China's 2022 electricity consumption growth to slow as economy cools

China's 2022 power demand growth is expected to slow as the country's economy cools and fuel prices rise, following a 10.3% year on year increase in 2021 that accounted for nearly half of the total increase in global electricity consumption.

The softer electricity demand growth projections come amid China's policies to decarbonize power generation fuels, the inclusion of its power sector in the country's national carbon market, growing electrification of consumer and transport sectors and an energy crisis that forced a reassessment of its energy policy.

China consumed 8,312.8 TWh of electricity in 2021, the National Energy Administration said Jan. 17.

The country did not publish separate data for 2020, when the consumption was hit by the spread of COVID-19 but said the average annual electricity consumption growth during the 2020-2021 period was 7.1%, and demand in 2021 was 14.7% above 2019 levels.

"Chinese year on year power demand growth for 2022 should be lower than what it was for 2021," Andre Lambine, power analyst at S&P Global Platts Analytics said. "This is mostly due to expectations of lower economic growth."

Platts Analytics assumes China's 2022 power demand growth of about 6%, which is close to the pre-pandemic levels.

The International Energy Agency said in its December electricity market report that expectations for 2022 global electricity demand growth had been lowered to 3%, from 4%, after demand grew by around 6% in 2021, the largest ever annual increase in absolute terms.

"For the years 2022-2024 we expect [China's electricity] demand growth to slow to an average of 4.5%, due to efficiency improvements and slower economic growth," the IEA said, referring to the compound average annual growth rate (CAAGR).

Strong consumption

The Chinese economy is broadly divided into three sectors – the primary sector includes industries, such as agriculture and raw materials, the secondary sector largely comprises manufacturing and finished goods, and services that encompasses finance and insurance.

China's power consumption from the secondary sectors was 5,613.1 TWh in 2021, accounting for 68% of total consumption, up 9.1% year on year. The growth in the secondary sector's consumption was in line with the exponential growth seen in the Chinese manufacturing industry.

Power consumption from the primary and tertiary sectors was 102.3 TWh and 1,423.1 TWh, respectively, in 2021, up 16.4% and 7.3% year on year, the NEA data showed. Residential users consumed 1,174.3 TWh of electricity in 2021 out of the total power consumption, up 7.3% year on year.

China's power consumption is expected to maintain a relatively fast growth rate in 2022, with the grid likely reaching higher electricity loads, Li Yunqing, director of Economic Operation Regulation Bureau of National Development and Reform Commission said in a press conference Jan. 18.

The Chinese government will also need to consider social development targets, low-carbon energy transition, and carbon peak and carbon neutrality commitments, apart from ensuring power supply, Li said.

The NDRC, which is China's topmost economic planning body, will consider the role of each fuel type to ensure stable power supply, Li said, while highlighting plans to accelerate the construction of utility-scale wind power and photovoltaic projects in remote desert regions in the northwest, and reduce coal-fired power generation to 300 grams standard coal/kWh or less.

The NDRC is also working to boost power transmission and networks over large distances to facilitate the transfer of renewable energy across provinces, while managing downstream consumption in peak hours to prevent outages, Li said.

Generation capacity

China's power generation volume rose 8.1% year on year to 8,112.2 TWh in 2021, data released by the National Bureau of Statistics showed Jan. 17. The volume increased 11% from 2019, and 5.4% over the 2020-2021 period, according to the NBS.

Power consumption growth slightly outpaced generation growth in 2021 and that is likely to have caused power shortages, market participants said. Most non-fossil fuel power sources also grew faster than fossil fuel sources in 2021.

China's electricity generated by thermal power stations, which includes coal, oil, and natural gas-fired power plants, increased 8.4% year on year in 2021, while nuclear power, wind power and solar power rose 11.3%, 29.8% and 14.1%, respectively, year on year during the period, the NBS data showed.

The country's hydropower, however, decreased 2.5% on the year in 2021, due to persistent droughts in some provinces, which contributed to unstable power supply and increased the reliance on coal-fired generation in those regions.

China's Guangdong province, the economic pacesetter and the heart of its manufacturing industry, saw nearly half of the hydropower imported from the hydro-rich Yunnan province in May 2021 hit by several months of drought.