China Utilities:Power:Substantial halt to coal-fired power projects underscores industry capex discipline

The latest data continues to reinforce our out-of-consensus view of industrycapex discipline. Reiterate CL-Buy on China Resources Power (CRP, 0836.HK).

Intensifying policy action. According to a January 17 Caixin news article, theNational Energy Administration (NEA) announced on January 14 a halt to 101 newcoal-fired power projects across 11 provinces (worth Rmb430bn). Together withthe last September 23, 2016 round (15 projects totaling 12.4GW), these two roundsof new coal-fired power project cancellations amount to close to 120GW, more thanthe total coal-fired power capacity added in 2015-2016. The scope includes projectswhich have been previously approved and even some where construction havebegun.

Downside risks to government’s 2020 capacity target. NEA indicates the recentrounds of project cancellations are to realize the government’s target of no morethan 11,000GW of coal-fired power generation capacity in 2020. However, given theslowing power demand growth and the current serious power oversupply, we onlyexpect 10,000GW of capacity in 2020, i.e., 9% below government target. We expecttotal government cancellation or postponement of new coal-fired power projectsduring 2016-2020 to exceed the government target (at least 150GW) since it hasalready announced close to 120GW early in this 5-year plan.

The following provides the latest 2016 capacity data and our forecast into 2020.