China Business

Mar 11, 2006

Caution advised on energy investments

BEIJING - Investors must be prudent before investing in the Chinese power market, according to a new report by Capgemini, the Paris-based consulting, outsourcing and professional services firm.

Although investment opportunities abound in China's fasting-growing wind, nuclear energy and clean coal sectors, the time has not come yet for international manufacturers to invest in those

sectors, warns the report, adding that the most practical way to invest at present involves cooperation with domestic companies and technology transfer.

The Capgemini China Electricity Market 2006 report finds that an extra 280 gigawatts of electricity generation will be required by 2020 based on the 950 gigawatts currently planned. This means that planned power generation will require a total investment of US$590 billion, representing a significant opportunity for domestic and foreign investors.

The report also reveals that the Chinese government's target for a broader mix of energy sources is unlikely to be met. The government has stated that it aims to reduce its heavy dependency on coal fired installed capacity from the present 73% of the total to less than 60% in 2020. However, according to Capgemini's research, coal-fired plants will still account for 71% of the country's total power supply in 2010 and 65% in 2020.

The report foresees a possible short-term power oversupply after 2007, something that must be taken into account by large Chinese power companies. Therefore, it is better for domestic large power enterprises to merge or acquire existing plants rather than building new ones, says the report. International investors could seize the merger and acquisition opportunities arising from the need to restructure state-owned enterprises and the introduction of foreign technologies.

Investors in thermal power companies must be cautious, because of unpegged prices of coal and power and lagging price reforms, says the report. Capgemini's China Electricity Market 2006 study is based on over 140 interviews involving industry regulators, foreign investors and industry experts. Capgemini employs roughly 60,000 people worldwide and provides consulting, technology and outsourcing services.

(Asia Pulse/XIC)

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