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Cablegate: Power Consumption Down in Shanghai Due to Economic Downturn

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

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