China's coal muddle

 China has promised to peak its emissions by 2030 and to reach zero emissions by 2060.   Yet last year, the country continued to build and plan nearly 100 gigawatts of new coal power stations.   This explosion of new coal generation is completely inconsistent with peaking emissions any time soon.  What is going on?

From Global Energy Monitor

● China commissioned 38.4 GW of new coal plants in 2020, over three times the 11.9 GW commissioned in the rest of the world. 

● Chinaʼs coal fleet grew by net 29.8 GW in 2020, while in the rest of the world net capacity decreased by 17.2 GW. 

● China initiated 73.5 GW of new coal plant proposals in 2020, over five times the 13.9 GW initiated in the rest of the world combined. 

● Chinese provinces granted construction approval to 36.9 GW of coal power projects in 2020, over three times the capacity permitted in 2019 (11.4 GW). 

● China now has 247 GW of coal power under development (88.1 GW under construction and 158.7 GW proposed for construction) – a 21% increase over end-2019 (205 GW), and nearly six times Germanyʼs entire coal-fired capacity (42.5 GW).

Excluding China, the global coal fleet has been falling for a couple of years now, and the decline appears to be accelerating.

So what is going on?

The growth in coal plant development in China is often based not on demand, but on misguided economic incentives from the central government. In 2016, new coal plant permits were restricted throughout most of the country by the central government, following a 2014–2016 province-level permitting boom that threatened to overwhelm the countryʼs 2020 coal power cap of 1,100 GW. 

Yet as the economy slowed in 2019, the central government began increasing the number of provinces allowed to greenlight new coal plants, reaching 25 of 31 provincial grids by 2020. The central government also expanded local lending quotas in 2020 and encouraged investment to offset the economic impact from COVID-19. The increased investment also included clean energy, and in 2020 China added up to 119 GW of wind and solar power to the grid, an all-time record and over double the amount installed in 2019 (56 GW).

Yet reforms discouraging coal power use have been incomplete and uneven across the country, resulting in high levels of commissioning for both renewable and coal power – effectively resulting in an “all of the above” power strategy. The increase in both coal and renewable power capacity has decreased the operating hours for coal generators. Since 2015, the average utilization rate of the countryʼs coal plants has been 50% or below, compared to a high of 61% in 2011. 

Recent electricity shortages in several provinces in Central China highlighted an apparent paradox – the country has far more capacity than it needs, but grid management issues and grid bottlenecks still led to electricity rationing in December 2020, because power plants were inoperational or unwilling to generate at a time of high coal prices, and there was insufficient transmission capacity. Yet the episode is increasing pressure on the planning agencies to allow a further expansion of coal-fired capacity in the next five years. The decline in coal plant use has lessened profits for coal plant owners. In 2018, an estimated 50% of the countryʼs coal fleet faced net financial losses, pushing some Chinese power companies to bankruptcy.

Any new coal plants in China will be commissioned within an already oversaturated market, and face a shortened lifetime given the countryʼs carbon neutral goals.

 

Note this very important snippet:

The increased investment also included clean energy, and in 2020 China added up to 119 GW of wind and solar power to the grid, an all-time record and over double the amount installed in 2019 (56 GW).

China is facing the same challenges all countries are facing as we shift the grid from fossil fuels to renewables:

• More interconnectors are needed.  In Australia, where each state used to have separate grids, the construction of interconnectors to allow power to be 'lent' or 'borrowed' from neighbouring states, where the weather conditions differ, is integral to higher penetration of renewables.  In China, each province sees itself as a separate electricity market.
• As well as the physical links, market mechanisms which allow power to be sent across province/state lines need to be developed.  In addition, pricing needs to be adjusted to allow for demand management, where big users are given a price discount in exchange for the right for the grid operator to cut power supplies to them during periods of peak demand
• Storage.  Battery pack prices in China are on average already lower than in the rest of the world, and for two hours of storage are cheaper than gas peaking. 

The problem is not that China is unwilling to switch to renewables.  It is already the world's largest investor in wind and solar, and even as substantial investments in coal were made last year, so was there a big jump in investment in renewables.  The problem is that utilities in China are owned by provinces and municipalities, and because the electricity market is really still nascent, getting price signals to squeeze new coal out is ineffective.  Central diktat will remain for now the only way new coal power stations will be stopped, though China is introducing a modest carbon price to nudge the market away from coal.  It's easy to see why China only expects to peak emissions by 2030, which means that the 50% global cut to emissions we need to see by 2030 to keep the rise in global temperatures to below 1.7 degrees is prolly not going to happen.