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Coal consumption is declining as a major trend, while the share of new energy sources is steadily rising.
Release date:
2018-06-08
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As the新一轮 power sector reform continues to deepen comprehensively, it brings both challenges and new growth opportunities for the electricity industry. Meanwhile, coal’s share in primary energy consumption is declining, and a long-term trend toward a reduced proportion of coal in the energy mix is expected to persist. Over the past few years, energy companies have seen the revenue contribution from new energy sources gradually increase. Take Guangzhou Development (600098, Stock Forum) (600898) as an example—its gas group is aggressively pushing forward the "Three-Year Pipeline Gas Enhancement Plan," actively encouraging and supporting the wider adoption of natural gas. As a result, natural gas is set to play an increasingly significant role in primary energy consumption, and driven by favorable industrial policies, natural gas demand is poised for continued rapid growth.
As the latest round of power sector reform continues to deepen comprehensively, it brings both challenges and new growth opportunities for the electricity industry. Meanwhile, coal’s share in primary energy consumption is declining, and a shift toward a lower proportion of coal in the overall energy mix is set to become a long-term trend. Over the past few years, energy companies have seen the proportion of revenue generated from new energy sources steadily rise. Take Guangzhou Development (600098, stock forum) (600898) as an example—its gas group is aggressively pushing forward with the "Three-Year Pipeline Gas Enhancement Plan," actively encouraging and supporting the wider adoption of natural gas. As a result, natural gas is expected to increasingly dominate primary energy consumption, and driven by favorable government policies, natural gas usage is poised for sustained rapid growth.
In 2017, China’s新一轮 power sector reform was comprehensively deepened, with electricity market-oriented trading continuing to advance. Plans for power generation and consumption, as well as competitive pricing in key segments, were steadily liberalized. Meanwhile, transmission and distribution tariffs across regions and within provinces were successively approved, and regional and provincial-level electricity trading centers began to take shape. Pilot programs for power sector reform now cover nearly the entire country, while social capital has ramped up its investments in areas such as incremental distribution networks and auxiliary equipment services for the power system. At the same time, competition among retail electricity providers has intensified, further clarifying the structure of the evolving electricity market. This dual dynamic—while posing significant challenges to the industry—also opens up new opportunities for growth and innovation.
Among these initiatives, the Gas Group has actively diversified its channels to secure Guangdong Dapeng LNG processing rights on behalf of clients, while also establishing direct procurement pathways for imported gas supplies. Additionally, the company has proactively expanded into value-added services such as gas insurance brokerage. Looking ahead, the group is aggressively promoting IoT-enabled smart gas meters, having installed 256,000 smart meters throughout the year. They’ve also tapped into the South China market by selling an additional 32,000 units and are currently setting up a dedicated production line for smart gas meters, paving the way for new智能制造 (smart manufacturing) ventures. Meanwhile, construction has officially begun on the fourth phase of the natural gas utilization project—specifically, the Shitan Gate Station to Huocun Pressure Regulation Station pipeline project. Over the course of the year, the company completed 74 kilometers of medium-pressure pipeline construction outside the designated redline boundaries. Meanwhile, progress continues steadily on the Guangzhou LNG Emergency Peak-Shaving Gas Source Station project, with efforts underway to acquire and consolidate resources at potential alternative site locations.
Guangzhou Development Group Co., Ltd. is a company whose core industries revolve around three integrated energy sectors: electricity, coal, and oil & gas. Its main products include electricity, aerated concrete, coal, petroleum products, and natural gas. The company ranks among the three largest power enterprises in Guangdong Province.
In 2017, China’s新一轮 power sector reform was comprehensively deepened, with electricity market-oriented trading continuing to advance. Plans for power generation and consumption, as well as competitive pricing in key segments, were steadily liberalized. Meanwhile, transmission and distribution tariffs across regions and within provinces were successively approved, and regional and provincial-level electricity trading centers began to take shape. Pilot programs for power sector reform now cover nearly the entire country, while social capital has ramped up its investments in areas such as incremental distribution networks and auxiliary equipment services for the power system. At the same time, competition among retail electricity providers has intensified, further clarifying the structure of the evolving electricity market. This dual dynamic—while posing significant challenges to the industry—also opens up new opportunities for growth and innovation.
According to statistics from the National Bureau of Statistics, the China National Coal Association, and other sources, China's total coal production in 2017 reached approximately 3.52 billion tons, representing a year-on-year increase of 3.3%. Among this, large-scale coal enterprises produced 3.45 billion tons of raw coal, up 3.2% compared to the previous year. Meanwhile, national coal sales totaled 3.36 billion tons, marking a 3.6% rise from the prior year. Under the framework of the National Energy Development Plan for the 13th Five-Year Period, coal’s share in primary energy consumption is projected to decline from 64% in 2015 to below 58% by 2020. As a result, the gradual shift away from coal in the country’s energy mix is set to become a long-term and dominant trend.
In 2017, the country deepened its supply-side structural reforms, successfully overfulfilling the target to reduce excess coal production capacity. Imports of coal were tightly controlled, helping to stabilize and manage coal supply amid volatile price conditions at high levels. The average index for the entire year stood at 516 yuan per ton, up 135 yuan per ton from the 2016 average of 381 yuan per ton—a year-on-year increase of 35.4%.
Looking at Guangzhou's revenue structure, traditional coal sales prices rose, though sales volumes experienced a slight decline. Overall, the company maintained stable operations. While coal sales contributed to a 12.59% year-on-year increase in the company's revenue in 2017—marking steady growth compared to the previous year—the primary driver was the significant hike in coal prices. In 2017, the company sold 21.4327 million tons of market coal, down 10.58% from the previous year. However, due to reduced coal production capacity, the company managed to boost its average coal selling price substantially, resulting in a remarkable 30.26% surge in coal-related revenue, reaching CNY 11.624 billion.
The share of new energy is gradually increasing.
Over the past few years, the proportion of revenue generated by new energy sources within energy companies has steadily increased. Take Guangzhou Development as an example: the gas group has vigorously pushed forward its "Three-Year Pipeline Gas Expansion Plan," actively securing reliable gas supply channels while simultaneously expanding customer segments—including industrial, commercial, and urban village users—and rolling out pipeline gas infrastructure in these areas. The company has also optimized its operational management and strengthened customer service efforts. As a result, it achieved annual natural gas sales of 1.085 billion cubic meters, representing a 4.14% year-on-year growth. Additionally, the group successfully added 92,000 new customers, surpassing its annual target. Notably, newly signed contracts with industrial, commercial, and public utility customers now account for a daily gas consumption volume of 230,000 cubic meters—up 40% from the previous year.
Among these initiatives, the Gas Group has actively diversified its channels to secure Guangdong Dapeng LNG processing rights on behalf of clients, while also establishing direct procurement pathways for imported gas supplies. Additionally, the company has proactively expanded into value-added services such as gas insurance brokerage. Looking ahead, the group is aggressively promoting IoT-enabled smart gas meters, having installed 256,000 smart meters throughout the year. They’ve also tapped into the South China market by selling an additional 32,000 units and are currently setting up a dedicated production line for smart gas meters, paving the way for new智能制造 (smart manufacturing) ventures. Meanwhile, construction has officially begun on the fourth phase of the natural gas utilization project—specifically, the Shitan Gate Station to Huocun Pressure Regulation Station pipeline project. Over the course of the year, the company completed 74 kilometers of medium-pressure pipeline construction outside the designated redline boundaries. Meanwhile, progress continues steadily on the Guangzhou LNG Emergency Peak-Shaving Gas Source Station project, with efforts underway to acquire and consolidate resources at potential alternative site locations.
In fact, the natural gas sector has significant room for growth. During the 13th Five-Year Plan period, the state actively encouraged and supported the wider adoption of natural gas, leading to a steadily increasing share of natural gas in primary energy consumption. Driven by favorable industrial policies, natural gas consumption is expected to maintain rapid growth. Notably, Guangzhou's current level of natural gas utilization still lags considerably behind that of other major Chinese cities like Beijing and Shanghai, indicating substantial potential for improvement.
In addition to its gas business, Guangzhou Development has also stepped up efforts to develop new energy projects. According to Guangzhou Development, the scale-effect benefits of these new energy initiatives are beginning to emerge. With increasing policy support and advancements in new energy technologies such as wind power and photovoltaic generation, both unit costs and electricity generation expenses continue to decline, paving the way for a promising future of large-scale, commercial applications of renewable energy.
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