December 02, 2008

China power capacity growth to slow on profit concerns - Morgan Stanley

Morgan Stanley said that total generation capacity in China is likely to grow more slowly in 2008, with investors concerned about declining profit margins in the thermal power sector.

Citing figures released last week by the China Electricity Council, Morgan Stanley noted that first half added capacity stood at 33 gigawatts down by 14% YoY compared to the same period of last year and mainly dragged down by a 27% decrease in new coal fired power capacity commencement.

The note said the strong growth rates in hydropower and wind power capacities suggests that power companies are shifting away from loss-making coal fired power business. It added that total power capacity grew by 103 gigawatts in 2007, but that is expected to slow to 80 to 90 gigawatts this year not only as a result of lower margins but also because diminishing external financing opportunities.

Morgan Stanley also said that China's big independent power producers would be able to gain market share in the coming months because their smaller rivals are cutting their utilization hours in order to reduce the losses caused by record high coal costs.