China coal glut threatens to create $90bn in 'stranded assets'

reuters.com Viewpoint 2017-11-14 10:51:00

China's rapid transition to renewable energy will lead to a surfeit of coal-fired power plants, leaving authorities struggling to dispose of coal infrastructure worth billions of dollars.


If current coal investments are not halted, China could by 2030 be saddled with $90.4bn worth of "stranded coal assets" — plants that will never make a return on investment — according to a report published on November 14 by the Paris-based Institute for Sustainable Development and International Relations.


Environmentalists have applauded China's pledge to derive 42% of its electricity from renewable sources by 2030. However, policymakers must now decide what to do with hundreds of gigawatts of coal-fired power capacity, the legacy of decades of central planning and stimulus-led infrastructure spending.


"The losses suffered by the Chinese coal power sector are much worse than in a scenario in which you take practical measures to eliminate a significant share of old capacity," said Thomas Spencer, one of the report's authors, adding that the wasteful investment was most acute in coal-rich provinces such as Inner Mongolia and Shanxi province.


Many of China's coal plants are new — nearly 70% of capacity has been added since 2005, according to the IDDRI. A portion of the plant glut has its roots in electricity shortages in 2003 that led policymakers to fix plant operating hours and electricity rates.


That led to a boom in plant construction, funded by cheap loans from state banks in the name of regional development. A second wave of plant construction began after the 2008 financial crisis as stimulus funding poured into infrastructure.


"Many plants which were approved during this [2003] period are now coming online," said Lauri Myllyvirta, a Beijing-based Greenpeace campaigner.


China is now on track to add another 120 GW of coal-fired capacity by 2020, according to Greenpeace, 20 GW of which came online in the first nine months of the year alone, though that is a slowdown of added capacity from a 2004 peak.


"Provinces historically have been reluctant to import cheap energy from neighbouring provinces, because this sends funds outside of the provinces, so provinces have tended to build more than enough capacity to meet their own needs," said Anders Hove, an independent environmental consultant.


China has been working on integrating regional power grids to promote more efficient power-reserve sharing. However, those plans have hit a snag as provinces struggle to agree on a pricing model and optimise energy storage and deployment.


Yet waning growth in electricity demand has led to falling profit margins and greater competition with renewable energy sources. According to the IDDRI, only about 20-25% of coal-fired plants constructed since 2005 would have made back their investments by 2030.


(Writing by Alex Guo  Editing by Tammy Yang)
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