VZCZCXRO3500
RR RUEHCN RUEHGH
DE RUEHGH #0544/01 3460908
ZNR UUUUU ZZH
R 110908Z DEC 08
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 7419
INFO RUEHBJ/AMEMBASSY BEIJING 2349
RUEHCN/AMCONSUL CHENGDU 1601
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEHGZ/AMCONSUL GUANGZHOU 0060
RUEHHK/AMCONSUL HONG KONG 1768
RHEHAAA/NSC WASHINGTON DC
RUEHSH/AMCONSUL SHENYANG 1593
RUEHIN/AIT TAIPEI 1394
RUEHKO/AMEMBASSY TOKYO 0449
RUCPDOC/USDOC WASHINGTON DC
RUEHGH/AMCONSUL SHANGHAI 8025

UNCLAS SECTION 01 OF 02 SHANGHAI 000544 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM 
DOC FOR ITA - DAS KASOFF, MELCHER, SZYMANSKI 
NSC FOR LOI, SHRIER 
EMBASSY BEIJING PASS TO FCS 
 
E.O. 12958: N/A 
TAGS: CH ECON EINV ENRG PGOV
SUBJECT: POWER CONSUMPTION DOWN IN SHANGHAI DUE TO ECONOMIC DOWNTURN 
 
REF: SHANGHAI 284 
 
(U) Sensitive but unclassified.  Not for dissemination outside 
USG channels.  Not for Internet distribution. 
 
¶1.  (SBU) Summary: Energy contacts in Shanghai say power 
consumption in Shanghai has slowed significantly the past few 
months due to the economic downturn.  In contrast to the 
situation earlier this year, there is now an "oversupply" of 
coal in Shanghai, said one analyst, who also thinks power prices 
will start coming down following a 30 percent drop in coal 
prices.  Shanghai is looking to expand its electricity grid and 
build new power generators but is faced with local opposition, 
according to a government official.  LNG will occupy a larger 
ratio of Shanghai's energy mix, as Shanghai moves to shift from 
coal to cleaner energy.  But one interlocutor speculates the 
economic downturn may cause some of these clean energy projects 
to fall by the wayside, as the government focuses on boosting 
the economy.  End summary. 
 
Sharp Decline in Power Demand 
------------------------------- 
¶2.  (SBU) Ying Zhiwei, Vice Manager of the Planning and 
Development Department at the Shanghai Municipal Electric Power 
Company (SMEPC), said power consumption in Shanghai was up 8 
percent year-on-year (YOY) for the January-September period this 
year, similar to growth every year.  However, she said 
consumption only rose 5 percent YOY during this year's summer 
peak season and has slowed considerably since then.  She 
attributed this slowdown to the economic downturn in Shanghai. 
 
¶3.  (SBU) Manop Sangiambut, Deputy Head of China Research 
Construction and Machinery Sectors, CLSA (an investment and 
research group), presented higher growth figures but also sees a 
significant slowdown in power consumption.  He estimates 
Shanghai experienced 20 percent YOY growth in power consumption 
in Q3 2008 but that growth slowed to 8 percent in October and 
will be even lower when figures are released for November. 
Power consumption normally grows 14-15 percent across China 
every year but has actually declined by 5 percent and 11 percent 
YOY in October and November respectively, he said.  According to 
Sangiambut, the drop in demand has been especially sharp in 
Guangdong Province (manufacturing sector) as well as in the 
energy-intensive steel, cement, and petrochemical industries. 
The "effects of the economic downturn are clearly reflected in 
the fall in power consumption," he added.  (Comment: That 
energy-intensive industries are particularly showing decreases 
in energy demand raises the probability that changes in energy 
demand differ in degree from changes in economic output.  End 
comment.) 
 
"Oversupply" of Coal 
-------------------- 
¶4.  (SBU) According to Zheng Long, Director of the Department of 
Electric Power at the Shanghai Economic Commission (SEC) and 
Ying of SMEPC, 70 percent of Shanghai's electricity is generated 
from coal.  In sharp contrast to the situation earlier this 
summer when there were concerns about possible shortages of coal 
(see reftel), Sangiambut of CLSA said there is now an 
"oversupply" of coal, much of which is now "just sitting at 
Shanghai ports."  He said this is due to falling demand, and 
estimates that coal prices have come down 30 percent from their 
peak a few months ago.  He also has heard rumors that the 
Chinese Government plans to bring down power prices since coal 
prices have fallen.  He observed that power prices have already 
started declining in other parts of the country, such as Yunnan 
Province and Inner Mongolia. 
 
Expanding Power Capacity 
--------------------------- 
¶5.  (SBU) Zheng of the SEC said 70 percent of Shanghai's 
electricity is generated at power stations located within 
Shanghai Municipality and the remaining 30 percent comes via 
high-voltage transmission lines from other parts of China, 
including coal-powered plants in Anhui, the Three Gorges Dam, 
and from the Qinshan nuclear power plant in Zhejiang.  He said 
the current East China grid supplying power to Shanghai (as well 
as the power grid within Shanghai) is not sufficient to meet 
 
SHANGHAI 00000544  002 OF 002 
 
 
long-term demand.  He also noted plans to build five new 
"large-scale" generators in Shanghai by 2010 that would expand 
capacity from the current 16 million kWh to 35-40 million kWh. 
(Note: Our discussion with Zheng occurred before figures showing 
the sharp decline in demand in October and November came out. 
The discussion also took place before the Chinese Government 
announced its stimulus package, which, according to Sangiambut, 
should stimulate infrastructure development including expanding 
power grids from Central and Western China to the coast.  End 
note.) 
 
¶6.  (SBU) Zheng said SMEPC is planning to expand the Shanghai 
grid and construct generators but that "implementation will be 
difficult" due to opposition from local residents who are 
concerned about the impact of these projects on human health and 
land value.  In a separate discussion, Ying of SMEPC said that 
SMEPC is working to expand its power grids but did not comment 
on local opposition. 
 
Will Shanghai Be Able to Diversify? 
------------------------------------ 
¶7.  (SBU) Zheng of the SEC lamented Shanghai's dependence on 
coal power and said the local government is looking to increase 
the ratio of Liquefied Natural Gas (LNG) in Shanghai's energy 
mix.  He described several projects already underway.  The first 
is a pipeline from Turkmenistan through Xinjiang to Shanghai. 
Zheng said the first stage of this project has already been 
completed, and they are now working on the second stage.  The 
second project is a pipeline from Sichuan Province which, 
according to Zheng, should have been completed in 2008 but, due 
to delays, will not be completed until the second half of 2009. 
Another project involves importing LNG from Malaysia, expected 
to be running by the middle of 2009.  After completion of these 
projects, Shanghai should have an "abundant supply of LNG," said 
Zheng.  He believes Shanghai (and Beijing) is one of the few 
cities in China that can afford and is willing to pay the higher 
prices for LNG.  The local government is focused on shifting 
from coal to cleaner energy, he said. 
 
¶8.  (SBU) But with the economic downturn, Sangiambut of CLSA 
thinks clean energy projects may fall by the wayside, with more 
focus placed on measures to boost the economy.  Although LNG 
imports may continue to rise, he said, it will be "a long time" 
before solar, wind, and other renewable energy supplies start 
occupying a significant portion of the energy mix.  Zheng also 
acknowledged that Shanghai can only produce very little solar 
and wind energy by itself and that the city will continue to 
rely heavily on coal for the foreseeable future.  Because coal 
prices are coming down and there is no longer a shortage, there 
will be even less incentive to switch away from coal, said 
Sangiambut. 
CAMP