<article><p><i>Updates througout and adds three charts</i></p><p class="lead">Electricity consumption in most parts of China for the first quarter of 2021 could rise by 20pc from the same period last year, according to the country's largest utility State Grid Corporation of China (SGCC). This would support thermal coal demand.</p><p>SGCC and its subsidiaries supplied just over 5,833TWh in 2020, or nearly 78pc of the national total. SGCC said yesterday that it expects to supply 20pc more power for January-March, with lower temperatures than a year earlier potentially sustaining heating demand. It said power demand was lower during the first quarter of 2020 because of the impact of the Covid-19 pandemic, providing a lower base for comparison this year. China consumed 1,570TWh of electricity in January-March 2020, a decline of 6.5pc year on year, according to data from the National Energy Administration. </p><p>A 20pc year-on-year increase in national power generation in the first quarter of 2021 implies total output of 1,895TWh. China expanded its installed wind and solar capacity at a record rate in 2020, but a 20pc increase in power demand would still probably boost thermal generation, around 90pc of which is coal-fired.</p><p>China added a net total of 121.6GW of wind and solar capacity in 2020, according to China Electricity Council (CEC) data, up from 54.7GW of net additions in 2019 and a 2016-18 pace of 61.9 GW/yr. The country now has 281.5GW of wind and 253.4GW of solar, according to CEC.</p><p>China also added a net 1.2GW of nuclear capacity to 49.9GW, 12.1GW of hydro to 370.2GW and 55.6GW of thermal capacity to 1,245GW.</p><p>Based on implied average first-quarter capacity factors in 2019-20, <i>Argus</i> estimates that wind, solar, hydro and nuclear generation could rise by a combined 63TWh on the year to 472TWh in January-March 2021. This would account for only 20pc of the 316TWh growth that SGCC's projected increase in power demand implies.</p><p>The remainder — some 253TWh — would need to come from additional coal and, to a lesser extent, natural gas-fired generation. The extent to which this increase in thermal generation will support demand for seaborne coal will depend on two factors. First, how much power output from domestically produced coal can be generated and transmitted to the more import coal-dependent coastal regions. And second, how much domestically produced coal can be railed for consumption in the coastal regions, to ease the recourse to seaborne coal.</p><p>Annual thermal generation in coastal regions increased at a 3pc rate in 2018-20, compared with a 6pc average increase in non-coastal regions. Non-coastal thermal generation accounted for 54.3pc of the national total in 2020 and has increased its share by around 0.9 percentage points/yr in the past four years.</p><p>Thermal generation of 505.3TWh in coastal regions in January-March 2020 was equivalent to 187mn t of NAR 5,500 kcal/kg coal burn at 38pc efficiency, assuming coal accounted for 90pc of the total. China imported 73.2mn t of bituminous and sub-bituminous coal and lignite during that period.</p><h3>Chinese economy set to grow</h3><p class="lead">The SGCC estimates that China's economy will grow by 14.8pc in the first quarter from January-March last year. More migrant workers are heeding the government's calls to stay where they are for the lunar new year holiday during 11-17 February, leading to expectations that many factories will be able to minimise disruptions over this period.</p><p>Chinese industrial activity typically slumps in the two weeks leading up to the lunar new year festival and it usually takes up to a month after the holiday to resume fully. But availability of more manpower is expected to reduce disruptions over the festival period to about two weeks, according to China-based market participants. Industrial demand for electricity over the upcoming holiday season is <a href="https://direct.argusmedia.com/newsandanalysis/article/2177926">expected to decline to a smaller extent</a> compared with the previous lunar new year season. </p><p>China's domestic spot coal prices have been falling steadily since late last week. This is partly because of abating heating demand and because Covid-19 travel restrictions between some northern provinces have restricted sales of spot coal cargoes, leading some domestic mines to accumulate bigger stocks. But the latest spot prices are still significantly higher than the government-recommended upper limit of 600 yuan/t ($92.80/t), and some market participants expect the recent decline to slow because a fresh cold snap at the end of January may spur heating demand. </p><p>Some cargoes of Chinese NAR 5,500 kcal/kg thermal coal traded at around Yn810/t fob north China ports on 26 January, down from around Yn880-890/t on 25 January. The market was last assessed at Yn932.50/t fob Qinhuangdao port on 22 January, down by Yn27.50/t from a week earlier.</p><p class="bylines">By Kelvin Leong and Jake Horslen</p><p><div class="picture"><div><span class="pic_title">Chinese first-quarter power generation</span> <span class="units">TWh</span></div><img src="https://argus-public-assets.s3.amazonaws.com/2021/01/27/chian27012021021203.jpg"></div></p><p><div class="picture"><div><span class="pic_title">Installed capacity in China</span> <span class="units">GW</span></div><img src="https://argus-public-assets.s3.amazonaws.com/2021/01/27/chinarenw27012021021306.jpg"></div></p><p><div class="picture"><div><span class="pic_title">Thermal power generation in China</span> <span class="units">TWh</span></div><img src="https://argus-public-assets.s3.amazonaws.com/2021/01/27/thermal27012021021431.jpg"></div></p></article>
