China is set to launch a program to tackle its air pollution problem.
And this is expected to require an investment of 1.7 trillion yuan over the next five years, according to the National Development and Reform Commission (NDRC).
Morgan Stanley’s Simon H.Y. Lee and his team think there are huge investment opportunities here.
First, reducing coal consumption by 150-200 million tons in coastal areas in five years and switching to green energy in industrial boilers and power plants.
This would likely be achieved by switching from coal IPPs (independent power producers) to gas IPPs. “Per our calculation below, gas IPPs would need to construct around 93GW of gas capacity to replace coal IPPs and the total investment would amount to Rmb371 billion given the construction cost of Rmb4 million per MW for gas-fired plants.”
Second, speeding up installation of deNOx (aimed at reducing nitrogen oxides) in power plants. This investment is expected to total 350 billion yuan. Of this 73 billion yuan will be used to control Sulphur dioxide. 53 billion yuan will be used to control nitrogen oxides, 47 billion yuan will be used to control dust, and 40 billion yuan will be used to control VOC (volatile organic compounds).
“The government estimates the social value from reducing the impact on the environment could be as much as Rmb 2,000bn.”
Third, use coal-to-methane gas as a primary supplementary natural gas source. The government is expected to approve more coal-to-gas projects in 2013, before commissioning the Datang Keqi project in the third quarter. The investment should total 119 billion yuan.
Here’s a quick look at the current coal to gas projects:
In terms of investing in renewables, new capacity for wind farms could be sped up as could the development of solar farms.
“Our channel checks suggest that the government is considering reinstating the approval process for in-land nuclear power plants, and may revise up its 2020 target. We estimate that the additional investment will be close to Rmb1trn.”
The biggest beneficiaries from this program are expected to be players in wind/solar, like Suntien, Longyuan and HNR. Upstream/downstream gas, like PetroChina, ENN, Towngas, China Oil & Gas; and coal-to-gas, like Datang Power, Yingde Gases.