Rich pickings ahead for power sector financing, says report

China's power demand will increase by 65 percent through 2050 from the current level, while its GDP is likely to grow by 225 percent, and the huge demand will create huge investment opportunities, said a new industry report.

By 2050, electricity demand in Asia will nearly double, and to meet the growing demand, the Asia-Pacific region will account for nearly half of the globe's new investment, which will be $5.8 trillion. China, together with India, will create investment opportunities worth $4.3 trillion, according to Bloomberg New Energy Finance.

As the cost of renewable energy continues to fall, it will challenge the current dominant position of coal in the power sector. It is likely that there will be no new coal-fired power projects in China from 2025, and coal-fired power generation will fall from 2027. By 2050, coal-fired power will take up about 15 percent of total power generation.

"As a result, investments will mainly flow to the renewables sector," said Luan Dong, China renewable analyst at Bloomberg New Energy Finance.

According to a recent report by the China Electricity Council, in 2018, investment into the power generation projects of major power generation enterprises nationwide totaled 278.7 billion yuan ($40.5 billion), down 3.9 percent on a year-on-year basis. However, distribution network investment surged 6.4 percent year-on-year to 302.3 billion yuan. Investment in national power grid construction remained mostly flat at 534 billion yuan.

A report from tech and consulting firm Capgemini estimated that China's total installed capacity will reach 1.23 billion kilowatts by 2020, and the power generation industry will require an investment of $180 billion during the same period.

Chen Chiping, vice-president of Capgemini China, said that given that China's gross domestic product is expanding at a rate of around 6.5 percent, by 2020, China's electricity market should grow with an annual additional 4,800 kW installed capacity, and the total investment will reach $590 billion. "The large scale of investment will bring business opportunities for foreign investors."

"Even with the high growth rate of installed capacity, the level of China's installed capacity per capita by 2020 will merely reach that of the United States in the 1950s. There is a huge potential for investment in China's electricity industry," Chen said.

For international investors, Capgemini suggested they should enter the Chinese market along the electricity industrial chain. At the industrial chain front end, investors can bring advanced resources such as the long-term supply of natural gas, to integrate into the power generation part to expand in the Chinese market. In the traditional thermal power generation part, investors should pay attention to asset acquisition opportunities as well as demand from State-owned enterprises to deepen reforms and introduce foreign technologies.

At the end of the industrial chain, as suggested by Capgemini, international investors can enter the Chinese market by offering customers with consultancy services, software design plans, as well as energy-saving solutions.

"For major State-owned power generation enterprises, although they can consider investing in the traditional coal power sector, short-term power surplus means higher investment risks. Companies need to consider more about acquiring existing power plants rather than building new ones, and consider market integration in the target area to increase market share," said the report by Capgemini.

In the short term, investors should consider investments through joint ventures, or sign a self-supplied power plant operation contract with large users to manage investment, starting with cooperation, and finally transitioning to a direct supply agreement to win large users at the right time.