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.

• It was reported by the National Energy Administration (NEA) that Mainland China had installed 53GW of new solar capacity over 2021, falling short of solar industry expectations for 70GW. This has led us to make upward revisions to our near-term outlook, and we now expect to see stronger growth over the decade, at an average annual rate of approximately 50GW. The recent spike in growth is in part due to the ending of subsidy payments at the end of 2021 as well as a number of new reforms to policy which are creating room for long-term growth. 55% of all new additions came from the residential sub-sector. We had expected such an acceleration in residential solar systems owing to the NEA outlining that it intended to mandate a minimum target of 20% roof top solar capacity across several pilot counties as well as 30% on commercial and industrial and 40% on government buildings.
• Distributed solar gained further policy support owing to a surge in mandates for commercial facilities, meaning that all new solar systems must come with power storage facilities. Solar-plus-storage will reduce the requirements on the grid, alleviating bottlenecks created by utility scale systems. This has been rolled out across two-thirds of the provincial governments. This has been particularly pertinent due to the energy price crisis which has impacted large swathes of the manufacturing sector. It has been estimated by the NEA that this programme could add between 130GW and 170GW of capacity by the end of 2023.
• China Three Gorges Corporation started construction on the Tiantai pumped storage power station project in Tiantai County, Zhejiang Province. in January 2022. The project, part of the Medium and Long-term Development Plan for Pumped Storage (2021-2035), will feature four units of 425MW reversible hydraulic generators, with a total installed capacity of 1,700MW.
• Rosatom has started pouring base mat concrete for construction of the eighth unit of the 8.1GW Tianwan nuclear project in Mainland China. The VVER-1200 reactor will come up in Lianyungang City on the Yellow Sea coast of Jiangsu Province. The Tianwan nuclear facility will be owned and operated by Jiangsu Nuclear Power - a joint venture (JV) of China National Nuclear Power (50%), China Power Investment (30%) and Jiangsu Guoxin Group (20%). The seventh and eighth units, now both under construction, are scheduled to be commissioned in 2026-2027.
• The province of Zhejiang has given approval for the construction of a proposed CNY7.0bn (USD1.1bn) Liuheng coal-fired power plant in Mainland China. The 2GW project, developed by Zhejiang Provincial Energy Group, will operate with a generation rate of 254g of coal per kilowatt-hour, lower than the Mainland China average. Phase II of the project will feature two ultra-supercritical units for balanced energy supply and demand.
• Ji'nan International Centre for Medical Sciences has awarded a contract to China Everbright Water for works on the first phase of a CNY320.0mn (USD50.37mn) wastewater treatment plant in Shandong Province. The public-private partnership project is being procured under build-operate-transfer model. The facility will be fully underground, with wastewater treatment capacity of 50,000cubic metres per day. The project has a 30-year concession, including a one-year construction period,
• China National Nuclear Power has started construction of unit three, Xudabao 3, at the CNY110bn (USD17bn) Xudabao nuclear power plant (NPP) in the province of Liaoning. Xudabao 3 is one of four VVER-1200 reactors being built by Rosatom in Mainland China under a 2018 agreement. Rosatom will design the nuclear island, supply steam generators, cooling pumps, piping and pressurisers, as well as supervise the construction and commissioning of the reactors. Mainland China will work on the remainder of the plant, including the turbines. Work on Xudabao 4 is due to start in 2022, with both units three and four to be completed within six years from the start of construction.
• Work started on the first phase of the right bank of the Chongqing Baima Shipping Development's Wujiang Baima Navigation and Hydropower Project in Wulong District in September 2021. The CNY10.9bn (USD1.7bn) project will have a designed annual one-way throughput of 10.6mn tones and power capacity of 480.0MW. China Power Construction Road and Bridge Group is carrying out the construction works on the three-phase project. The first phase is planned for completion in 2024, and the project is due to be fully completed in 2031.
• Construction started on the lower reservoir of the CNY6.67bn (USD1.03bn) Henan Wuyue hydropower plant in Henan Province in September 2021. The 1GW hydropower facility will come up in the Guangshan County and will feature four units of 250MW turbines. The construction of the reservoir is scheduled to be completed in 2023. The first unit of the power station is scheduled to be operational in May 2025, and all units are planned to be operational by May 2026.
• Construction started on the Baihetan Phase II converter station as part of the Baihetan-Zhejiang 800kV direct current (DC) transmission project in Sichuan Province in October 2021. The CNY5.35bn (USD838.1mn) station will cover a 178,000sq m area and will include the construction of an 800kV DC bipolar outgoing line, one earthing pole and a 500kVAC outgoing line. The converter station is due to be operational in April 2023.

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.