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Utilities Unbundled - China’s utilities building for a billion - EY - Global

Utilities Unbundled    issue 12

China’s utilities building for a billion

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Chinese gas and water utilities face major challenges from the country’s rapid urbanization.

According to the World Bank, China’s urban population share will have increased from about a half to around two-thirds by 2030. That’s the equivalent of a billion urban residents, or an average annual net addition of 13 million people.1 The result will be major pressure on supplies of energy, natural resources and water.

The rate of urbanization has significant consequences for water and gas utilities in the provinces, according to Professor Hao Wang, a Chinese hydrologist and water resources expert and former Vice Chairman of the China Natural Resources Society: “The exploding urban population creates serious challenges with much of the municipal infrastructure obsolete, utilities management outdated and environmental issues overlooked,” he says.

Focus on reallocating gas and water resources
With China’s natural resources scarce in most cities, but plentiful in less populated areas, the Government is prioritizing natural resource reallocation.

China has launched gas reallocation projects, such as the transmission of natural gas from western China to eastern regions.

However, natural resources reallocation remains challenging and complicated, as Professor Wang explains: “Acquiring and transmitting water to cities increases water supply costs, and at the same time exerts pressure on rural irrigation and water ecology systems,” explains Wang.

Vital role for technology
Much remains outstanding to ensure utility suppliers meet demand, with sharp increases projected in urban areas. Technology has a key role to play. China faces a severe natural resource deficit with over 20 areas declared “depleted.” 2

According to Professor Zhang, Vice Secretary-General of the Chinese Society of Hydroelectric Engineering, “technology is crucial in discovering new resources, with seawater desalination technology … a significant breakthrough.” The State Council forecasts that by 2015 the volume of desalinated seawater recovered will reach 2.2 million to 2.6 million cubic meters per day.3

Load fluctuations present a major challenge
Mr Bo Xu, senior engineer at the Economics and Technology Research Institute of the China National Petroleum Corporation, observed in a recent article: “The biggest challenges facing urban gas utility companies concern significant daily and seasonal differences between peak and trough loads.” 4

The country’s gas and water utilities are, therefore, under enormous pressure to improve peak load regulation mechanisms, increase supply capacity, promote emergency response capability and strengthen safety management.

Enabling investment
To accelerate infrastructure construction and improve efficiency and long-term sustainability, the Chinese Government is progressively enabling private and international investments in the previously state-controlled domestic utilities market, though returns will probably be both regulated and low.

Specifically, Dr Boqiang Lin, member of National Energy Consultation Committee, told foreign investors: “The economic return is expected to be low,” while further suggesting that “joint ventures may be a safer way for foreign investors to access this particular market.”

Balancing demand and supply
China’s developing gas and water utilities sectors will continue to face challenges from urbanization.

“In future, our main priority will be to guarantee [utilities] supply,” says Dr Lin.

Professor Zhang says: “Our objective is to address the supply-demand disequilibrium affecting water resources by region and season. In particular, we can construct more reservoirs to increase impoundment capacity, promote water transfer projects, improve rural irrigation systems, and encourage efficient collaboration between all relevant government authorities.”

For more information, contact:

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1 “China 2030: Building a Modern, Harmonious, and Creative High-Income Society,” World Bank, 2012; © 2012 International Bank for Reconstruction and Development / International Development Association or The World Bank

2 “China 2030,” The World Bank, February 2012

3 “Suggestions on Accelerating the Development of Seawater Desalination Sector,” The State Council, February 2012

4 “City Gas: End Users Need a Right to Be Heard,” Nengyuan.com (Energy) News, October 2011, http://news.nengyuan.com/2011/1010/132367403969.html

 


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