Is China returning to coal-fired power?

China might be U-turning back towards dirty ‘coal-fired power’. Results of a new study found that the country – which shows increasing signs of weakening economic growth – has restarted construction on more than 50 gigawatts (GW) of suspended coal-fired power plants. This represents the equivalent of the volume of the entire coal fleet of Africa and Middle East.

The study carried out by Global Energy Monitor, Greenpeace and the Sierra Club, claims that China could add 290GW in new coal-fired plants – exceeding the 261GW capacity of the entire US coal-power fleet in 2018. The findings of the report collide with the country’s previous pledges to build a power supply that is increasingly reliant on renewable energies.

On multiple fronts – including in the form of an emissions trading scheme (ETS), a carbon market where emitters can buy and sell emission credits – China has fought to turn ‘greener’. It ran aggressive programmes to replace coal in heating and industry with electricity and gas – figures show a cut in coal’s share of its total energy mix to 59 per cent, down from 68.5 per cent in 2012.

But while China – posing together with India as the two biggest growers in coal capacity since 2005 – managed to reduce the number of new coal plant permits to a record lows, the new report states that global climate goals will not be met “without a full halt in new coal plants and a new retirement of operating coal plants”.

In a report from 2018 CoalSwarm, a global network of researchers developing collaborative informational resources on fossil fuels and alternatives accuses Beijing of reluctance to cancel coal plant projects that are already under development. It argued that the country would re-activate or newly start coal power capacity worth 259GW.

According to the latest report, the 1300GW coal power capacity cap for 2030 proposed by the China Electricity Council would permit the expansion of the country's coal plant fleet by an additional 290GW.

Boom and Bust 2019 is based on the latest figures from the January 2019 update and shows that 70GW are in pre-construction, 129GW in under construction, 33GW in suspended construction. Added to it are 59GW of pre-construction status which got suspended by name - 92GW total suspended capacity minus an added 33GW of suspended construction.

China would have “quietly resumed” construction in 2018 on dozens of previously shelved plants, making it a “glaring exception to the global decline”, according to the report. If the administration is to go forward with continuing on those plans, it could jeopardise its self-imposed cap of 1,100GW in operational capacity through 2020.

Ted Nace, executive director of Global Energy Monitor and co-author of both reports, thinks that central government’s efforts to rein in on over-permitting last year constitute a failure: “A policy that allows an additional 25 per cent in capacity growth on top of 1TW of power that is running at 50 per cent capacity, wastes hundreds of billions of dollars”.

Last year’s July figures from the Global Coal Plant Tracker (GCPT) database suggested that the central government failed to cover 51GW in planned capacity by restrictions. Another 151GW moved forward in the pipeline despite restrictions, due to loopholes, rule-flouting or individual exemptions, while another 57GW was found frozen in mid-construction by postponement orders - but were expected to be completed eventually.

“From the start, Chinese central authorities’ restrictions have been riddled with loopholes and half-hearted measures. One example is the multiple loopholes in the traffic light system. Another is the orders that merely served to delay start-up rather than cancelling projects”, Nace said.

Though below its 2015 level, China’s domestic coal power capacity under construction was found to have increased 12 per cent in 2018. The report also found that overall coal-fired generation has increased in the country, especially from new ‘coal bases’ in the northwest, even though China has vowed to cap consumption nationally and to make cuts in regions like Beijing, Hebei and Henan.

Reasons behind today’s coal plant construction pipeline

There are signs that a burst of approvals for coal-fired power plants is now endangering China’s ability to meet its emission caps designed to staunch rising global temperatures. CoalSwarm data shows a record spike in coal-fired power plant approvals between late 2014 and early 2016, as the central government transferred authority for new investments to provinces grappling with steeply dropping prices for coal.

Despite cancelling many of those projects after 2016, some of those plants became part of the capacity overhang that threatens China’s targets for reducing coal-fired power generation to rein in emission rates.

A measure supposed to aid provinces to make investment decisions that better aligned their local power demand with supply – with the central government limiting its role to creating total capacity limits and policy guidelines – has instead resulted in an unprecedented three-fold increase in permits handed out between 2014 and 2016 – from an average of 5GW per month in 2013-2014 to 15GW a month in 2015, as local authorities raced to approve projects they believed would stimulate local growth. Next to the permitting spree came favourable guaranteed tariffs and easy access to cheap credit. The spike was most noticeable in Shanxi, Inner Mongolia and Xinjiang – three regions in China that are among the most heavily dependent on coal mining for provincial output.

Despite cancelling constructions, data from the GCPT database points towards large disparities among provinces for projects that were put on hold – for which construction had already started – and which are expected to resume by 2021 or earlier instead of being discontinued. While Inner Mongolia was forced to let go of 65.2GW of coal power capacity between 2010 and 2018 and presently shelves 4.7GW, China’s largest coal-producing province, Shanxi, cancelled only 24.8GW but left 15.6GW to be postponed, far above the provincial average of 2GW.

The International Energy Agency (IEA) expects coal in China’s energy mix to grow less important under a “new policy scenario”.

A rise of electricity and of renewables are closely interlined as diversification could ramp up if regulations are put in place, allowing the share of coal in total generation to reduce from two-thirds today to less than 40 per cent in 2040.

Despite estimates by an IEA report that in 2023 the country will have more than 40 per cent of the word's solar power capacity, China’s coal-fired power generation is projected to vastly exceed the demands by IEA in the longer run, which requires China to close all its power plants that do not have carbon capture and storage facilities within 30 years  for the world to limit warming to below 1.75C above pre-industrial conditions.

Nace explained to E&T that with the new proposal by the Commission for Environmental Cooperation (CEC), it would potentially raise capacity in China to 1,300GW over the next decade. “This is the voice of the coal power industry, which obviously will resist the rapid shift toward renewables that needs to happen”. What does this mean in the greater picture of the world’s climate?

Figures from Nace’s team indicate that new capacity in China’s pipeline is out of line with the Paris agreement, undermining global climate goals. To be successful in limiting temperature increases of 1.75°C, China would need to close all coal plants by 2045 and cease generating power from those plants, according to IEA’s 2°C Scenario.

China still has an opportunity to phase out its coal capacity by 2045. But it would demand sacrifices: a cut of an average of 40GW operational capacity per year, or around 4 per cent of the fleet annually, from 2020-2045, the building an equivalent amount of replacement power and the need to retire coal power plants early. As for building replacement power at a fast enough rate to reach climate goals, it is certainly doable, thinks Nace.

In 2016, global solar PV capacity grew at a 50 per cent, and China added almost half of the global new solar PV capacity of 74GW, supported by low auction prices for PV, while wind capacity grew steeply. With prices for alternative cleaner sources of energy expected to drop further, renewables are expected to accelerate over the next two decades.

Other factors may aid in keeping coal low in China’s energy mix. The State Development and Investment Corporation, a central government-run investment group with significant holdings in the power sector, announced earlier this year that it would no longer fund coal projects. But one centric problem remains: despite a slowing trend of newly entered projects into the pre-construction pipeline, the government shows little appetite to cancel plants that have already entered the construction phase. Whether this is due to promises made to investors and commitment by Beijing and local authorities or actual demand for coal power, appears enigmatic.

In an interview with Ben Heubl (now investigative journalist at E&T) conducted in October of last year, Simon Powell, head of Asian utilities research at UBS said that even if Beijing wanted to, it remains difficult for the government to simply stop all these projects. Partly due to the deep involvement of local authorities, but also due to a promise to provide residential heating via coal power for cities north of the Yellow River, he said.

However, Reuters has quoted sources stating that the central bank is about to release new guidelines that will prevent ‘clean coal’ projects, including low-emission coal-fired power plants, from issuing ‘green bonds’.

In July last year, China State Council announced it would pledge to continue the fight against pollution. According to Powell, the country would appear much better off than before. Some government measures did work and there are opportunities that could bring relief to the current coal pipeline: “Two years ago it was looking far worse. They [central government] have scaled back on the new build. I think the breakage of the logjam on the nuclear side will provide some relief because there will be an upsurge in nuclear construction”.

China is expected to soon be ready to start commercial operations of the world’s first next generation AP1000 nuclear reactor.

Another point that would give Powell confidence is that the government appears willing to force its wind farms to live without subsidies. Despite being criticised for being too timid by MIT Technology Review, the creation of the world’s largest carbon market is expected soon and would offer additional reassurance.

Dongjie Zhang, power analyst at IHS Markit in Beijing who also spoke with Heubl, remains sceptical whether CoalSwarm’s tallied figure is really what will end up being installed. Recent reactions with counter-measures by the government appear weighty. He thinks estimates are too high and China will be able to meet its 2020 cap: “We did a very rough calculation even before the Chinese government cancelled or delayed some of the projects in the pipeline. Now, the total number will be nowhere near this [259GW]”. With more alternative energy appearing on grid, coal will remain as the government’s choice to stabilise power demand peaks, he adds.

A report by Cnenergy.org from last August states that the country’s energy demands increased slightly in 2018 compared with last year. The report estimates that by the end of the year, China’s total capacity will reach 1900GW, of which 1020GW will be generated by coal power.

Despite still financing more than a quarter of the new coal-fired plants abroad – with a slowing economy – China could soon find itself needing to weigh again the conflict between its domestic needs and its international targets.