Gpea coal power overcapacity and investment bubble in china report

Coal Power Overcapacity and the Investment Bubble in China

Executive Abstract Electricity consumption growth in China has experienced dramatic changes from high to more moderate rates with the advent of the new economic normal. According to the China Electricity Council (CEC), in 2014, the annual utilization hours of power generation units was the lowest since 1978, with 4286 hrs - 235 hrs less than in 2013.

Additionally, utilization hours of thermal units was 4706 hrs - 314 hrs less than in 2013, representing even less than the previous low record of 4719 hrs in 1999. It is expected that the utilization rate will continue to decline in 2015. According to available data (up to September 2015), the national average utilization hours of thermal units is 3247 hrs, down by 7.55% compared to the same period last year.

According to existing trends, it is expected that average utilization hours of thermal units may fall below 4400 hrs in 2015.

6000

8% 6%

5000

4%

hour

4000

2% 0%

3000

-2%

2000

-4% -6%

1000

-8%

0

-10% 2011

2012

2013

operating hour

2014

2015(expected)

growth rate

Several factors may lead to this decrease in utilization. Besides the impacts of renewable energy sources and abnormal weather (cool summers and warm winters), the mismatching between capacity growth and electricity demands is of primary concern. In 2011, total electricity consumption grew by 11.97%. However, the number dropped to a mere 3.77% increase in 2014; the lowest since 1998. For the first nine months of 2015, there has been only 0.8% growth, a further reduction of 3%.

However, despite this decrease in demand, investor interest in coal power capacity remains unabated. According to CEC, total capacity will reach 1460 gigawatts (GW) in 2015, growing by 7.1%. For coal power sources, new additions will reach as high as 214 GW during the 12th Five-year-plan (FYP) period.

Lack of strategic power projections and the underestimated lead-time of I

power-source installation has led to a mismatch between capacity installation and electrical demand. Additionally, the growth of coal-power is higher than electrical demand, which mainly results from the significant economic advantages caused by low coal prices and high feed-in tariffs.

This report provides a brief analysis on the power sector during the 12th FYP period, with a particular focus on the utilization of thermal (coal power) fleets, as well as a discussion regarding market space for coal power units and the risk of excessive investment on coal power during the 13th FYP period are discussed. The methodology and the research process are shown in the Figure below.

Current State Analysis

- Power sector development under the 12th FYP period - Thermal (coal) power utilization status under the 12th FYP period

Future - Economic development Demand under the 13th Five Year Plan Outlook - Power consumption structure - Electricity consumption elasticity coefficient

Power planning

Quantifying Coal Power Over-capacity

- Electric power and energy balance - Targets for renewable energy development - Reasonable scale of coal power capacity (national, regional, key provinces)

- Reasonable proportions of capacity currently under construction - Sensitivity analysis - Investment risk

Conclusions and Policy Suggestions

The main findings are: Under the new economic normal, electricity demand has declined to more moderate rates since 2014. However, because of the delay in strategic planning and II

the lengthy lead-time of new installation, the addition of coal power units remained at a relatively high level in 2014. According to our estimate, utilization hours of thermal units will drop to 4330 hrs and the overcapacity of coal power units will range between 80-100 GW by 2015. This overcapacity risk in the coal power industry should be evaluated closely by both the government and the industry.

Under a potential 4.2% growth in annual electricity demand during the 13th FYP period, total electricity consumption could reach 6920 hrs in 2020. Constrained by the 15% non-fossil fuel-derived energy goals and a target annual operating hours of 4800 hrs, the rational capacity of coal power would be around 910 GW. Active implementation of clean power substitution could push electricity demand to the expected ceiling (4.9%) and push up the rational scale by 50 GW. A 13.4% to 14% rise in the share of the non-fossil fuel energy supply by the power sector is equivalent to replacing 22 GW coal power. Under all non-fossil scenarios, the rational capacity of coal power in 2020 would be significantly lower than the current industry forecasts of 1040-1100 GW. If all the Environment Impact Assessment (EIA) approved 160 GW coal power projects (2012-2014) were commissioned in 2020, there would be an excess of 70-120 GW coal power. With a normal schedule of old unit decommission, this excess may be manageable. However, if all the coal power projects submitted for EIA approval (283 GW until the end of September 2015) were put into operation by 2020, the excess capacity would reach 200 GW and control would be difficult to maintain. Such large-scale overcapacity could result in disastrous effects, costing as much as 700 billion CNY—an investment that is unlikely to be recovered. This overcapacity could cause utilization hours of coal power units to decrease to 3800 hrs, further deteriorating the economic performance.

Unnecessary installation of coal power fleets may also inhibit renewable energy development and deployment, leading to serious curtailment of renewable energy.

This inhibition, with the added crowding-out effect of investment interference, would actively lead to block China's strategic opportunity for transitioning to a low-carbon energy economy.

For the provinces of Shanxi, Hebei, Jiangsu and Zhejiang (except for Xinjiang), actual coal power capacity could be in an acceptable excess of 2-3 GW under a partly commissioned scenario. However, under a fully commissioned scenario, actual capacity may be substantially higher in all provinces but Zhejiang (with an excess of III

2.3 GW). Shanxi could have the largest excess (21 GW), followed by Xinjiang (15.5 GW) and Jiangsu (10 GW).

Going forward, future policy must be strategic in order to address these concerns with the coal power industry. Of top priority is consistent and coordinated power planning. Overall, power planning with seamless coordination between unit planning and grid expansion is vital. Ideally, this coordination will occur on both national and local levels and should be aimed at integrating multiple sources of power generation.

The ministry in charge of energy affairs (National Energy Administration, NEA and National Development and Reform Commission, NDRC) should function as the primary governing body charged with regulation and information dissemination.

Power planning during the 13th FYP should be released in a structured and timely fashion in order to guide market investment with adequate and transparent information. An early warning mechanism on coal power investment should also be established. It is strongly recommended that the competent authorities regularly publish electricity market prospective reports, update electricity demand outlooks regularly, and provide early warning on potential coal power overcapacity risk when detected.

IV

Contents Executive Abstract ........................................................................................................................... I 1. China’s power sector during the 12th FYP period ......................................................................... 1 1.1 Electricity consumption....................................................................................................... 1 1.2 Power generation capacity .................................................................................................. 2 1.2.1 Overall analysis ......................................................................................................... 2 1.2.2 The growth of coal power ........................................................................................ 4 1.2.3 The growth of other power sources......................................................................... 5 1.3 Trans-regional power delivery ............................................................................................. 6 1.3.1 Trans-regional transmission development during the 12th FYP period .................... 6 1.3.2 Trans-regional power and energy exchange during the 12th FYP period ................. 8 1.3.3 Outlook of trans-regional delivery in the 13th FYP period ...................................... 10 2. The operation status of thermal power during the 12th FYP period ............................................ 10 2.1 Overall analysis.................................................................................................................. 10 2.2. Regional analysis .............................................................................................................. 12 2.3 Case analysis of typical provinces ..................................................................................... 13 2.4 Impact factors of low utilization rate ................................................................................ 13 2.5Factors contributing to high coal power investment ......................................................... 14 3. Newly EIA approved coal power projects .................................................................................. 15 3.1 Overall analysis.................................................................................................................. 15 3.2Regional analysis ................................................................................................................ 16 3.3 Typical provinces ............................................................................................................... 18 4. Electricity demand outlook and low-carbon development targets during the 13th FYP period ... 18 4.1 Electricity demand outlook ............................................................................................... 18 4.1.1 Structural factors affecting electricity demand ...................................................... 19 4.1.2 Electricity demand projection ................................................................................ 20 4.2 The goal of non-fossil primary energy share and low-carbon electricity .......................... 20 4.2.1 Power sector’s contribution to the 15% target ...................................................... 21 4.2.2 Officially declared clean energy development target by 2020............................... 22 5. Coal power investment bubble during the 13th FYP period ........................................................ 22 5.1 Coal power development space during the 13th FYP period ............................................. 23 5.2 Sensitivity analysis of coal power development space ..................................................... 25 5.3 Quantification of Coal Investment Bubble during the 13th FYP period ............................. 26 5.3.1 National level analysis ............................................................................................ 27 5.3.2 Regional Analysis .................................................................................................... 29 5.3.3 Typical provinces .................................................................................................... 30 6. Conclusion .................................................................................................................................. 32 6.1 Research conclusions ........................................................................................................ 32 6.2 Policy recommendations ................................................................................................... 33 AppendixⅠ: Transmission capacity of 27 UHV lines .................................................................... 35 Appendix Ⅱ: New EIA approved coal power projects from 2012 to 2015 ................................... 38

1. China’s power sector during the 12th FYP period 1.1 Electricity consumption During the 12th FYP period (2011-2015), electricity consumption growth in China has experienced radical adjustment from high to more moderate rates with the advent of the new economic normal. According to CEC, total electricity consumption grew by 11.97%

[1]

in

2011. However, this growth dropped to a mere 3.77% in 2014, representing the lowest recorded since 1998

[2]

.The electricity demand has continued to decline during 2015.

According to NEA, the growth seen from January to September 2015, comparing same period last year, has been only 0.8%, an additional reduction of 3% information, growth in demand is not likely to exceed 2%

[4]

[3]

. According to existing

in 2015. Information on

electricity consumption and its growth during the 12th FYP period is shown in Figure1-1: 5800

5634 5523

5600

11.97%

12%

5342

5400

10%

TWh

5200 5000

14%

4966 4703

8%

7.58%

6%

5.60%

4800

4%

3.77%

4600

2.00% 2%

4400 4200

0% 2011

2012

2013

Electricity consumption

2014

2015（expected）

Electricity demand growth

Figure1- 1 Electricity consumption in the 12th FYP period Reference: [1, 2, 5, 6].

On a regional grid level, electricity demand in six regional grids has been declining in the 12th FYP period, which is consistent with the national trend. The downward amplitude in the Northwest grid is particularly notable.

1

22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2011 North China Northeast

2012

2013

2014 Central China Southern

East China Northwest

Figure1- 2 Regional electricity demand growth in the 12th FYP period Reference: [1, 2, 5, 6].

In this report, five provinces were selected for a case study at the provincial level, including two coal power base provinces (Shanxi and Xinjiang), two load center provinces (Jiangsu and Zhejiang), and one province saturated with heavy industry and plagued with serious air pollution (Hebei). During the 12th FYP period, electricity demand dropped by 9% in Zhejiang, Jiangsu and Hebei. Meanwhile, the growth in power export provinces like Shanxi and Xinjiang fell from high rates (more than 25% for Xinjiang and 13% for Shanxi in 2011) to negative growth in 2014(Figure 1-3): 40% 35% 30% 25% 20% 15% 10% 5% 0% 2011

2012

2013

2014

-5% Hebei

Shanxi

Zhejiang

Jiangsu

Xinjiang

Figure1- 3 Electricity demand growth in typical provinces in the 12th FYP period Reference: [1, 2, 5, 6].

1.2 Power generation capacity 1.2.1 Overall analysis 2

During the 12th FYP period, new additions to the power sector kept capacity at a high level. The total generation capacity was 1063 GW

[1]

in 2011, increasing to 1360 GW

[2]

by

2014. According to data until the end of September 2015, the new additions reached capacities as high as 74290 megawatts (MW) in 2015, growing by 21790 MW compared to the same period last year. In particular, the new addition of thermal units was 39550 MW—13750 MW [3] more compared with the same period last year. According to CEC, total capacity will reach 1460 GW at the end of 2015, growing by 7.1%, and non-fossil energy power capacity will account for approximately 35% [2]. There will be 320 GW of hydropower, 28.64 GW of nuclear power, 110 GW of grid-connected wind power, 36.5 GW of grid-connected solar power and 11 GW of biomass

[2]

. Investment in the power generation

sector has maintained high growth since 2014, coexisting with the low growth of electricity demand. This mismatch, caused by the planning lag and lead-time issues, requires strategically structured adjustments in order to avoid long-term negative impact, which is the core concern of this report.

1600

1458.97

1200

1257.68 1146.75 1062.36

1000 GW

1362.21

9.95%

1400

12% 10%

9.67% 8.31%

8% 7.10%

7.94%

800

6%

600

4%

400 2%

200 0

0% 2011

2012

2013

Total capacity

2014

2015(expected

Growth rate

Figure1- 4 The growth of total generation capacity in the 12th FYP period Reference: [1, 2, 5, 6].

3

100%

40%

90% 80% 70%

34.45%

32.86% 30.05% 5.31%

28.98% 5.09%

36.28%

35% 30%

5.91%

6.61%

60%

6.89%

25%

50%

20%

40%

15%

30%

10%

20% 10%

5% 67.23%

66.17%

2011

2012

63.27%

60.93%

59.49%

0%

0% Coal

2013 Other thermal

Nuclear

Wind

2014

2015ďźˆexpected Hydro Solar and others

Non-fossil

Figure1- 5 Generation capacity mix of China in the 12th FYP period Reference: [1, 2, 5, 6].

During the 12th FYP period, renewable energy has developed rapidly, and installed capacity and power generation continue to increase steadily. By comparing the new capacity additions from 2015 with the amount added in 2011, the share of coal power has declined while the share of renewable energy has increased year by year.

Figure1- 6 The structure of newly-added generation capacity in 2011(left) and 2015(right) Reference: [1, 2].

1.2.2 The growth of coal power During the 12th FYP period, coal power capacity increased dramatically from 710 GW [1] in 2011 to 830 GW

[2]

by the end of 2014. Although the growth trend is slowing down, the

rate of coal power capacity was still relatively high (4.3%) in 2014 despite renewable energy deployment[2]. This amount was higher than the growth of electricity consumption. Notably, the new addition of coal power dropped from 59.95 GW

[1]

in 2011 to 34.22 GW

According to CEC, the new addition of coal power is expected to be 38 GW 4

[2]

[2]

in 2014.

at the end of

2015 and the annual new addition of coal power is nearly 43 GW [1, 2, 3, 4] during 2011-2015.

1000

9%

900

8%

7.77%

800

7%

6.25%

700

6%

GW

600 4.87%

500

4.58%

4.30%

5% 4%

400

3%

300 200

2%

100

1%

0

0% 2011

2012

2013

2014

Coal power

2015(expected

Growth rate

Figure1- 7 The growth of coal power in the 12th FYP period Reference: [1, 2, 5, 6].

1.2.3 The growth of other power sources During the 12th FYP period, other sources of power also maintained rapid growth. While the growth of hydropower remained relatively stable, the growth of wind power stabilized at 25.2%

[2]

in 2014 after a substantial increase of 56.3%

[1]

in 2011. The grid-connected wind

power capacity was 95.81 GW at the end of 2014, and the scale in Inner Mongolia and Gansu reached 20.7 GW and 10.08 GW

[2]

, respectively. The growth of nuclear power recovered in

2014 after the freezing point in 2012 due to the impact of Fukushima nuclear accident. Solar power capacity was further developed and grid-connected solar power capacity reached 26.52 GW at the end of 2014, growing by 67% [2], with the majority being from photovoltaics (PV).

For 2011 and 2013, the growth of PV capacity reached as high as 864%

[1]

and 342%

[6]

,

respectively. Wind power has entered the stage of large-scale commercialization, while solar power is rapidly moving towards it. Clean and non-fossil fuel power is developing rapidly to achieve the goal of 15% non-fossil fuel[7] in primary energy supply by 2020. Ambitious targets of 20% non-fossil primary energy and greenhouse gases (GHG) that peak by 2030 have been proposed in China’s Intended Nationally Determined Contributions, (INDCs) submitted to the United Nations recently

[8]

. Because of the inevitable trend towards a

low-carbon transition of the energy and power system, it is of vital importance to discuss the prospects of coal power in China.

5

60% 56.31% 50% 44.06% 40% 35.62%

32.86%

30%

25.21%

24.57% 20% 16.62% 12.41%

16.13% 10%

7.83%

14.81%

7.08%

0%

6.97%

5.45%

0.00% 2011

2012

2013

Hydro

Nuclear

2014

2015ďźˆexpected

Wind

Figure1- 8 The capacity growth of major clean generation technologies in the 12th FYP period Reference: [1, 2, 5, 6].

1.3 Trans-regional power delivery 1.3.1 Trans-regional transmission development during the 12th FYP period The spatial distribution of power resources and power loads makes trans-regional delivery a challenging and inevitable choice for China. Overall, power load centers are concentrated in East China, North China, South China, and part of Central China. However, power resources are most concentrated in Northwest China. With the construction of a long-distance transmission network, abundant power resources in the Northwest can be transferred to these load center regions.

Limited by research purpose and report length, this report mainly focuses on the trans-regional ultra high-voltage (UHV) transmission network. According to publicly available statistical data, there are nearly thirty UHV routes in operation or under construction (Figure 1-9). Among them, the number of direct current (DC) lines accounts for about two-thirds, with transmission capacity at about 147 GW, and the rest are alternating current (AC) lines with about 62.2 GW transmission capacity. (Refer to Appendix I for detailed project information.)

6

he a Gr st id Po we r

rt No No

rt

hw

es

t

Po

we

r

North China Power Grid

Gr

id

East China Power Grid

Central China Power Grid Âą800kV DC

Sout

Âą1000kV DC

hern Po Grid wer

1000kV AC

Figure1- 9 Prospect of UHV transmission network in China

Reference: [35-61].

East China contains a dense network of AC UHV transmission lines, accounting for 68% of total AC transmission capacity, with 32.8 GW delivery capacity inside the region and 9.4 GW delivery capacity from other regions (table 1-1). There are 4 AC UHV transmission lines in North China, mainly for internal delivery, and partly for delivery to East and Central China.

Table 1-1 trans-regional UHV power transport capacity Unit: GW Export Import North

East

Central

Northern

East

Central

Northeast

Northwest

South

Total

AC

15

15

DC

10

10

AC

9.4

DC

18

AC

5

32.8

42.2 22.2

30

70.2 5

DC

10

42.06

52.06

AC South

DC

Total

57.40

32.8

32.2

Reference: [35-61].

7

0

72.06

15

15

15

209.46

The Northwest grid is a primary DC UHV export region with 8 transmission lines delivering electric power to East China and Central China and accounting for about 50% of DC UHV trans-regional transmission capacity. East China is the main DC UHV import region, with 8 input lines receiving electricity from Northwest, North and Central China, accounting for 48% of DC UHV trans-regional transmission capacity (table 1-1).

1.3.2 Trans-regional power and energy exchange during the 12th FYP period

Northeast Power Grid

North China Power Grid

Northwest Power Grid

Central China Power Grid

0-300 300-400 400-550 550-700 700+

East China Power Grid

Southern Power Grid

Figure1-10 Trans-regional power exchange in China

Among the six regional power grids, the Northwest and Northeast power grids are usually exporters of power and energy, while the North China, East China and Central China grids are generally importers, with the South power grid playing an important role in exchanging power with the Central China grid (Figure 1-10).

In 2011, the trans-regional power delivery experienced significant growth. However, there was a big decline in 2012, largely because of enhanced power supply capacity in load center regions and slowing electricity demand. In 2013 there was very little growth of trans-regional power delivery (Figure 1-11).

8

160 140 120 GW

100 80 60 40 20 0 2010

2011

2012

2013

regional power exchange Figure1-11 Trans-regional power exchange in China, 2010-2013

Reference: [1, 5, 6].

300

25% 20%

21%

250

20%

TWh

200 13%

13%

15%

150 10% 100 5%

50 0

0% 2010

2011

2012

Regional transport power

2013

2014

Growth rate

Figure1-12 Trans-regional electricity exchange in China, 2010-2014

Reference:

[1, 2, 5, 6]

.

Trans-regional energy exchange has been increasing each year in 2011-2014. By the end of 2014, the amount of trans-regional electricity delivery had reached 274.1 TWh, increasing by 13% as of 2013 scale and nearly doubling the 2010 scale

[2]

. In addition, we can see that

trans-regional electricity delivery increased rapidly in the first three years of 12 th FYP period.

However, the growth rate has been falling since 2014. According to available data, trans-regional electricity delivery reached 230.3 TWh from January to September in 2015, a growth of only 1.0%

[3]

. Based on these trends, we expect the rate of trans-regional energy

delivery will drop significantly in 2015.

9

1.3.3 Outlook of trans-regional delivery in the 13th FYP period With the commission of more UHV power transmission projects; there will be a total of 27 UHV lines in operation by 2020, including 18 DC transmission lines and 9 AC transmission lines (See Appendix â… ). From a regional perspective, the trans-regional transmission capacity of Northwest grid will reach 72 GW, among which Xinjiang will hold a substantial share (48 GW), including 3 AC and 5 DC lines for export. The power exchange capacity of North China will reach about 60 GW, among which 35 GW is for trans-regional delivery. The electricity exchange capacity of Central China will be about 32 GW, 22 GW of which is used for trans-regional transmission. East China and South China grids will mainly improve the capacity of internal power exchange, without significant trans-regional export.

Among the case study provinces, Shanxi and Xinjiang are considered as the power export provinces, while Hebei, Jiangsu and Zhejiang are power import provinces. It is estimated that trans-regional power transmission capacity in Shanxi will reach 13 GW by 2020, and the maximal trans-regional power transmission capacity of Xinjiang could reach 46 GW. According to the estimate, the national trans-regional electricity delivery is expected to be about 520 TWh in 2020, nearly doubling the 2014 scale.

2. The operation status of thermal power during the 12th FYP period 2.1 Overall analysis Figure 2-1 shows the statistics on operating hours of thermal power during 2011-2014. A general downward trend can be seen. In the first nine months of 2015, the average operating hours of thermal power is 3247hrs, a reduction of 7.55% compared to the same period in 2014 [3]

. Assuming 8% reduction of the entire year, the number of annual thermal power operating

hours in 2015 may be 4330 hrs. Based upon a reasonable annual utilization of 4900 hrs, in 2015 roughly 80-100 GW of overcapacity in coal power is expected.

10

8%

5305 5.40%

6% 4982

5012

4% 4706

2%

0.60%

0% 4330

-2% -4%

-6.10%

growth rate

operating hour

5500 5300 5100 4900 4700 4500 4300 4100 3900 3700 3500

-6%

-6.10%

-8.00%-8% 2011

-10% 2015ďźˆexpected

2013 operating hour

growth rate

Figure 2-1 Change of thermal power operating hour during the 12th FYP period Reference: [1, 2, 5, 6].

Ever since the 11th FYP period, the operating hours of thermal units in China has shown a distinct downturn. The number of hours has gradually fallen from as high as 5800hrs [9] in 2005 to a reasonable range of 5000-5200hrs in 2010 and 2011(Figure 2-2), when power shortages was no longer a concern in China. With the exception of an increase of 30hrs in 2013, the number of hours dropped significantly during the 12th FYP period and the rate of decline is increasing. It is estimated that operating hours of thermal power will fall by

operating hour (hour)

approximately 18.38% during the 12th FYP period, with annual decline by 3.98%.

6000 5800 5600 5400 5200 5000 4800 4600 4400 4200 4000 3800 3600 3400 3200 3000

8% 6% 4% 2% 0% -2% -4% -6% -8% -10%

Thermal power

Coal power

growth rate of thermal power

growth rate of Coal power

Figure 2-2 Change of operating hour of thermal power during 2005-2015 Reference:

[9-11]

.

Since there is no publicly available data on the operation hours of coal power in China, 11

our estimate of national average coal power operating hours since 2009 is based on fuel mix data from thermal power use as well as empirical values of annual operations of other thermal units. Generally speaking, during the same year, the operation hours gap between coal power and thermal power is small, with just about 100 hrs more in coal units than thermal units. Our estimate also reveals a similar trend. Hence, due to issues with data availability, our analysis uses thermal power data to approximate coal power statistics.

hours

2.2. Regional analysis 5500 5300 5100 4900 4700 4500 4300 4100 3900 3700 3500 2011

2012

2013

2014

North China

East China

Central China

Northeast

Nothwest

South China

Figure2-3 Thermal power operating hour in six regional power grids, 2011-2014 Reference: [9-11].

Figure 2-3 reports the operating hours of thermal units in China’s six regional grids during 2011-2014. Regional patterns are consistent with the national trends, with the exception of a slight increase in 2013. In 2011, supply and demand was balanced in South China grid, Central China grid, Northwest grid, and North China grid, and thermal operating hours were about 5000 hrs

[1]

in these regional grids. There was power shortage in the East

China grid, and the operating hours of thermal units was about 5400 hrs

[1]

there. However,

due to weak increases in demand in the Northeast grid, there was an excess of power supply; thermal power operating hours was as low as 4300 hrs [1]. In 2013, under the direction of the regional industrial development and the enhancement of trans-regional UHV transmission lines, thermal operating hours in the Northwest grid was up to 5500 hrs [6], largely pushing up the power industry and local governments’ expectations on future expansion of coal power capacity. Surplus continued in the Northeast grid and thermal operating hours declined to around 4000 hrs

[6]

. In 2014, except for the Northeast grid, thermal power operating hours in

other regional power grids continued to decline. In the East China grid the number fell by 530 12

hrs, largely due to the decrease in demand and electricity import

[2]

. In the South China grid,

thermal power operating hour fell by 645 hrs due to lack of demand as well as strong hydropower development [2]. With sluggish demand increases in 2015, it is expected that thermal power operating hours are likely to decrease even more sharply than in past years..

2.3 Case analysis of typical provinces Figure 2-4 reports the situations of thermal operation in typical provinces during the 12th FYP period. The numbers in 2015 are estimated based on the data for the first half year.

operating hour

5900

5400

5979 5785 5752 5686

5767 5734 5621

5284

5268

5690 5649 5527 5296 5147

5046

5248 5240 5231 5105 4903 4745

4938

4900

4522

4400

4175 4007

3900 2011 Zhejiang

2012

2013

Jiangsu

Xinjiang

2014 Shanxi

2015ďźˆE Hebei

Figure 2-4 Thermal operating hour in case provinces during the 12th FYP period Reference: [9-11].

Annual operation hours of thermal units in the five case study provinces consistently declined over this period. In 2014, operating hours of thermal units in Hebei, Jiangsu and Xinjiang were still higher than 5000 hrs [10]. However, in 2015, the number in the rest may be less than 5000 hrs (with the exception of Jiangsu). The operating hours of thermal units in Zhejiang was less than 5000 hrs in 2014, while in 2015 the number will likely be as low as 4000 hrs. In 2015, for Shanxi, a major coal power province, the thermal unit’s operating hours are expected to be less than 4200 hrs.

2.4 Factors Impacting low utilization rate The factors contributing to low utilization rate of thermal (coal) power are as follows.

(1) The most important factor is the mismatch between coal power capacity installation and power demand. With the institution of the new economic normal, electricity demand is also losing its momentum. In 2014, total electricity consumption grew by only 3.8%

[14]

,

roughly half of the growth rate in 2013. But in the same year, generation capacity increased 13

by 8.31%. For the first nine months of 2015, electricity consumption increased by only 0.8% comparing same period last year, while generation capacity increased by 9.4% [3]. Because of this large mismatch, electricity generation in these units decreased by 2.2%

[3]

. For thermal

units, the operating hours went down by 265 hrs, 83 hrs more than the decline over the same period in 2014.

(2) Because of the transition to renewable energy, coal power will continue to serve as an increasingly ancillary service

[12]

. Gas power, which is the best candidate for providing

peak loads and system flexibility, is underdeveloped in China. Hence in China, mainly coal power units and partly adjustable hydropower units serve as mechanisms for peak load regulation. With the integration of more renewable energy sources, the operation hours of coal power will certainly decrease. It is, therefore, likely that gas power and pumped storage hydropower may not be able to provide enough system flexibility. This could, in turn, cause the operation hours of coal power to continue to decline.

(3) Abnormal warm winters and cool summers in recent years led to a decline in electricity demand. For example, in July 2015, due to the impact of El Nino effect, continuous precipitation in the middle and lower reaches of Yangtze River resulted in an abnormally cool summer. On the other hand, a warmer winter occurred in 2014 and is expected to happen again in 2015

[13]

. The declined power load for cooling in summer and for heating in winter

reduces the overall operating hours of generating units.

2.5 Factors contributing to high coal power investment China's energy resource endowment and the cost advantage of coal power generation led to a coal-dominated energy mix of power generation infrastructure that has persisted, despite the dramatic increases in renewable energy deployment. Local governments in regions with abundant coal resources and power generation enterprises have always had abundant interest in investing in coal power projects. These investment interests are because of the following factors: (1) Low coal price while high on-grid wholesale tariff encourages generators’ investment enthusiasm. In recent years, coal price has dropped down continuously and lowered the cost of coal power generation. Although NDRC has debased the benchmark tariffs of coal power, the price reduction is less than actual cost reduction. Though fewer utilization hours cut generators’ revenues, low coal prices enable generators to take advantage of generous profits [15]

. Additionally, the current model involves local government’s participation in the planning

of generation units’ annual operating hours. This, in turn, also adds to generators’ stable 14

return expectations.

(2) The provincial governments have been delegated with the rights of approving thermal power projects under their jurisdiction. This, to a certain extent, indulges the investments interests and desires of local governments. In addition, the economic downturn pressure further fosters local governments’ preference for capital-intensive projects such as coal power. Data shows that, in the first half of 2015, there was a total of 23.43 GW new additions in coal power capacity, a 55% increase compared to the same period in last year.

According to media reports, though not yet confirmed by the government, the scale of newly approved thermal power projects was as high as 200 GW in the first half of 2015 [16].

(3) These substantial economic advantages compared with renewable energy empower coal power with a huge market opportunity in China. At present, the cost of renewable energy is still high, while coal power remains relatively inexpensive. Although the production costs of onshore wind power and utility-scale PV in some areas have been close to that of coal power, the prices of offshore wind power and Concentrating Solar Power (CSP) are much more expensive. Hence, in all, coal power projects are more lucrative and have more stable profit expectation than renewable energy. Therefore, to realize the low carbon power sector transition in China, it is very important to eliminate institutional barriers that hinder the development of renewable energy.

3. Newly EIA approved coal power projects 3.1 Overall analysis

10 30

160

123 83

approved, 2012-2014

applied, 2015

pre-approved, 2015

approved, 2015

Figure 3-1 Statistics on EIA approved coal power projects, 2012-2015 15

Reference: [17].

The project team adopts this database from Greenpeace

[17]

, which operates under

construction coal power projects from EIA applications and approval by the national and local environmental protection departments. According to the database, from 2012 to September of 2015, a total of 283 GW1 coal power projects have been submitted for EIA approval, among which the approved projects in 2012-2014 are 160 GW2. In this report, the projects approved before 2015 are regarded as under construction, accounting for 56.6% of new coal power projects and the other 123 GW projects are new applications or newly EIA-approved in 2015, accounting for 43.4%3

[17]

. (See Appendixâ…Ą)

3.2Regional analysis From the regional perspective, the Northwest grid takes the leading position in coal power development. On the one hand, the western provinces are China's coal power bases, while in some eastern regions new coal power projects have been strictly limited. On the other hand, western regions are also wind power and solar energy bases in China. Due to the intermittence of renewable energy, the current developmental model involves bundling renewable and coal power together for export into load center regions. To some extent, renewable energy has accelerated the development of coal power in some western provinces.

In addition, there are a large number of new coal power projects in the North China Grid. The projects in Northwest and North China Grids account for about 50% of the national total.

1. This data is different from the statistics released by China Electricity Council (CEC). According to a CEC report on power sector’s operation status from January to September in 2015, the total scale of power generation projects is 177GW, among which thermal power is 78GW. There is a possibility that some approved projects ceased construction, and some commissioned projects did not receive environmental protection certificate are included in the under construction projects.

2. According to Greenpeace, there are another 4510MW coal power projects under construction but without receiving government approval.

3. Coal power projects approved during 2012-2014 refer to projects approved by Ministry of environmental protection, not including CHP projects approved by local environmental protection departments. 2015 Projects include those new ones until the end of September 2015 (By Ministry of environmental protection from January to March 2015 and by local environmental protection departments from April to September 2015).

16

GW

80 70 60 50 40 30 20 10 0 Northwest North China approved, 2012-2014

Central China

approved, 2015

East China

South

pre-approved, 2015

Northeast applied, 2015

Figure 3-2 Statistics on EIA approval of new coal power projects in six regional power grids Reference: [17].

4.3% 15.2%

23.9%

16.0% 23.0% 17.5%

Northwest

North China

Central China

East China

South

Northeast

Figure 3-3 Regional distribution of approved coal power projects Reference: [17].

Inside the regional grid, the new coal projects in the Northwest Power Grid are mainly located in Xinjiang and Shaanxi, those in Southern China Power Grid are mainly located in Guangdong and Guizhou, North China power grid mainly in Inner Mongolia, Shandong and Shanxi, while East China grid mainly in Anhui. The scale of new coal power projects in each of the above provinces is more than 14 GW, while in Guangdong and Shanxi the scale is more than 20 GW, especially in Xinjiang it is more than 30 GW [17] (See Appendixâ…Ą). These provinces can be easily divided into two categories: one is rich in coal resources, such as Xinjiang, Shanxi, etc., the other is a load center or close to load center with high demand growth expectation, such as Guangdong, Anhui, etc. There are much fewer new projects in 17

Central China due to a shortage of coal resources and few in the Northeast due to weak demand.

3.3 Case study provinces In the five case provinces, new coal power projects are mostly concentrated in western regions rich in coal resources, among which 34.23 GW and 27.01 GW [17] projects are located in Xinjiang and Shanxi, respectively.

40 35 30

GW

25 20 15 10 5 0 Xinjiang approved, 2012-2014

Shanxi

Jiangsu

approved, 2015

Hebei

pre-approved, 2015

Zhejiang applied, 2015

Figure 3-4 Statistics on EIA approval new coal power projects in case provinces Reference: [17].

4. Electricity demand outlook and low-carbon development targets during the 13th FYP period 4.1 Electricity demand outlook

18

100%

1.6 1.4

80%

1.36

1.2 1.0

60% 1.00

0.8

0.88 40%

0.6 0.4

20%

13.24%

11.21%

10th FYP

11th FYP

0.2

7.09%

0%

0.0 household

12th FYP (by 2014) tertiary industry

secondary industry

primary industry

power demand growth rate

electricity consumption elastic coefficient

Figure4- 1 Electricity demand growth in China, 2000-2014

Reference:

[1, 2, 5, 6]

.

Since 2000, total electricity consumption has grown dramatically. By the end of 2014, total consumption reached 5220 TWh

[2]

, fourfold compared with 1330 TWh

[6]

in 2000. As

th

indicated in Figure 4-1, the growth rate has gradually slowed down from the 10 FYP to the 12th FYP, and the electricity consumption elastic coefficient has gradually reduced from 1.36 to 0.88

[6]

. From the perspective of structural change, the share of primary industry

consumption fell; the share of secondary industry reached a peak of 75.25% in the 11th FYP period and then gradually declined to 74.02%

[1-6]

in the 12th FYP period, while the shares of

tertiary industry and household consumption went up.

4.1.1 Structural factors affecting electricity demand Electricity demand during the 13th FYP period will likely be affected by many factors.

First, economic growth rates have switched from two-digit rapid growth rates in recent decades to the new economic normal, which highlights restructuring, growth quality and sustainability. A strong linkage has been demonstrated between electricity demand and economic development. Hence, electricity demand will also likely slow to more moderate speeds.

Second, in terms of industrial electricity consumption patterns, there will likely be little change in the growth of primary industry and the share of primary industry in total industrial electricity usage is generally small. Therefore, the impact of primary industry on total 19

electricity demand can be ignored. The traditional electricity-intensive sectors in the secondary industry have been saturated in their market demand. Together with the requirements for improving energy efficiency, electricity demand in these sectors will slow down and even decrease. The strategic emerging industries will contribute most of the electricity demand growth in the secondary industries. But, the electricity consumption intensity of strategic emerging industries is much lower compared with traditional electricity-intensive sectors. Meanwhile, the transformation of economic development toward tertiary industry will also be accelerated in the future. Therefore, electricity demand growth in secondary industry will likely decrease. Thus, tertiary industry will be the main force of electricity demand growth. With the emerging of new service sectors, the popularization of office automation and the electrification of the transportation sector (especially the development of electric vehicles), tertiary industry will maintain strong growth in electricity demand in the future [18].

Finally, regarding household electricity consumption, the increase in developed cities like Beijing, Shanghai and Guangzhou will also likely slow and most future growth in demand will come from the central and western regions. Besides, with the improvement of living standards and rural infrastructure, household consumption will also play a strong supporting role in electricity consumption growth for a long time [19].

4.1.2 Electricity demand projection In this report, a consumption elastic coefficient is employed to project the growth of electricity consumption during 2016-2020. As indicated in Figure 4-1, the elastic coefficient of electricity consumption is continuously descending in China, which is consistent with the experiences of other developed economies. In order to achieve the requirement of a well-off society by 2020, which was proposed in the 18th CPC National Congress, the bottom line of annual economic growth is 6.5% FYP is around 7%

[21-22]

[20]

. Consensus on the prospective GDP growth during 13th

.

Based upon our analysis, we assume that electricity consumption elastic coefficient will stay around 0.5-0.7 during 2016-2020 and thus use 0.6

[19]

in our recommended scenario.

Accordingly, we estimate that annual electricity demand growth will stay around 3.5%-4.9% during the 13th FYP period and employ 4.2% as the recommended scenario.

4.2 The goal of non-fossil primary energy shares and low-carbon electricity

20

After 2013, capping primary energy consumption and excessive growth of coal consumption in particular, and accelerating the development of non-fossil energy have become the tone of national energy policy in China.

4.2.1 Power sector’s contribution to the 15% target The National Plan on Climate Change (2014-2020) by NDRC clearly requires the power sector to reach 15% non-fossil primary energy target and to cap primary energy consumption at about 4800 Mtce [7] by 2020. For the power sector, it is imperative to optimize the mix of power generation. On one hand, it is important to cap coal use for power generation and realize clean coal utilization. On the other hand, it is of vital importance to accelerate clean energy deployment, especially wind and solar energy

[23]

. Relevant national policy guidance

is as follows: Develop clean and efficient coal power: Raise the proportion of coal efficiently used for power generation; enhance the emissions standards of new coal units. The heat rate of newly built coal-fired power generating units should be less than 300 grams of standard coal/KWh while the pollutant emissions standard should be close to that of gas power [24].

Develop gas power: In Beijing-Tianjin-Hebei, Yangtze River delta, Pearl River delta, and other key atmospheric pollution prevention and control areas, develop utility-scale simple cycle gas power units orderly. Combined Cycle Gas Turbine (CCGT) Combined Heat and Power (CHP) units and distributed gas units should also be deployed according to heating load situations in these regions.

Develop nuclear power with safety as the top priority: Initiate new nuclear power projects timely in coastal regions while taking strictest safety standards. Also conduct research on the feasibility of building inland nuclear power projects. Combining technology import and independent innovation, breakthrough should be realized in key technologies including AP1000, CAP1400, HTGR, faster reactor and nuclear fuel reprocessing technology [25]

.

Vigorously develop renewable energy: Attach equal importance to large-scale

development and distributed integration, and speed up the development of renewable energy [26]

.

Advance

the

construction

of

large

hydropower

bases

actively.

Develop

medium-and-small size hydropower stations according to local conditions. Implement the planning and construction of pumped storage power stations and strengthen the comprehensive utilization of water resources. Plan and build nine large wind power bases and 21

the supporting power grids projects. Vigorously develop distributed wind power in south and east China. Develop offshore wind power steadily. Advance the construction of PV power bases and synchronize transmission channels construction with local integration. Speed up the demonstration of distributed photovoltaic application. Deploy demonstration projects of solar thermal power generation and enhance grid-integration service for solar power generation [25].

4.2.2 Officially declared clean energy development target by 2020 According to related policy documents, the state has already made clear targets on clean power development: Active and orderly development of hydropower: By 2020, the conventional hydropower capacity will reach 350 GW and annual generation will reach 1200 TWh [7]. Plan and construct pumped storage power stations with scientific verification.

Safe and efficient development of nuclear power: By 2020, installed nuclear power capacity will reach 58 GW, while the capacity under construction will reach more than 30 GW [25].

Rapid development of wind power: Speed up the construction of large-scale wind power bases, build small-and-medium-sized projects and offshore projects according to local conditions, and strengthen the construction of grid integration projects. By 2020, grid connected wind power capacity will reach 200 GW, and wind power be competitive with coal power in term of generation cost [25].

Acceleration of solar power: Develop centralized large-scale and distributed PV projects simultaneously. Encourage the construction of distributed PV power generation in large-scale public buildings, public facilities, industrial parks, etc. By 2020, installed PV capacity will reach 100GW, and the price of PV generation should be equivalent with electricity retail price [25].

Active development of geothermal, biomass and Ocean energy: Adhere to the policy of overall planning, localization and diversified development. Actively promote the efficient use of geothermal energy, biomass and ocean energy. By 2020, the supply of geothermal energy will reach 50Mtce [25].

5. Coal power investment bubble during the 13th FYP period Based on the preceding forecast on electricity demand, as well as analysis on the officially declared clean energy development targets, we can now quantify the development space of coal power.

22

5.1 Coal power development space during the 13th FYP period

Status analysis of power sector Electricity consumption elastic coefficient

Economic development outlook

Electricity

Demand National Regional

Provinces

Renewable power planning

Electric power exchange

Balanced coal power capacity

Figure5- 1 Logical framework of power planning

According to preceding analysis, the growth rate of total electricity demand would be no higher than 2% in 2015 and about 4.2% during the 13th FYP period. By 2020, total electricity consumption would reach around 6920 TWh. The development potential of coal power is quantitatively analyzed under a demand scenario and with full consideration of clean energy targets. Considering the integration of more renewable energy, we assume that the normal utilization of coal power will be reduced to 4800 hrs4. Meanwhile, for our analysis, we assume that all the other types of generation units remain at normal utilization. In this report, the rational capacity of coal power is quantified based on the officially declared clean energy and renewable power development targets by using a power planning model

[27-28]

. Without

detailed load characteristic data, only electric power and energy balance is considered in estimating coal power capacity. Hence, the quantitative results inevitably suffer from some 4 4. There was still a shortage of electricity in some parts of China in 2011. However, the shortage didn’t happen in 2012 and 2013 when annual utilization hour of thermal units was about 5000hrs. Hence, we regard 5000hrs as rational utilization hour of coal power at this stage. With substantial increase in wind power and PV capacity, the utilization hour of coal power will drop due to assuming more flexibility service function. Since the planning also requires stronger development of flexible power sources like pumped-storage and gas power, we only assume a slight decline in the rational utilization hour of coal power.

23

estimate errors. Quantitative analysis (Table 5-1) shows that, during the 13th FYP period, China’s balanced coal power capacity would be 910 GW, approximately 42GW of additional capacity on the basis of estimated CFPP capacity by the end of 2015.

In a report released in March 2015 by CEC, the expected electricity demand is 7700 TWh, the total installed capacity is 1960 GW and the coal power capacity is 1100GW

[2]

While the forecasts conducted by Wu Jingru are 7400 TWh, 2000 GW and 1040 GW

[29]

. ,

respectively. Our estimated coal power capacity is significantly lower than these reports have projected and the difference is mainly in demand projection and the guiding planning principle.

Table5- 1 Generation capacity planning during the 13th FYP period Installed capacity (GW)

Generation (TWh)

2015

2020

2015

2020

Hydropower

293

350

1025.5

1225

Pumped storage

23.35

70

18.7

56.

Coal

868

910

3906

4371

gas

61.7

100

185

300

Nuclear power

28.6

58

200.5

406

Wind

110

200

220

400

Solar

36.5

100

58.4

160

Biomass

11

14

46.2

58.8

Total

1432

1802

5641.6

6920.5

Based on regional power consumption growth during the 12th FYP period and national electricity demand projection during the 13th FYP period, we can make predictions on regional electricity consumption growth. Demand growth in the Northwest grid would be significantly higher than the national average. The growth in the Southern China grid is projected to be similar to the national average, while in the North China, East China and central China grids, demand growth will be slightly lower than the national average. We also expect that demand growth will be the slowest in the Northeast.

Table5- 2 Regional power demand growth forecast during the 13th FYP period5

Demand growth

National

North China

East China

Central China

Northeast

Northwest

Southern

average

Power Grid

Power Grid

Power Grid

Power Grid

Power Grid

Power Grid

4.2%

3.8%

3.8%

3.8%

2.4%

7.5%

4.3%

Based on clean power development status, regional power demand growth prospective and the development of a trans-regional transmission network, we can make predictions on 5. According to regional electricity demand growth in the past 5 years, we decomposed the national electricity demand during the 13th FYP into each regional power grid by also considering with the characteristics of regional economic development.

24

regional power development. We find that North China and East China will have a large gap that will need to be filled by import. Meanwhile, northwest, northeast and south grids will be the main export regions. We then quantified the regional balanced coal power capacity in 2020 (Figure 5-2).

300.0 251.8

GW

250.0

209.7

200.0 150.0

139.8

128.2

114.5

100.0

66.6

50.0 0.0 North China East ChinaCentral China Southern

Nothwest

Northeast

Figure5- 2 Balanced coal power capacity in six regional power grids, 2020

5.2 Sensitivity analysis of coal power development space Change in electricity demand can have a huge impact on power planning. The hypothesis of high growth (4.9%) corresponds to strengthening electricity substitution, i.e., promoting the transition of energy consumption patterns through the implementation of electric boiler, electric furnace, electric vehicles, etc. The full implementation of electricity substitution will greatly accelerate the growth of power demand The main consideration under a low growth scenario (3.5%) is the potential to strengthen energy efficiency and conserve electricity, which could make demand growth at a relatively low level by implementing demand management and developing energy efficient products. The moderate growth or the recommended scenario is a proper balance considering economic restructuring, power demand growth, electricity substitution and energy efficiency.

In addition, the 15%6 non-fossil primary energy target by 2020 will also require a faster low-carbon transition in the power industry. According to the officially declared clean energy target, non-fossil energy supply from the power sector, including hydropower, nuclear power, wind power, solar power and biomass power generation, could contribute about 13.4% of primary energy (4800 Mtce) by 2020. Therefore, to ensure full realization of 15% non-fossil

6. Besides power sector, other non-fossil energy utilization including geothermal energy, solar heat water, biogas and biofuel can supply 50-80Mtce primary energy. Hence, 13.4%-14% by power sector can properly ensure the 15% non-fossil primary energy target.

25

fuel energy target, it is necessary to regulate the expansion and use of coal power.

With the planning model, sensitivity analysis is carried out by considering the fluctuation ranges of electric power demand growth (3.5%-4.9%) and power sector’s contribution to 15% non-fossil primary energy target (13.4%-14.0%). The results show that, under different demand growth scenarios, China’s balanced coal power capacity could fluctuate around the recommended capacity with a range of 50 GW. Different shares of non-fossil energy by the power sector also affect the development space of coal power. In sum, we find that a 1% increase in the power sector’s share will cut down the market space of coal power by 38 GW. Under the recommended growth scenario, if the power sector contributes 14% of non-fossil primary energy instead of 13.4%, the reasonable coal power usage should be lowered from 910 GW to 888 GW. Also, the planned capacity of wind and solar power (including solar-thermal power) should be raised up to 230 GW from 200 GW and to 120 GW from 100 GW, respectively (equivalent to replacing 22 GW coal power). According to the latest media report, the planning of PV could further be adjusted to 150 GW

[30]

, replacing another 8 GW

coal power.

960 960

937

940 920

910 888

GW

900 863

880 860

840

840 820 800 13.4% 14.0% non-fossil primary energy share by power sector, 2020 High-demand

Medium-demand

Low-demand

Figure5- 3 Sensitivity analysis on reasonable coal power capacity in China, 2020

In general, with the recommended annual power demand growth of 4.2% during the 13th FYP period and annual operating hours of 4800 hrs, China’s balanced coal power capacity would be around 910 GW by 2020. Because China has already committed to employ electricity substitution as part of its national energy strategy, another 50 GW of coal power addition will be necessary for implementing the strategy. Under such a situation, the capacity of coal power will reach around 960 GW.

5.3 Quantification of Coal Investment Bubble during the 13th FYP period 26

According to the most recently available data, as of September 2015, there are about 283 GW new coal power projects EIA (either approved or waiting to be approved [17]) in China. If all projects were successfully put into operation by 2020, the coal power capacity would reach 1151 GW, about 200 GW higher than the reasonable scale of 960 GW corresponding to high demand scenario, under which active electricity substitution strategy is fully implemented.

Large-scale overcapacity would lead to huge investment waste and could further deteriorate the operation efficiency of coal power and block the low-carbon transition of the power sector.

The integration of more renewable energy into the power system requires more system flexibility and reduces the operational efficiency of coal power to some degree. But of greater concern is that the growth rate of coal power capacity exceeds the growth of electricity demand. Approval of power projects are generally based on historical and present electricity demand, while the construction period of coal power project is generally 3-4 years. A strong implication here is that systematic and accurate prediction on future demand must be made in advance. Additionally, an integrated power planning program should be enacted as well as an early warning and regulation system be put in place to remedy the errors in prediction, planning and its actual implementation. Only in this way, can the efficiency of power sector investments be ensured with high confidence, while the installation of coal power capacity and power demand growth can be properly coordinated.

In this report, we employ annual operation hours as an indicator for the utilization efficiency of coal power. It is assumed that when the number is less than 4500 hrs utilization rate will be too low to be acceptable [31]. In other words, an investment bubble can be detected when national average utilization of coal power is less than 4500 hrs.

5.3.1 National level analysis Based on preceding analysis, the reasonable scale of coal power in 2020 would be 910-960 GW, about 42-92 GW over the 2015 base, under which the national average utilization hour would move around 4800hrs and stay within reasonable level.

27

coal power operating hours (hours)

6000 5000 5035

4800

4000

4243 3791

3000 2000 1000 0 0

42 160 new coal power capacity, 2015-2020 (GW)

283

Figure 5-4 The influence of new capacity addition on annual operating hour during 13th FYP period (under recommended demand growth scenario)

As shown in Figure 5-4, by 2020, if coal capacity stayed in the 2015 level (868 GW) utilization hour would increase to 5035 hrs. Although energy balance would not be a problem, the power balance could be. The integration of more large-scale renewable energy could endanger the stability of the power system without more flexible generation sources (including coal power). In the case of more reasonable 4800 hrs, coal power would reach 910 GW by 2020. However, according to data of new projects under construction during 2012-2014, if all projects under construction were commissioned by 2020, total coal power capacity would reach above 1030 GW and utilization hours could fall to 4243 hrs. If all EIA approved (and to be approved) projects by September 2015 were put into operation, total coal power capacity would reach 1150 GW and utilization hours would fall below 3791 hrs.

We then separate the influencing factors of coal utilization hour into two aspects, the change in electricity demand and the growth of coal power capacity. As we can see from Figure 5-5, both factors have significant impact, but unchecked capacity growth actually contributes a larger share.

28

47.64%

52.36%

reducing electricity demand

increasing coal power capacity

Figure 5-5 Factors contributing to decreasing coal power operating hour

5.3.2 Regional Analysis By the end of 2013, China's thermal power reached 870 GW

[6]

, among which most is

coal power except for a small share of gas turbines and biomass generators. Again, because of data availability, we use thermal units in 2013 to approximate coal power units as the beginning of analysis. We can differentiate three scenarios. The first one is an ideal state under which utilization hours of coal power stay around 4800 hrs and a reasonable scale of coal power is built by 2020. The second, or partly commissioned, includes a scenario where only 160 GW projects under construction during 2012-2014 are put into operation while the rest of the approved projects are not built by 2020. The third scenario represents on in which all the projects submitted for EIA approval by September 2015 (283GW) will be put into operation by 2020.

Table 5- 3 Regional coal power scenarios by 2020 2013

2020 Ideal scale

Unit: MW

Excess capacity

2020

2020

Partly

Fully

Partly

Fully

commissioned

commissioned

commissioned

commissioned

North China

246640

251840

265520

311840

13680

60010

East China

209320

209670

237490

254600

27820

44920

Central China

137400

139810

165620

187110

25810

47300

Northeast

66250

66560

74270

78420

7710

11860

Northwest

87790

114500

130230

155510

15730

41010

South China

122320

128180

156890

165510

28720

37340

Total

869720

910570

1030020

1152990

119450

242420

29

4800 4600 4400 hours

4200 4000 3800 3600 3400 3200 3000 North East Central Northeast Nothwest Southern China China China balanced scenario partly commissioned fully commissioned Figure 5-6 Operating hour of coal power units in six regional grids, 2020

From Table 5-5, under the recommended scenario of medium electricity demand growth and with the existing scale of new coal power projects, there will likely be an excess capacity of 119-242 GW in China by 2020. On a regional level, the degrees of overcapacity vary.

Under the partly commissioned situation, excess in East China, Central China and South China grids will be above 25 GW. With fully commissioned, the excess scale in North China, East China, Central China and Northwest will be more than 40 GW. Utilization hours can directly reveal the impact of excess investment. As shown in Figure 5-6, in a partly commissioned scenario, utilization hours of coal power in all six regional grids is lower than 4600 hrs. In particular, in the Central China and South China grids, the number is below 4000 hrs. Under fully commissioned situation, utilization hour will further decrease to about 3900 hrs for North China and East China grids, 3700 hrs for South China grids, and only 3534 hrs for Northwest Grid.

5.3.3 Typical provinces These five case provinces represent three different scenarios in our study. Hebei and Shanxi are provinces saturated by heavy industry while seeking transformation. Zhejiang and Jiangsu are provinces with high electricity demand but unable to manage self-sufficiency.

Xinjiang is planning to export electric power on a large-scale. These five provinces also have different prospective of electricity demand growth. With saturated heavy industry, Hebei and Shanxi will likely experience lower than national average growth. Thus, new additions to thermal power must been strictly balanced with demand growth, while taking electricity substitution into full consideration. Since local economy and tertiary industry is already well 30

developed, Zhejiang and Jiangsu may also have lower growth than the national average.

During the 13th FYP period, efforts should be put on alleviating the existing overcapacity of coal power, integrating more renewables locally and receiving more imports. New construction of coal power should be rigorously restricted. Xinjiang is less developed in the manufacturing industry, but the “One Belt, One Road� initiative will boost its industry development. So its power demand is expected to be much higher than the average. But the growth potential of coal power there is uncertain and highly depends on the scale of electric power exports during the 13th FYP period. According to available information, Xinjiang is trying to realize economic growth by more power export and is making every effort to construct more power transmission channels

[32]

. However, in our opinion, for Xinjiang,

above all it is the outlook of electricity market and the stressful water resource supply incurred by coal power development that must be carefully considered.

Similar to the national and regional analysis, in the power planning model we estimated the reasonable scale of coal power in each of these provinces. Detailed projections on power and energy exchange among provinces must be considered in the estimation process. Based on regional market outlook, demand forecast of individual case provinces and analysis of trans-provincial power exchange, we can estimate the reasonable coal power capacity for these provinces by 2020 (table 5-6).

Table 5-6 Coal power capacity of 5 provinces, 2020 2013

2020 Ideal scale

unit: MW Excess capacity

2020

2020

Partly

Fully

Partly

Fully

commissioned

commissioned

commissioned

commissioned

Hebei

41870

43870

45070

47300

1200

3430

Shanxi

52050

57190

57750

79060

560

21870

Zhejiang

49950

50530

52590

52830

2060

2300

Jiangsu

75550

78460

79300

88020

840

9560

Xinjiang

29390

48120

47110

63620

0

15500

In terms of the absolute scale of coal power excess, under the partly commissioned scenario, with the exception of Xinjiang, the other case provinces will have overcapacity but will likely have the excess under control. However, under the scenario that all the approved units are commissioned by 2020 (except Zhejiang with low excess scale at 2.3GW) the other case provinces will have much more capacity excess. This is especially serious for Shanxi with over 21 GW excess and for Jiangsu and Xinjiang with about 10 GW and 15.5 GW respectively.

As to the operation efficiency, under the partly commissioned scenario (except in Xinjiang), operation hours of coal power units in other case provinces will be lower than the 31

optimal, at about 4600 hrs. Under a fully commissioned scenario, except in Zhejiang, operating hour in other provinces could dramatically drop to less than 4500 hrs. The worst is Shanxi, where coal power operating hours may lower to 3472 hrs; the next is Xinjiang where

hours

the number would barely stay around 3600hrs (Figure 5-7).

5000 4800 4600 4400 4200 4000 3800 3600 3400 3200 3000 Hebei balanced scenario

Shanxi

Zhejiang

partly commissioned

Jiangsu

Xinjiang

fully commissioned

Figure 5-7 Projection on the operation hours of coal power in case provinces, 2020

6. Conclusion 6.1 Research conclusions In this report, we provide a brief analysis of the power sector during 12th FYP period, with a particular focus on the utilization of thermal (coal power) fleets. Then the market space for coal power units and the risk of excessive investment in coal power during the 13 th FYP period are also estimated. The findings are: Under the new economic normal, electricity demand growth has reduced to more moderate rates since 2014. However, because of the delay of planning implementation and the lead time of new unit installation, the new addition of coal power units remained at a high scale in 2014. According to our estimate, utilization hours of thermal units will drop to 4330 hrs and the overcapacity of coal power units will range between 80-100 GW at the end of 2015. The overcapacity risk in coal power industry deserves close attention from the government and the industry.

Under the assumption of 4.2% in annual electricity demand growth during the 13th FYP period and constrained by the 15% non-fossil energy target, the rational capacity of coal power would be around 910 GW. Active implementation of electricity substitution will push up the rational scale by 50 GW. If by 2020 the capacity of wind power and solar power was 32

increased to 230 GW and 120 GW respectively, the share of non-fossil energy supply in the power sector would increase from 13.4% to 14%, equivalent to replacing 22 GW coal power.

If solar power capacity was increased to 150 GW, it would replace 8 GW more coal power.

There would be an excess of 70-120 GW if all the 160 GW

[17]

coal power projects

approved during 2012-2014 were commissioned by 2020. With the normal decommission of old units, such an excess may be partially resolved7. On the contrary, if all the coal power projects submitted for EIA approval (283 GW) [17] were put into operation by 2020 the excess capacity would reach as high as 200 GW and be out of control. Such a large scale of overcapacity will bring forth disastrous effects, costing as much as 700 billion CNY, which is an investment that is unlikely to be recovered. The utilization hours of coal power units would decrease to 3800 hrs and further constrain the economic performance of generators.

Unnecessary capacity installation of coal power would also inhibit renewable energy deployment, leading to serious renewable energy curtailment. This crowding-out effect of investment could also block China's strategic opportunity in deploying the low-carbon energy transition.

For the case provinces, under the partly commissioned scenario, except for Xinjiang, actual coal power capacity in Shanxi, Hebei, Jiangsu and Zhejiang may be in an acceptable excess of 2-3 GW. However, under a fully commissioned scenario, actual capacity would be substantially higher in all provinces (excluding Zhejiang). Shanxi would have the worst impact with an excess of 21 GW, Xinjiang would experience an excess of 15.5 GW, and for Jiangsu would have an excess of nearly 10 GW.

6.2 Policy recommendations Strengthening consistent and coordinated power planning must be the top priority

[33]

.

Overall power planning with smooth coordination between generation planning and grid expansion, among different power sources

[34]

, especially the matching of flexible resources

to adapt to renewable energy integration, and between national and local levels should be formulated. After delegating the authority of project approval to provincial level, the instructional functions of national planning must be emphasized. In other words, local governments must approve new energy projects based upon the national power sector planning formulated by the competent ministries (NEA and NDRC).

7. If employing the CEC statistical data (80GW), together with the 110GW approved projects (yet to be constructed) since 2015, the sum is also consistent with the partly commissioned scenario in our report. In other word, whether new coal power projects would be approved and whether all the approved projects would be constructed, deserves careful attention from both central and provincial governments, in particular those with large approved projects such as Xinjiang and Shanxi.

33

NEA and NDRC should coordinate and function effectively, including timely releases of information and regulation. Power planning for the 13th FYP should be planned and released to guide market investment with adequate and transparent information.

An early warning mechanism on coal power investment should be established. It is strongly recommended that these competent authorities regularly publish an electricity market prospective report, update the electricity demand outlook regularly and provide early warning on potential coal power investment risk when detected.

34

AppendixⅠ: Transmission capacity of 27 UHV lines NO.

Route

Type

Origin

Destination

North Shanxi-Nanjing in 1

Jiangsu ±800kV HV DC

Provinces along

Capacity

the route

(MW)

Shanxi, Hebei, DC

Shanxi

Jiangsu

transmission project

Shandong, Henan,

8000

Anhui, Jiangsu

Southeast Shanxi2

Nanyang-Jingmen 1000kV UHV AC demonstration

AC

Hubei

Shanxi, Henan, Hubei

5000

project

3

4

Ximeng-Shandong 1000kV UHV AC project

Inner AC

Mongoli

Inner Mongolia, Shandong

a

Shanghai temple in Inner

Inner Mongolia,

Mongolia-

Shaanxi, Shanxi,

Shandong ±800kV HV DC

DC

West Mongolia-South Tianjin 1000kV UHV AC project

9000

Shandong

Shandong

project

5

Hebei, Tianjin,

Hebei, Henan,

10000

Shandong Inner Mongolia, AC

Tianjin

Shanxi, Hebei,

6000

Tianjin Inner Mongolia,

6

Ximeng-Taizhou in Jiangsu ±800kV HV DC project

DC

Jiangsu

Hebei, Tianjin, Shandong,

10000

Jiangsu Inner Mongolia, 7

Ximeng-Nanjing 1000kV UHV AC transmission project

AC

Jiangsu

Hebei, Beijing, Shandong,

9400

Jiangsu North Zhejiang- Fuzhou 8

1000kV UHV AC

AC

transmission project

Zhejian g

Fujian

Zhejiang, Fujian

6800

Huainan-Nanjing-Shanghai 9

1000kV UHV AC project in North-loop of East China

AC

Anhui

Shanghai

Anhui, Jiangsu, Shanghai

26000

Power Grid The left bank of 10

Xiluodu-Jinhua in Zhejiang

Sichuan, Guizhou, DC

Sichuan

Zhejiang

±800kV HV DC project

Hunan, Jiangxi,

8600

Zhejiang Sichuan,

11

Xiangjiaba-Shanghai ±800kV HV DC transmission project

Chongqing, DC

Shanghai

Hubei, Hunan,

6400

Anhui, Zhejiang, Jiangsu, Shanghai

12

Jinpin-Sunan

DC

Jiangsu 35

Sichuan, Yunnan,

7200

±800kV HV DC

Chongqing,

transmission project

Hunan, Hubei, Zhejiang, Anhui, Jiangsu

13

Ya’an-Wuhan 1000kV UHV AC project

AC

Hubei

Sichuan, Chongqing, Hubei

12000

Sichuan, 14

Jinshang-Jian ±800Kv HV DC project

DC

Jiangxi

Chongqing, Guizhou, Hunan,

10000

Jiangxi Yuheng in North 15

Shaanxi-Huaifang in Shandong 1000kV UHV AC

AC

Shaanxi

Shandong

Shaanxi, Shanxi, Hebei, Shandong

-

transmission project

16

North Shaanxi-Jiangxi ± 800kV HV line

Shaanxi, Shanxi, DC

Jiangxi

Henan, Hubei,

-

Anhui

Longbin-North Henan 17

1000kV UHV AC

AC

Henan

Shaanxi, Henan

-

transmission project

18

Jiuquan-Hunan ±800kV HV DC transmission project

Gansu, Shaanxi, DC

Gansu

Hunan

±800kV HV DC delivery

DC

Jiangsu

project Ningdong-Shaoxing 20

±800kV HV DC transmission

21

±1100kV HV DC project

DC

Ningxia

Zhejiang

Sichuan ±1100kV HV DC

DC

Xinjiang

Anhui

24

DC

Sichuan

Ningxia, Shaanxi,

Xinjiang, Gansu, Shaanxi, Sichuan

DC

Henan

Ningxia, Shaanxi,

project

Shanxi, Henan

North Hami-Chongqing ±

Xinjiang, Gansu,

800kV HV DC transmission

DC

Chongqing

12000

10450

Sichuan,

15610

8000

Chongqing

Chuxiong in YunnanHuidong in Guangdong

8000

Xinjiang, Gansu,

project

25

Shanxi, Henan,

Henan, Anhui

South Hami-Zhengzhou ± 800kV HV DC transmission

10000

Xinjiang, Gansu,

project

23

Henan, Jiangsu

Anhui, Zhejiang

Zhundong-Chengdu in 22

Gansu, Shaanxi,

Ningxia, Shaanxi,

project Zhundong-East China

8000

Hubei, Hunan

Longdong-Jiangsu 19

Chongqing,

DC

Yunnan

±800kV HV DC transmission 36

Guangdong

Yunnan, Guangxi, Guangdong

5000

project Pu’er in Yunnan26

Jiangmen in Guangdong ±800kV HV DC transmission

DC

Guangdong

Yunnan, Guangxi, Guangdong

5000

project Northwest Yunnan27

Guangdong ±800kV HV DC

Yunnan, Guizhou, DC

Guangdong

transmission project

Guangxi, Guangdong

37

5000

Appendix â…Ą: New EIA approved coal power projects from 2012 to 2015 The project team adopts the coal power project database from Green peace, which includes coal power projects approved by national and local environmental protection departments since 2012 to September 2015.

Unit: MW Total

North China

East China

Central China

North-east

North-west

South China

2015 application and approval

2012-2014 approval

application

Pre-approval

approval

Total

Beijing

0

0

0

0

0

0

Tianjin

2000

2000

0

0

0

0

Hebei

5425

3200

0

50

2175

2225

Shandong

15229

4400

2024

4460

4345

10829

Shanxi

27010

5700

2640

700

17970

21310

Inner Mongolia

15540

3580

0

1400

10560

11960

Total

65204

18880

4664

6610

35050

46324

Shanghai

0

0

0

0

0

0

Zhejiang

2877.5

2640

0

0

237.5

237.5

Jiangsu

12473.5

3750

1063.5

0

7660

8723.5

Anhui

19248

13140

700

1320

4088

6108

Fujian

10676.1

8640

0

2000

36.1

2036.1

Total

45275.1

28170

1763.5

3320

12021.6

17105.1

Hubei

7877

3100

0

105

4672

4777

Henan

11356

7320

0

2036

2000

4036

Hunan

3929

3920

0

0

9

9

Jiangxi

13345

6000

2000

0

5345

7345

Sichuan

6000

2000

0

0

4000

4000

Chongqing

7200

5880

0

0

1320

1320

Total

49707

28220

2000

2141

17346

21487

Liaoning

8244

5420

0

0

2824

2824

Jilin

1450

700

0

750

0

750

Heilongjiang

2475

1900

160

0

415

575

Total

12169

8020

160

750

3239

4149

Shanxi

14640

8700

0

0

5940

5940

Gansu

3420

3420

0

0

0

0

Qinghai

3320

1920

0

0

1400

1400

Ningxia

12112

10680

700

700

32

1432

Xinjiang

34232

17720

0

16512

0

16512

Total

67724

42440

700

17212

7372

25284

Guangdong

20392

16492

0

0

3900

3900

Guangxi

6640

5920

0

0

720

720

Yunnan

600

600

0

0

0

0

Guizhou

14160

10860

660

0

2640

3300

Hainan

1400

700

0

0

700

700

Total

43192

34572

660

0

7960

8620

38

Total

283271.1

160302

39

9947.5

30033

82988.6

122969.1

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[31] Xinhua net. 2014. China will control the thermal power construction scale in regions where the utilization hour is low. http://news.xinhuanet.com/fortune/2014-10/09/c_1112755800.htm [32]Polaris power net. 2015. What role will UHV play in the power delivery of Xinjiang? http://psd.bjx.com.cn/html/20151003/669096-4.shtml [33] WeiDong Zhang. It’s urgent to enhance the power unified planning. China Energy News,September 28th 2015 [34] Jiahai Yuan,Yan Xu,Qi Lei, 2015. Coal consumption cap in power industry and policy study.

China Energy 3: 4-10.

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http://jiangsu.sina.com.cn/news/b/2015-06-30/detail-ifxenncn6796378.shtml [36]Polaris power net.2014. The details of the first UHV line in china-southeast Shanxi—Nanyang—Jinmen. http://news.bjx.com.cn/html/20140415/503781.shtml.

[37] Xinhua net. 2014.The 1000 kV UHV AC project starts from Ximeng to Shangdong. http://www.sd.xinhuanet.com/xhsksd/2014-11/05/c_1113128521.htm [38] State Grid.2015.The UHV engineering territories from Shanghai temple to Shangdong has been approved by eastern Inner Mongol power sector. http://news.bjx.com.cn/html/20150317/598799.shtml.

[39] People.cn. 2015.The 1000 kV UHV AC project from west Inner Mongol to Tianjin starts. http://energy.people.com.cn/power/n/2015/0327/c71901-26760701.html.

[40] ChinaIRN com. 2014.The project of ±800 kV HVDC from Ximeng to Taizhou. http://www.chinairn.com/news/20140710/113902576.shtml [41] Xilin Gol League government. 2013. The 1000KV UHV power transmission project from Xilin Gol League to Nanjing will be approved in this year. http://www.jsym.gov.cn/items/smdt_disp.asp?content_id=1203.

[42] People.cn. 2014. The 1000 kV UHV AC power transmission project from north Zhejiang to Fuzhou has been officially put into operation. http://energy.people.com.cn/n/2014/1226/c71661-26281725.html [43] Anhuinews net. 2014. The 1000 kV UHV AC project of Huainan-Nanjing-shanghai starts. http://ah.anhuinews.com/system/2014/11/04/006588627.shtml.

[44] The CLP News.2013. The Xi-Zhe ±800 kV HVDC transmission project is fully under constrution. http://www.mydianqi.com/news/show.php?itemid=2593.

[45] Xinhua net. 2010.The ± 800 kV HVDC transmission project from Xiangjiaba to Shanghai is put into operation http://www.gov.cn/jrzg/2010-07/08/content_1648978.htm.

[46] State Grid. 2008.The brief introduction of ±800 kV HVDC transmission project from Jingping to north Jiangsu. http://www.sgcc.com.cn/ywgk/jsxm/jstgyzl/.

[47] Sina news center. 2013.The 1000 kV UHV power transmission project from Ya’an to Wuhan starts. http://news.sina.com.cn/o/2013-12-21/074029044183.shtml [48] Polaris power net.2015. The ±800 kV UHV DC project from Ji’an to Jinshang starts. http://news.bjx.com.cn/html/20150116/582471.shtml [49] Xinhua net.2015. The construction of UHV AC project from Hengyu to Weifang starts. http://news.xinhuanet.com/2015-05/12/c_1115262301.htm.

[50] Polaris power net.2015. Three UHV transmission lines will be built in Northern Shaanxiand Yulin will become an important point in the power delivery system from West to East. http://news.bjx.com.cn/html/20150202/587071.shtml.

[51] Xinhua net. 2014. Central CPC Committee Group of Shaanxi Province listens to the technology development report on UHV power transmission. http://news.xinhuanet.com/power/qjny/2014-07/23/c_1111733610.htm [52].Xinhua net. 2015.The ± 800 kV HVDC transmission project from Jiuquan to Hunan starts to build. http://news.xinhuanet.com/2015-06/03/c_127874251.htm.

[53] Polaris power net. 2015. The UHV line from Longdong to Jiangsu is included in the power planning during the 13th FYP. http://news.bjx.com.cn/html/20150619/632636.shtml.

[54] The CLP News. 2014.The±800 kV HVDC transmission project from eastern Ningxia to Zhejiang starts.

41

http://www.cpnn.com.cn/zdzg/201411/t20141118_766373.html [55] China Science and Technology Net. China Energy Construction Group wins the first ±1100 kV HVDC transmission project. http://www.wokeji.com/ny/qydt/201507/t20150717_1433971.shtml.

[56] China power equipment information net. 2015.The two highest UHV ± 1100 kV line, East Junggar Basin-Chengdu and East Junggar Basin-east China are likely to be constructed this year. http://www.cpeinet.com.cn/gcjs/jsdt/201504/t20150423_192051.htm [57] Hexun net. 2013. The UHV DC Project from Hami to Zhengzhou will be put into operation this month. http://xjny.ts.cn/content/2013-12/04/content_9022377.htm.

[58] Stockstar net. 2015. Two UHV projects will be constructed in this year. http://stock.stockstar.com/SS2015042400002606.shtml.

[59] Aili Chen. The world's first ± 800 kV DC transmission project has been put into operation. China Construction Newsletter. 2010,(10):17 [60] Xinhua net.2013.The±800 kV HVDC transmission project in Nuozhadu is put into operation. http://www.yn.xinhuanet.com/v/2013-09/04/c_132690474.htm.

[61] China Economic News Net. 2015. The UHV DC transmission project from northwest Yunnan to Guangdong (the part in southwest Guizhou) will be constructed this year. http://www.cet.com.cn/nypd/dl/1470146.shtml.

42