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China Green-Lights New Coal Plants To Fight Economic Slump

China Dialogue

China has lowered the risk ratings for coal-power overcapacity in many parts of the country for the third year in a row.

The move opens the door for more regions to build coal power in 2021-23 and has been interpreted by experts as a signal that coal will be a key part of the 14th Five Year Plan, which will start next year.

Every year the National Energy Administration (NEA) releases a “risk alert for coal power capacity planning and construction”, which looks ahead three years.

The 2023 Risk Alert, published on 26 February, gave a red rating for capacity adequacy – meaning there’s a high risk of coal power overcapacity – to just three regions. Orange ratings increased from two to three, and all other regions were rated green.

The alert’s resource constraint assessment, which tracks coal and water availability, remained unchanged from last year, with the same 12 regions rated as red. As for profitability, ten regions were rated red – meaning operations are likely to be unprofitable – and the number of orange regions dropped from two to one.

While profitability warnings are only advisory, a red or orange rating for capacity adequacy or resource constraints means binding restrictions: these regions cannot approve or start construction on new coal power projects intended to supply local demand; only a green rating gives permission.

Over the past three years, the risk alerts have seen the number of regions with red or orange warnings for capacity adequacy and resource constraint fall from 26 to 17 to 13 for the years 2021, 2022 and 2023. […]

The changing role of coal power

Yet restrictions are being relaxed and new projects are getting underway. Figures from Global Energy Monitor show that in just the first 18 days of March, China approved the construction of 7.96 gigawatts of coal power – more than the 6.31 gigawatts approved during all 2019.

There is nothing similar for wind or solar power, which are still waiting for the energy authorities to extend grid connection deadlines for already approved projects so that subsidies can be disbursed.

So why, with the cost of renewables falling and a global energy transition underway, is China pouring money into an unprofitable sector at risk of asset stranding?

Yuan Jiahai told China Dialogue the answer is to do with stability and size. Coal is a controllable and reliable source of power that makes stabilising the power grid easier. Also, large coal power construction projects are better suited for a quick economic boost than much smaller renewables projects. Yuan thinks the sudden spurt of power plant approvals in March shows that local governments were keen to soften the economic impact of the epidemic by stabilising investment and spurring the economy.

Qin Haiyan, secretary of the China Renewable Energy Society’s wind power committee, points to the role of coal power lobbying and conservative attitudes toward renewables. “Some people continue to think wind and solar can’t replace coal. That we have to rely on coal to ensure our power supply,” he told China Dialogue. “There’s no consensus yet on the strategic direction for China’s power industry.”

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