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China Pressured Over New Coal Power Projects – Analysis

An operating coal power plant in China. Photo by Tobixen, Wikipedia Commons.

By Michael Lelyveld

China is facing widespread criticism for building dozens of coal-fired power plants that the country doesn't need, but so far, there are no signs that the government will alter its course.

Environmental groups have been calling for a moratorium on new coal power projects since at least 2015, when Greenpeace East Asia first warned that a shift in approval authority to local governments would lead to a surge of new projects and a drop in plant utilization rates.

In 2016, Greenpeace found that permits for 210 new coal plant projects had been approved.

Since then, the central government has issued a series of rules and policies to suspend or cancel some 159 gigawatts (GW) of excessive local projects and 38 GW of older generators, according to a recent study by the Center for Global Sustainability at the University of Maryland School of Public Policy.

But the pause has proved to be only temporary as many of the stalled projects were revived to give the economy a boost following the plunge of the COVID-19 pandemic.

COVID effect

In the first five months of this year, 57 coal plant projects with 78 GW of capacity were moving toward completion, forming part of the 98 GW currently under construction. An additional 53 GW of generation recently received permits, the University of Maryland (UMD) study said.

As a result of the increases, utilization rates of coal- fired power plants will fall from the current level of about 50 percent to less than 45 percent in 2025, the UMD analysts said. Over half of China's existing coal plants are running unprofitably now.

China's power industry has been burdened with overcapacity for years. Yet, the expected new plants would add 13.5 percent to coal-powered capacity by 2025, even assuming that older generators would be retired after their 40-year lifetimes.

Between the start of this year and June 15, China's provinces approved more new coal-fired capacity than in the previous two years combined, www.climatechangenews.com said in a summary of the recent reports.

While the project approvals are said to be motivated by concerns for economic growth and local employment, the low utilization rates challenge the notion that there will be longer-term economic benefits from operating the plants.

Environmental concerns

China's policy of promoting economic recovery at the cost of the environment has drawn international fire.

In July, U.N. Secretary General Antonio Guterres told online students at Tsinghua University that "coal should have no place in any rational recovery plan," Reuters reported.

"It is deeply disturbing that new coal power plants are still being planned and financed, even though renewables offer three times more jobs, and are now cheaper than coal in most countries," Guterres said.

The latest additions have raised China's share of the world's operating coal-fired power plants to more than 50 percent for the first time, said a study released last month by the Global Energy Monitor (GEM).

China's increasing share comes as global coal power capacity in the first half of 2020 has peaked and started to decline for the first time on record, GEM said.

The report at www.carbonbrief.org cited a combination of slower commissioning of new plants due to the pandemic and faster retirements of older generators in the European Union thanks to tougher environmental rules.

But China's plans for new plants have been bucking the trends.

In the first half of the year, China's coal plant development made up 90 percent of newly proposed coal-fired capacity, 86 percent of new construction and 62 percent of plant openings, GEM said.

India ranked a distant second in new plant construction with just 6.9 percent of the world total, according to data from GEM's Global Coal Plant Tracker.

"The case for building this planned new coal capacity ... needs to be carefully weighed against the implications for local air pollution and global climate goals," the Paris- based International Energy Agency (IEA) said in a recent report.

The outlook for restraint seemed more hopeful in January when the Center for Global Sustainability (CGS) released a report on the potential for a long-term "phaseout" of coal power in China in coordination with climate goals.

The study conducted jointly by CGS, the Energy Research Institute of China's top planning agency, the National Development and Reform Commission, and the North China Electric Power University, found that it would be feasible to phase out coal power and meet climate targets by 2050 "with relatively small economic impact."

"To do this, a three-principle strategy needs to be followed: no new coal plant construction, rapid shutdown of older and inefficient plants, and a shift of coal generation from baseload to peak load in China's power system," the study said.

But that was before the economic impact of the COVID-19 crisis became clear.

Setbacks

With the 6.8-percent drop in gross domestic product in the first-quarter, the plans for "no new coal plant construction" appear to have gone by the boards.

The setback for environmental interests seems to reflect a struggle within government between energy policymakers who would slow coal power growth and the coal and construction industries, said Mikkal Herberg, energy security research director for the Seattle-based National Bureau of Asian Research.

"It seems right now that the coal power interests are winning the argument. Jobs are always the thing that keeps the leadership awake at night. Almost everything is secondary to that," said Herberg.

"Whether international opinion matters much at this juncture seems unlikely in my view. I think it's fairly low on the leadership's top agenda," he said.

China's push for new coal projects to support recovery from the pandemic may mark the latest twist in the strategies of environmental advocates who have opposed the approvals with arguments on economic grounds.

Back in 2016, Greenpeace warned that China could be wasting up to 1.4 trillion yuan (U.S. $205 billion) on surplus capacity by 2020 because of failure to halt new coal- fired projects.

In 2017, Oxford University's Smith School of Enterprise and the Environment published a paper, finding that China's coal plants and associated assets could become "stranded," to be abandoned by investors after the projects proved unable to pay for themselves.

The study estimated that losses could run as high as 7.2 trillion yuan (U.S. $1.05 trillion).

In 2018, a report by the environmental research group CoalSwarm took up the argument, concluding that 259 GW of unneeded projects that remained under development could become stranded assets. Cancelling them could save U.S. $210 billion (1.4 trillion yuan), it said.

Similar studies cited the stranded assets threat in an attempt to head off the projects, hoping that economic arguments would persuade China where environmental reasons had fallen short.

But this year's wave of project approvals suggests that China will not be swayed by the long-term consequences of building coal plants, at least until its near-term economic concerns are put to rest.

Economic priorities

China has been dealing with the costs of overcapacity in the power sector for years, covering losses with hidden subsidies and bank loans.

Those calculations may have to change if the government advances more market reforms for the energy sector as promised in previews of its 14th Five-Year Plan for 2021- 2025, which may become public as soon as next month.

The central government may have to face the contradictions of its policies soon, whether environmental advocates make effective economic arguments for "no new coal plants" or not.

But international tensions and energy security concerns may also be playing a part in China's push for more plants that rely on domestic resources of coal.

"I think senior leadership is now taking energy security into account more than over the last decade when they were becoming much more comfortable with allowing energy markets to work," said Herberg.

"So the argument for domestic coal for power is, I suspect, much more persuasive than in recent years," he said.

The article China Pressured Over New Coal Power Projects – Analysis appeared first on Eurasia Review.



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