Overview of coal power generation in Asia Pacific countries

Coal is a crucial fuel for the generation of electricity and it is reported that 40% of electricity generated worldwide in 2013 was fueled by coal. Mongolia and South Africa used coal to generate more than 90% of each country’s total electricity in 2013. Coal is also a major source in some Asia Pacific countries; China, Australia, and India generated more than half of their electricity by coal. In Indonesia and Japan, coal is used to generate 48% and 21% of electricity respectively. 

Recent development of coal power plants in Asia Pacific region

A recent report, which analyzed more than 1,800 live projects in 15 Asia Pacific countries, released by Timetric’s Construction Intelligence Center (CIC) shows that coal power plants will maintain a leading role in the Asia Pacific region’s power sector over the coming 10 years. The value of these projects totals US$1,855 billion. Of this amount, US$792 billion (42.7%) will be invested into coal power projects, more than twice the value of nuclear power projects. It is forecasted that the cumulative installed capacity of coal power will be over 1,959 GW by 2025. The report also reveals that developed countries, such as Japan, Australia and New Zealand do not invest greatly in coal power projects for environmental reasons. 

State policy may affect the demand on coal for power generation

Although it is forecasted that coal power will continue to be the ruling power type in the coming decade, state policy in some countries, such as China and Japan, will slow down the growth of coal demand for power generation.

In accordance with the state policy of China on emissions reduction, the installation of new coal-fired power capacity should decrease while the installation of clean power capacity should increase. The National Energy Agency (NEA) predicted that the proportion of coal-fired power will decrease to 70% by 2020 and fall below 50% by 2050. This will inevitably suppress the growth of coal demand. The effects of this plan to decrease the installation rate of coal power has already been observed in the past several years. In 2011, the newly installed coal-fired power capacity was 58,370 megawatts, representing 61.9% of new installation for that year. However, the proportion diminished in the subsequent two years to 57.6% and 38.8% respectively.

According to the Agency of Natural Resources and Energy of Japan, the Government wants to diversify its fuel sources. Actions to achieve this goal include maximizing the introduction of renewable energy, resuming nuclear power generation, as long as safety is assured, introducing high-efficiency thermal power plants (coal and LNG), and developing domestic energy sources (such as methane hydrate). This policy is also a potential threat to coal suppliers for Japan.

India Suffers from Water Security Problem

With the second largest population in the world and a growing economy, India is a big water consumer. However, as a result of limited water availability and poor infrastructure, India faces a number of challenges. The Water Security Index, created by the Asian Development Bank (ADB), gives India an overall score of 1.6 which is low compared to other Asian countries. Among the five components of the index India gets the lowest scores for household water security, urban water security, and environmental water security. This indicates that India suffers from serious water problems including: (1) poor ability to satisfy household water and sanitation needs, and poor ability to meet hygiene requirements for public health in all communities; (2) insufficient urban water-related services, such as water supply, wastewater treatment, and drainage; and (3) river basins that are in poor health. 

The Gap between Wastewater Generation and Treatment Capacity

In the past decade, wastewater generation in India increased from 26,254 MLD (million litres per day) in 2003-04 to 47,459 MLD in 2011-12, with a compound annual growth rate (CAGR) of 7.69%. Although the quantity of wastewater treated increased with a CAGR of 10.85%, the level of wastewater treatment is still much lower than the generation level. In 2011-12, as little as 33.8% of wastewater discharged was treated. A government report, Urban and Industrial Water Supply and Sanitation for the Twelfth Five-Year Plan (2012-2017), identified that flawed planning for sewage treatment was a major cause of wastewater problems. The report summarized the major issues as follows:

• Cities worry about clean water supply but not the wastewater this will generate
• India lacks national accounts for the excreta it generates and the excreta it treats
• The challenge of sewage collection and treatment has not received adequate attention
• No Indian city is confident enough to claim to have a complete sewage system, which can keep up with sanitation and pollution challenges
• The capital intensity of the current waste system results a situation where cities can only provide for a few and not for all. Smaller cities cannot even afford a sewage drainage system, let alone a sewage treatment system
• Some sewage plants do not function because of high recurring costs (such as electricity and chemicals) or do not have sewage to treat as a result of poor pipeline systems that convey sewage to the plants

Investment Opportunities in Indian Wastewater Sector

Industrial segment accounts for more than half of the wastewater market 

As a consequence of the huge gap between wastewater generation and treatment, wastewater treatment has become a lucrative market. Some large global and domestic players such as Degremont, Doshi Ion, Driplex, Ion Exchange India, Thermax, VA tech Wahag and Veolia Water, have already engaged in the India water and wastewater treatment market. According to Avalon Global Research, participants of the water treatment market (including input water and wastewater treatment) in India can be classified into three types, namely, large players (capital investment greater than USD1 million), medium players (capital investment between USD0.22 – 1 million), and small players (capital investment less than USD0.22). Fewer than 20 large players occupied 30% of the market share, while 600 small players shared only 20%. The remaining 50% of market share is occupied by 200-250 medium players. The value of the wastewater treatment segment of the market is around USD1.2 billion and accounts for 60% of the total value of the water treatment market in India. The wastewater treatment market can be further divided into residential, commercial, industrial, and municipal usage, which account for 3%, 9%, 55% and 33% of the market respectively. 

Key drivers for sector growth

A US government agency, Export.gov, estimated that the value of the India wastewater treatment market will reach USD3.25billion by 2030. In accordance with this projection, Censere has identified several major drivers for growth.

• Poor infrastructure and low wastewater treatment capacity is one of the major water problems in India. In some cities and towns, such as cities in Karnataka, Gujarat and Andhra Pradesh, wastewater treatment facilities have the capacity to handle less than 12% of wastewater discharged. The high proportion of untreated discharged water will cause hygiene problems and constrain economic growth. The Indian Government is unlikely to ignore this problem and improvement of wastewater treatment systems has already been included the Jawaharlal Nehru National Urban Renewal Mission (JNNURM).
• Following the economic development and urbanization of India, growth in power generation, refining, and manufacturing is inevitable. Following these industries many opportunities will be created for providers of wastewater treatment equipment and services. In 2010, the urbanization level of India was 30.9% and the United Nations projects that this will increase to 32.8% by 2015 and then 37.2% by 2025.
• UNICEF predicted that water availability per capita in India will decrease in the next 40 years. In 2011, per capita average annual availability was 1,545 cubic meter/year, but it is projected that this will decrease to 1,340 cubic meter/year by 2025 and 1,140 cubic meter/year by 2050. Stress of water limitation will drive India towards reusing and recycling wastewater. 

The Supermarket Sector Experienced Rapid Growth in the Past Decade

Since the early 1990s, when the supermarket sector started to open to private and foreign investors, the Chinese supermarket sector has been expanding massively. In 1992 there were around 2,500 supermarkets in China, and following economic growth and urbanization, the number of supermarket increased fourfold by 2002. The growth trend continued and the number reached 38,554 by 2011. The compound annual growth rate from 2002 to 2011 was 15.82%. As a matter of course, sales volume has also increased significantly from RMB131.8 billion in 2002 to RMB339.8 billion in 2011. Today, the Chinese supermarket sector is quite mature and competitive. 

Current Status of Chinese Supermarket Sector

What are the problems with the foreign players?

Foreign companies have been allowed to invest into the Chinese supermarket sector by joint venture since 1991 and permission for the first wholly foreign owned retail and wholesale companies was granted in 2004. According to the China Chain Store and Franchise Association, there were 14 supermarket chains in China’s 2012 top 100 chain stores list. Of these 14 supermarket chains, four are foreign invested including RT-Mart, Walmart, Carrefour and Tesco. The number of stores and sales volume of these supermarket chains has been increasing from 2005 to 2012. 

In spite of the expansion in scale and sales volume, foreign invested supermarket chains face various challenges. Three major factors hinder the further development of foreign invested supermarkets.

1. Poor Adaptation to Local Culture: Carrefour and Walmart, two of the world’s largest supermarket chains, entered the Chinese market in 1995 and 1996 respectively. However, it seems that these companies are still not able to acclimatize to local circumstances. Foreign supermarket chains typically adopt a nationwide strategy and often ignore the huge differences between regions in China. The success of a particular business model in one region does not mean it will fit other regions. For example, these companies usually employ non-local people for the middle and top management positions and consequently, the decisions made often do not answer to local expectations.
2. Losing Competitive Edge over Domestic Players: To begin with, in the 1990s, foreign invested supermarkets enjoyed certain advantages over local competitors, such as tax benefits and preferential right to choose a location. Today governmental policies are less beneficial to these companies, for example, new taxes have been imposed on these companies in recent years. In addition, foreign invested supermarkets used to be better than domestic players in terms of available capital, technical knowledge, and brand reputation, but over the last decade domestic players have managed to narrow these gaps. 
3. Marginalization of General Merchandise Store: Foreign invested supermarkets usually operate in the mode of the general merchandise store (GMS) in high rental areas. These foreign invested supermarkets now have found it difficult to stay in core areas due to their low lease capability. Moreover, the high degree of product similarity in the market has also caused some consumers to switch to other competitors. The mode of general merchandise store is also gradually being marginalized as some domestic players have found success by adopting other strategies. For example, China Resources Vanguard developed high-end quality goods markets and Yong Hui Superstores emphasized fresh products.

Time for Market Transition

There is keen competition in the supermarket sector and many companies have seen a slowdown of profit growth or even recorded negative profit growth. The market players are now finding new ways to reclaim the market. Censere identifies three major trends during the transition in progress:

1. Online Shopping: Following the wide adoption of the internet, online retail has become more and more popular in China. Some players in the supermarket sector have already established their online retail platform. Under conditions of increasing costs, for rent and human resources, online platforms have the potential to open up a new market with lower costs. Large retailers have several advantages in opening up online retail channels. They have higher consumer awareness, greater bargaining power with suppliers, and abundant experience in logistics. Currently, online retail is still in its infancy and market players regard it as a supplementary channel. 
2. High-end Supermarkets: Following the continuous economic growth of China, a group of strong purchasing power consumers has emerged. These consumers are willing to pay more for high quality products as well as lifestyle. Currently, the development of high-end supermarkets is at an early stage. Many markets players, such as Bailian, China Resources Vanguard, and Walmart, have attempted to grow market share and become market leaders by setting up high-end supermarkets. Because product sourcing channels and operational models are still in the exploration stage, and due to high rental costs, high-end supermarkets are not yet profitable. However, the high-end supermarket sector shows considerable promise as the number of consumers with strong purchasing power is growing. 
3. Development of Private Brands: As a result of decreased profit from retailing, many companies have launched private brands in an attempt to grow profits. Low rement costs, and no advertising costs, make the overall cost of private brands much lower than other products. As a result private brands are more competitive than other brands. According to Century Lianhua (a subsidiary of Bailian Group), the retail prices of its private brands are lower than other brands by 20% to 30%. A survey conducted by China Chain Store and Franchise Association in 2011 showed that 39 out of 65 large supermarkets have launched their private brands. It is believed that large market players, with well-established networks, brand awareness, and good access to market information, will gradually strengthen their private brand businesses.