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Growing energy demand nagging nation
By Zhao Renfeng (Business Weekly)
Updated: 2004-08-15 09:01

Torrid energy consumption is essential if China's miracle economy is going to stay on track, but generating that power will be much too expensive.

China must reduce its dependence on coal and fine-tune its energy mix, as the country must boost the development of its energy industry to resolve widespread power shortages, experts suggest.

Many coal-fired power plants are in the development stages as part of China's efforts to alleviate the nationwide power shortages. But the huge losses, as a result, have yet to be accurately calculated.

"The high cost of coal-fired power generation has long been overlooked,?Fred Hu, managing director of Goldman Sachs (Asia), told a forum on energy security and energy investment strategy.

The forum was held last week in Beijing.

Heavy pollution from coal-fired power generation consumes almost all the energy the power plants produce, he said.

Producing massive amounts of power generates colossal losses ?including heavy burden to fight pollution, massive public healthcare expenditure and considerable losses of labour ?for society, Hu said.

A recent study indicated losses caused by power generation, mainly coal-fired, have cost China nearly 8 per cent of its gross domestic product (GDP) per year since the late 1970s. That would be almost the equivalent of the country's GDP growth.

In more than 20 years of reform, China has achieved an average annual 9-per-cent growth rate, but "the huge cost of energy consumption has meant China's economy has barely grown,?Hu said.

In China's current energy mix, coal consumption accounts for more than 70 per cent, which is much higher than the global, 25.5-per-cent average.

China aims to reduce that figure to less than 60 per cent by 2020.

Experts said coal has been widely used in China because it is an abundant resource, which makes it less expensive.

However, when all additional costs associated with coal, including pollution, are factored in, coal is much more expensive.

"The real price for coal could be three times the current price. So, coal is not a cheap energy source,?Hu said.

Compared with other primary energy resources, China has relatively higher reserves of coal.

Nevertheless, Shanxi Province, China's coal capital, is, ironically, one of the provinces suffering the most from power shortages.

Why? Shanxi also faces a severe water shortage. Water is essential for coal-fired power generation.

China must implement a comprehensive strategy to develop its energy industry, experts suggested.

China must end its dependence on coal and make better use of clean, sustainable energy sources, such as wind and solar power, experts said.

Development of nuclear power should also be enhanced ?at a steady pace, experts added.

Many Chinese still remember the massive brownouts last summer, when 22 provinces ?two-thirds of the nation ?suffered from power shortages.

The situation could be much worse this year. Twenty-four provinces ?including some in China's better-developed Southeast ?are expected to suffer from power shortages.

Experts suggest the sudden brownouts can be attributed, at least in part, to China's energy policies during the 1990s.

During those years, officials undervalued the nation's growth power, and China's average energy consumption grew 4.6 per cent annually. That was much lower than China's GDP growth.

Over the long run, even with more investment, China's energy industry will still feel the pinch to quench the nation's thirst for power.

Mu Huaipeng, director of the People's Bank of China's research bureau, said China is in the initial stage of industrialization and modernization.

That, Mu said, means China faces huge energy demands ?and the trend is irreversible.

China's per capita GDP reached US$1,090 last year, which surpassed the key benchmark of US$1,000.

The jump was significant, as it indicated Chinese were gradually changing their lifestyles with higher disposable income ?a key driver of energy consumption, Mu said.

China is also in a period of rapid urbanization, which is helping lift hundreds of millions of the nation's farmers out of poverty.

Sprawling megacities reflect China's extraordinary urban boom and modernization drive. But, at the same time, the boom towns are creating new, tough challenges for China's energy planners.

On the industrial front, rising energy demands are becoming even more obvious.

Power-hungry sectors, such as steel and cement, are enjoying their heyday. Blueprints for more factories are being drawn as international companies rush to outsource their manufacturing jobs to China.

Energy security in China has gained the world's attention, as many experts and officials have questioned whether China has enough energy to sustain its economic growth.

Experts have also questioned whether Chinese can fulfil their dream of building a well-off society.

The recent oil price hike, to more than US$40 per barrel, exacerbates those concerns.

The promotion of energy-saving technologies, experts suggest, is key to overcoming the hard times.

But that does not mean people have to live with frequent power cuts.

"Saving energy is not the same thing as using less energy,?said Zhou Fengqi, senior adviser with the National Development and Reform Commission's Energy Research Institute.

"I think China can achieve its economic goal in 2020, even though energy consumption cannot grow in tandem with the economic growth. Enhancing cost efficiency is just a good tool.?

China has improved its energy efficiency 64 per cent over the past 20 years, and there is much room for improvement, Zhou said.

Experts said there has been significant technology progress in terms of new energy sources, such as wind.

New technologies have greatly reduced power-generation costs for wind power, and there are great opportunities for China to explore wind power, particularly on the sea, they added.

Wang Yinan, a researcher with the Chinese Academy of Sciences, said, with the wind force, power generation is expected to cost 0.5 yuan (6 US cents) per kilowatt-hour.

That would be affordable for many people, and commercially viable.

The world's largest power plant that utilizes wind on the sea has been established in Denmark, Wang said.

That indicates there are great opportunities for the sustainable use of energy, she added.

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