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The novel coronavirus (COVID-19) outbreak has led to a slowdown
of economic activities in China. This, in turn, is expected to
affect the country's power and renewables sector - on both
electricity demand as well as the different technologies that
generate the power for the world's largest electricity market.
IHS Markit expects that the economic shock is likely to reduce
China's 2020 GDP growth to 5.4% compared with the 5.8% growth rate
in the pre-COVID-19 outbreak outlook. However, in a more severe
scenario, GDP growth could drop to as low as 4.2%.
Base case: Electricity demand only moderatedly
affected
To understand how electricity demand will respond, it is
important to first understand China's power demand structure. The
industrial sector currently accounts for roughly 70% of electricity
used in the country, whereas the commercial sector and households
account for roughly 14% each.
If the current outbreak stays relatively contained as
authorities are starting to say - with economic impact limited
mostly to the first quarter - we believe power demand will only be
moderately affected.
The main reason is that many factories are seasonally closed
around Chinese New Year anyway; should production resume in the
second quarter, there will likely be some catch-up production
activities to make up for the production loss during the first
quarter, boosting power demand rest of the year.
The sector most impacted during the current outbreak is the
commercial sector, e.g., restaurants, hotels, shops. These are lost
activities that will not be re-generated during rest of the year,
for example, Chinese New Year holiday trips, family banquets at
restaurants. However, because these businesses only account for 14%
of electricity demand, their impact on total power consumption -
especially if only limited to the first quarter - will be
moderate.
In addition, as people are advised to stay home during this
period, we expect an increase in household electricity consumption
from activities such as cooking and heating.
As a result, in our base case outlook, IHS Markit expects
China's electricity demand to still increase by 3.8% in 2020,
compared with our pre-COVID-19 outlook of 4.1%. This continues a
deceleration trend (2019 demand growth was 4.5%) as part of a
broader, longer-term economic deceleration.
Figure 1: From Mild to Wild: COVID-19's impact on power and
renewables in China.
"Severe Impact" case: Electricity demand 1% lower than
previous forecast
However, should the government not effectively contain the
spread of COVID-19 and the disease control measures extend further
in 2020, the impact on the Chinese economy - and the electric power
and its related sectors - will be much more pronounced.
Under such an assumption - or the IHS Markit "severe impact"
case - China's GDP growth during 2020 decelerates to only 4.2%, and
the associated electricity demand growth will be only 3.1%, a full
percentage point lower than our pre-COVID-19 outlook.
This 1% difference in power demand is equal to 73 Terawatt-hours
(TWh) of electricity, which is roughly equivalent to Finland's
annual demand. If coal is used to generate this demand difference,
it would take roughly 30 million metric tons (MMt) of thermal coal
(5,000 kcal/kg); if liquefied natural gas (LNG) is used, it would
consume roughly 9 MMt of LNG. These figures for coal and LNG are
slightly more than one month worth of Chinese imports last
year.
Power supply: What impact on generation volume and
annual additions?
On the power supply side, we believe baseload generation
resources such as coal, nuclear, and gas-fired combined heat and
power (CHP) will be weaker than expected - with coal plants
impacted the most in operation hours. Renewable generation volume
will unlikely be affected significantly due to their
non-dispatchability and preferential status in the Chinese power
system; the only sub-sector with more impact will be distributed
solar PV generation for industrial and commercial customers
impacted.
For new plant construction during the year, we believe that
conventional power additions will unlikely be affected
significantly because of their long lead time in development and
construction. Renewable energy additions will be lower as a result
of the suspended manufacturing and construction activities in the
first quarter. Some of the impact on renewable additions will be
partially offset by the rebound in the rest of the
year—especially for solar photovoltaic (PV). Wind will be more
affected, given the tight capacity in wind equipment manufacturing
as well as engineering, procurement and construction (EPC).
