Key View: Growth in Mainland China's energy and utilities infrastructure sector will remain robust, driven largely by power plant and grid projects, particularly as the government accelerates its decarbonisation agenda, with significant opportunities for projects to support cleaner generation, such as nuclear, renewables and power transmission projects.
2021-2031: Power Transition Towards Cleaner Generation Continues
Mainland China's electricity needs will continue to grow as the economy expands. We expect the increase in demand to be met by a corresponding increase in investment in the power sector. Over the next 10 years, stronger emphasis will be placed on curbing emissions and reducing air pollution. The government plans to achieve this by reducing reliance on coal as a source of electricity generation. Instead, we will see more projects in other sectors, such as hydropower, nuclear and renewable energy. More is expected to be done to improve the situation of Mainland China's waste and water infrastructure as deficiencies in these areas have also contributed to land and water pollution. We forecast the energy and utilities sector to expand by 5.6% in 2022 and by 3.0% per annum in real terms from 2022 through to 2031. This will be aided by the government's push for a cleaner environment, which bodes particularly well for the renewable and water sectors.
While we at Fitch Solutions initially expected climate considerations to be a key policy focus of the 14th Five-Year Plan (14FYP), there were limited mentions about decarbonising the energy sector. The 14FYP, which runs from 2021 to 2025, includes targets for energy intensity and carbon intensity, but both areas have already been established and were merely reaffirmed. The 14FYP has also proposed to increase the share of non-fossil energy in total energy consumption to 20% by 2025, although this remains non-binding. The 14FYP remains in line with our existing views and forecasts.
Emission Targets A Slow But Steady Race
The 14FYP has reaffirmed Mainland China’s targets to peak carbon emissions by 2030, in accordance with the intended determined contribution target, and to achieve carbon neutrality by 2060. Our Power team previously highlighted that this will accelerate Mainland China’s power and renewables growth transition trajectory as the emission reduction targets will continue to support growth in alternative low-carbon power generation segments while consolidating its coal power sector. This continues to present a significant downside risk to coal-powered generation growth, which will be one of the first sectors that the government will work on to achieve these emission targets.
In line with this, the Ministry of Ecology and Environment requested provincial governments to formulate a ‘peak emission action plan’ along with several indicators, including energy mix targets and carbon emission caps across several key sectors, by April 2021. This will be formulated into a Mainland China-wide plan in 2022. The Mainland China-wide emissions trading scheme (ETS) was launched in February 2021 and targets trading to begin by mid-2021, although it currently only covers thermal power plants that exceed emissions of more than 26,000 metric tonnes per year.