How do China’s plans to stop building coal power abroad affect

VOX POP How do China’s plans to stop building coal power abroad affect countries reliant on coal?

CHINA

Fabian Ronningen Analyst, Rystad Energy:

China has been one of the biggest funders of coal in Asia, together with ADB and development banks in Korea and Japan. We have seen already that several of the large financiers are pivoting their investments away from fossil generation, predominantly coal, to more green investments in Asia in the last few years. Now that China also has made it clear they will not finance any new coal power plants or coal mines, that could make it harder for several Asian countries. Countries that could be affected by this are especially Vietnam, Indonesia, Pakistan, the Philippines, and Bangladesh, which all have rapidly growing power demand and still plan to add more coal power to a larger or smaller extent. How dependent they are on Chinese financing depends on the country, but it is clear that all of them will feel it in some way.

Cutting abroad financing will maybe not impact Chinese emissions and emissions targets directly, but it sends a clear message that future coal power will be difficult to finance. As for the domestic emissions in China, we have also seen several signs that China is increasing its pace of renewable investments and development, to directly displace coal in the generation mix. If we only consider power sector emissions, the target of reaching peak emissions before 2030 is definitely feasible with the current pipeline and projections we expect for China. Whether or not China will reach carbon neutrality by 2060 is an open question. Focusing on reducing the dependence on coal is definitely a step in the right direction, but how fast emissions can drop after the peak depends on how effective China is in cutting coal out of its power generation mix.

It is unclear from the current statement how the financing ban will affect projects already under construction or the planning phase. Probably most of these projects will be completed, due to contractual obligations, but projects in the early planning phase have the risk of being cancelled or finding other financiers, which may be difficult.

China’s coal plant investments

Using data from the Global Coal Public Financing Tracking website, it is stated that China financed a total of 53.1 gigawatts (GW) of foreign coal plants in the period 2013 to 2020 for a total financing cost of 50.1 BUSD. The data also shows that China represented 56% of foreign investments in coal plants in the period, so removing this financing source will create a “financing gap” for some of the countries we mentioned earlier.

Let’s assume similar Investments pr MW of coal capacity, we see that the cost is roughly 945 MUSD/GW in investment for a new coal plant (CAPEX). Let’s also assume that China would have continued to finance 56% of foreign investments in new coal power in Asia. Rystad Energy expects roughly 70GW of newbuilds in Asia the next decade (excluding China), and if China financed 56% of that they would finance 39.2GW. This translates to a total investment need of US$37b. Therefore, it can be expected that since China stops financing new coal it can leave an investment gap in the order of US$30b-40b.

If we use Indonesia as an example, Rystad Energy estimates that Indonesia has around 19GW of coal capacity in the concept phase, early planning or under construction between now and 2030. If we assume that all of that will come online, and be financed with similar financing ratios as before, that result in a financing gap of US$10b in Indonesia’s case alone.

Narsingh Chaudhary, Black &Veatch’s Executive Vice President & Managing Director, Asia Power Business. Harry Harji, Associate Vice President for Black & Veatch management consulting business in Asia:

Decarbonisation commitments, such as China’s pledge to stop building new coal-fired power projects overseas, present an opportunity to increase support for countries developing green and low carbon energy and accelerate Asia’s energy transition.

With fewer financing options available for coal developments, we anticipate more proposed coal plants will be cancelled. Consequently, countries reliant on China for coal financing will need to review their energy plans to scale up alternative power solutions including renewables.

To accommodate more renewable energy generation, the region will need more integrated solutions across generation, transmission, and distribution; as well as the expansion of gas-fired generation and energy storage, to improve grid efficiencies and stability. In the longer term, integrating hydrogen to support baseload generation could be another approach to decarbonise the electric sector.

The China Electricity Council has reported that the electricity consumption of the country reached 6,165.1 terawatt-hours from January to September this year, a year-on-year increase of 12.9%. Countries with high demand growth rates such as China will need to balance economic developments and carbon neutral commitments.

China’s renewable energy portfolio

Whilst China is still dependent on coal generation, it has also expanded its renewable energy portfolio. According to the International Renewable Energy Agency, China is the global leader in terms of wind energy deployments, installing 72GW of new capacity in 2020 alone rivalling the second largest country, the United States, which has a total capacity of about 95GW. Furthermore, with 253GW of installed solar power capacity as at end of 2020, China also has the world’s most capacity and this compares with about 151GW of solar power capacity across the European Union, according to International Energy Agency data.

However, too much intermittent renewable energy by itself can threaten reliable grid operations and performance. Given China’s continued growth in electricity needs, coal appears to remain a near-term option domestically to balance the grid; lessons from the recent grid challenges across China bear this out. Long-term, however, to meet its 2060 goals and address renewable energy variability, China will benefit from more integrated solutions across generation, transmission and distribution, like the rest of Asia, to effectively manage the energy transition and provide stable and reliable power. Gasfired generation, energy storage and in time hydrogen and potentially nuclear are likely to see an increasing share of deployment.

Independent Power Producer of the Year - Indonesia Innovative Power Technology of the Year - Indonesia PT. GH EMM Indonesia strives to maintain highest performance in supporting Indonesia’s electricity sector

The company was recognised with the Independent Power Producer of the Year and Innovative Power Technology of the Year trophies at the Asian Power Awards

Established on 11 March 2008, PT GH EMM Indonesia, a 70:30 consortium between China Shenhua Energy and PT Energi Musi Makmur, is committed to providing enough power for the national electricity company (PLN), the government and the Indonesian people.

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Simpang Belimbing coal-fired power plant

With various efforts, we continue to look for solutions so that important programmes continue to run to ensure ecosystem sustainability and national electrical energy security

The global climate change issue has become the largest challenge today. All countries in the world strive to look for cleaner and safer energies. We implement transformation towards an excellent business process in supporting the achievement of the company target through a new vision and mission, overall efficiency programme and sustainable growth. The company will further focus on fuel costs, financial costs, labour costs, and maintenance costs control as well as arrange the investment of special resources such as scientific and technological innovation, energy conservation, environmental protection, and safety technological transformation. On the other hand, our company's next development will promote the transformation of the company and gradually shift to non-fossil energy power generation. At present, it is planned to promote the trial of palm shell biomass blended combustion for power generation or generally we call it "Co-Firing”, and try to promote the transformation of coal-fired power projects to serve the needs of Indonesian society.

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