-intensive sectors, disruptions caused by sporadic new Covid-19 cases, and a warm winter.

However, the power consumption structure improved with strong demand in the agriculture and tertiary sectors. Agricultural demand rose due to the upgrade of rural power grids that facilitate power usages in rural areas. Tertiary demand also increased, driven partially by higher electric vehicle charging demand. Industrial demand saw the lowest growth, as energy-intensive industries – 41% of industrial demand – fell by 1.9% in 4Q21 under carbon emission control.

China’s fuel mix also improved with fast installation of renewable energy, which accounted for 78.3% of total new capacity in 2021. Power-generation capacity of non-fossil fuels reached 1,120GW by end-2021, surpassing coal-fired power capacity for the first time. Fitch expects the share of non-fossil fuel to rise further as investment for renewable power remains high.

The power shortage was resolved in 4Q21. Coal inventories at major power plants have recovered to normal levels, as coal production reached record highs under government’s push.

We also expect power generation companies’ tariff to continue to rise. This, together with an expected lower coal price in 2022, will lead margin recovery for coal-fired power plants.
Source: Fitch Ratings