VZCZCXYZ0000
RR RUEHWEB

DE RUEHGZ #0087/01 0440332
ZNR UUUUU ZZH
R 130332Z FEB 09
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 0192
INFO RUEHGZ/CHINA POSTS COLLECTIVE 0096
RUCPDOC/USDOC WASHDC 0005
RHMFISS/DEPT OF ENERGY WASHINGTON DC 0004
RUEATRS/DEPT OF TREASURY WASHINGTON DC 0051
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC 0001
RUEAIIA/CIA WASHDC 0093
RUEKJCS/DIA WASHDC 0093
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS GUANGZHOU 000087 
 
SENSITIVE 
SIPDIS 
 
EMB BEIJING FOR DOE 
USDOE FOR OFFICE OF THE SECRETARY 
USDOE FOR INTERNATIONAL AFFAIRS 
USDOE FOR FOSSIL POLICY AND ENERGY 
STATE FOR EAP/CM, EB/TRA, AND EB 
STATE ALSO PASS USTR FOR CHINA OFFICE 
 
E.O. 12958: N/A 
TAGS: ENRG ECON EMIN SENV PGOV TRGY CH
SUBJECT: Slowing Economy Eases Guangdong's Electricity Crunch 
 
REF: A) Guangzhou 80, B) 08 Guangzhou 0175 
 
¶1. (U) Summary.  One unintended consequence of the global economic 
downturn: it's easing Guangdong's power shortage.  With slowing 
demand for electricity, power grid construction is catching up, 
spreading electrification to more remote rural areas.  Increased 
energy-efficiency among power producers and distributors is also 
helping to ease the gap between supply and demand.  Experts predict 
that the gap will continue to shrink through the beginning of 2009; 
however, slowing demand and price controls will strain the profit 
margins of Guangdong's major power distributor.  End Summary. 
 
--------------------------------------------- - 
Economic Downturn = Slowing Electricity Demand 
--------------------------------------------- - 
 
¶2. (SBU) The global economic downturn is slowing Guangdong's thirst 
for electricity.  Media reports indicate that demand for power has 
declined for four straight months.  This is helping Guangdong's main 
power distributor to close what had been a widening gap between 
supply and demand.  After storm-induced power shortages in the 
winter of 2008 (ref A), Guangdong struggled to meet demand as coal 
supply shortages continued through the spring, according to Qian 
Hua, Deputy Division Chief for Power-Saving Management at China 
Southern Power Grid (CSPG).  The start of the global economic 
downturn and recent increased hydropower generation caused by heavy 
precipitation have both helped dramatically narrow the difference 
between supply and demand. 
 
¶3. (SBU) Qian said that for many areas with large-scale shortages, 
the problem had more to do with a lack of grid capacity than 
electricity supply.  According to Qian, electricity demand in 2008 
increased by just 4 gigawatts or 3.6%, 9.7 percentage points lower 
than last year's growth.  Power transmission capacity, on the other 
hand, increased by 11 gigawatts.  Zhang Mianrong, Deputy Director of 
China Southern Power Grid's Market and Trade Department predicts 
that in 2009, the situation will be similar. 
 
--------------------------------------------- --- 
Downturn an Opportunity for Capacity to Catch Up 
--------------------------------------------- --- 
 
¶4. (SBU) Power grids in Guangdong are stretched to capacity, but the 
slowdown in demand increase is helping to alleviate the pressure. 
According to Qian, the slowing of electricity demand has given CSPG 
a chance to speed up grid construction.  In 2008, CSPG invested RMB 
52 billion (USD 7.6 billion) in grid construction and plans to 
invest RMB 88 billion (USD 12.87 billion) in 2009, focusing on three 
main areas: the West-to-East Electric Power Transmission Project and 
distribution networks in both urban and rural areas. 
 
¶5. (SBU) Although the media have reported that the Guangdong 
government plans to invest RMB 30 billion (USD 4.4 billion) in grid 
construction over the next year, this investment will actually be 
financed by corporations like CSPG, not the provincial budget, said 
Qian.  Zhang noted that the government's estimate of RMB 30 billion 
fell far below the investment needed for Guangdong.  He emphasized 
that CSPG's investment will triple this amount and significantly 
relieve power shortages over the next 1-2 years. 
 
----------------------------- 
Energy-Efficiency Initiatives 
----------------------------- 
 
¶6. (SBU) The CSPG executives touted the company's  efforts to 
promote energy-efficiency both internally and through outreach 
programs, noting the national government's 5-year goal of reducing 
energy consumption per unit GDP by 20%.  CPSG has established 
energy-efficiency accountability contracts with its subsidiary 
companies.  It encourages the closure of energy inefficient 
coal-fired power plants and plans to upload more nuclear power to 
electricity grids (ref B).  CSPG has been combating electricity 
transmission loss by retrofitting outdated equipment and 
strengthening internal assessments.  CSPG's energy-efficiency 
campaign also includes public education campaigns and outreach to 
area enterprises, providing free-of-charge energy-efficiency 
diagnosis and equipment modification advice.  In addition, the CSPG 
 
executives highlighted nationally mandated differential power 
tariffs that are higher for inefficient and heavy polluting 
customers. 
 
------------------------------------ 
Downturn Still Hurts the Bottom Line 
------------------------------------ 
 
¶7. (SBU) Nevertheless, Zhang commented that slowing demand in the 
downturn would hurt the company's profitability well into 2009. 
Government price controls at the provincial and national levels 
compound the company's problems.  Two nationally mandated tariff 
increases in 2008 had forced CSPG to pay power producers higher 
prices to offset surging coal prices.  However, CSPG was only 
allowed to pass on one of the two increases to consumers.  In 
addition, Guangdong regulations impose lower tariffs for consumers 
in 14 remote municipalities, boosting consumption there but cutting 
into CSPG profits. 
 
GOLDBERG