The end of China’s thirteenth five-year plan period (13th Five Year Plan) is approaching, as 2020 is just one year away.
As a routine, Beijing’s energy regulators have kicked off the preliminary research for the drafting of the next Five-Year Plans (FYPs) to guide directions of industry developments.
The upcoming 14th FYP for electricity power development (14th FYP for Power) is in the limelight. The “tone” to be set in this blueprint may have a long-standing impact on China’s energy market for the next decades to come, as many believe that the power industry has stepped into a pivotal moment.
The Positioning of Coal and Renewable Development
With the rising shares of renewable in the power mix, the operations of China’s current power system are under significant reform pressure. And many believe the 14th FYP will set the tone for the overall reform of the system.
The positioning of coal in the power mix may be the most critical matter of all, as the current power system functions upon the fact that the stable coal power is the baseline.
Once that changes, the series chain effect may be set off. The highly-regulated, government-planned market order would need further reforms. The existing coal-linked power pricing mechanism (for renewable) would be transformed. And, the western-centered energy production geology would be up for change, too.
Coal’s position designed in the 14th FYP, thusly, will have a lasting effect on renewable and the overall power market developments in China.
Typically, it took 2-3 years for Beijing to complete the drafting of a final FYP, which require research from key government regulatory, academic organizations, and key state-owned enterprises. Different opinions from different players will compete or influence each other to form a final version.
We will be following and summarizing the critical opinions for the FYP for power—starting on the following information about coal power.
Coal Power in China: Increasing Consumption, Dwindling Percentage, Challenging Economics
Where does coal stand in China’s power mix as of now?
In the past decade, the overall coal existences— in terms of the absolute amounts of power consumption—have never ceased to climb for a second. The rising coal consumption provides abundant ammunition for those criticizing China’s energy policy.
However, the percentages of coal have been in speedy retreat. And many in the Chinese industry believe the “portions” are the more significant and realistic metrics to follow.
The “curb of coal,” many believe, should be a cut on coal’s share instead of the absolute amount, as the nation still needs to meet an ever-growing energy consumption. And, more than ever, the nation must secure stable and affordable energy supply to boost its economy, which is under multiple threats including the US-China trade war. [READ our previous analysis on trade war’s energy impact]
If we follow that logic and look at only the percentages, statistics clearly show Beijing’s achievements in the battle against coal. In the past decade:
- the share of thermal power in total power capacity has been consistently decreasing, which is just above 60% by the end of 2018, down 16 points from that in 2008
- the share of thermal power in the total power production mix has been lowering: which is about 71% in the first three quarters this year and drops 10% from 2008’s level
- efforts to phase out aging and inefficient coal units have been ongoing: around 9GW average annual phase-out has been the case since 2010, with some ups and downs
- the decline of thermal power’s share is despite some moderate growth in the gas power sector and mainly due to the slow-down of the coal-fired sector (as well as with less oil-fired power)
- annual investment in the coal power sector generally shrieked year on year: notably in the first three quarters of this year, expenditure on coal-fired power sector registered record low Y-o-Y decrease of 28.9%
Meanwhile, the financial perspective of coal power investment is under severe challenges. Lately, the industry is in a wave of coal power plant bankruptcies and utilities’ asset sale to get rid of its stranded and poorly perform coal units. [READ MORE bout the coal-fired power’s financial misery]
The worsening economics is due to:
- Limits and cut on coal units’ load factor: as Beijing required higher utilization of RE plants. This year the load factor of coal units dropped significantly.
- The fuel-versus-power pricing dynamics: rising coal commodity prices lead to higher cost, while there is limited space for coal units to raise their on-grid power rate, which is decided by the government
All these signs of coal power retreat are linked directly to Beijing’s different policies to reduce coal consumption.
The essential crux of these policies is “big replacing small” (以大代小). That means new investment and construction for the newer-technology, highly efficient “large” coal-fired power plants (e.g., the ultra super-critical) are still encouraged.
It is the newer builds “replacing” and phasing out the older and more pollutive capacity in the power mix. Meanwhile, in the heating sector, the large coal-fired boilers are trying to phase out the distributed coal burning in rural areas, which is a significant source of China’s air pollution.
That strategy leads to the growth of the absolute amount of coal power in the past years. As the statistics in recent years show, China adds around 50GW new coal power capacity, while scrapping only under 10GW annually.
Coal Power in 14th Five Year Plan: More or None?
The “big replacing small” strategy had proven effective, boosting the efficient and cleaner utilization of coal. But various questions and problems remain. Only as one example:
The strategy did not solve the overcapacity of coal power. In 2008, the average coal power utilization hours in more than 20 provinces were less than 4000. In the upcoming 14th FYP, [the current development pace] would further sequeeze out the living space of coal units. Coal assets will be under life-threathening financial uncertainty.Du Xiangwan, a renown scientist in Chinese Academy of Engineeing, said in his recent FYP advisory piece
Moreover, as climate change become a pressing issue globally, the world must bring forth new (or bolder) solutions to fight against the issue. The “business-as-usual” or the gradual and moderate reform measures would not work. The existing energy strategies of many countries are clearly under-challenged. UN has advised not to build new coal units as of 2020. Whether China should design a more aggressive approach is a critical question on the table.
On that, opinions appear to differ among government and industry players.
Some voices signal the intention to take stricter and hasher stands on coal power. The recent speech by officials of the National Development and Reform Commission (NDRC)—the key decision-maker for the FYP– suggest that it is backing a more ambitious direction.
“By 2050, China’s power system needs to be completely de-carbonized, which mean zero emission from the power system. If we cannot achieve this target (by the current business-as-usual measure), then we need to cut coal power’s share further and more aggresive.”Han Wenke Chief Consultant of NDRC Energy Research Institute lately spoke in a meeting, hinting a more reformative approach.
“[In the 14th FYP], we [should] strictly control fossil fuel consumption. That does not mean to cut total energy consumption. For the clean energies, moderate growth will be allowed.”He added that the conclusion has not been made, and his opinion only reflect some “curent thinking” of the regulator
“40 percent of coal and 23% of renewable (in total primary energy consumption) by 2035,” shall be the target, while the coal percentage by 2020 is expected to lower to just 55.3%. “We need to lock in the 2035 target to pressure the industry to reform around it.”revealed Han
However, such a standpoint would face push-back from the electricity industry–And already there are pushbacks.
The arguments against an aggressive phase-out approach have merits, too, including
- China’s growing power demand and the potential supply shortage demand more coal unit construction
- Coal electricity is a cornerstone to support China’s energy security—a top priority for Beijing, while some alternative energy options (gas, oil) require heavy imports and risk of foreign dependence
- The rise of renewable requires more balancing power capacity to improve system flexibility, which requires more flexible power units
- The lack of economical peakers (hydro-pumping, gas) in China require using coal power as the load-balancing units for the system to ensure system security
Two critical power industry interest groups — China Electricity Council (CEC), China Electricity Power Planning & Engineering Institute (EPPEI)—are the vocal supporter of a “more coal” roadmap. Notably, EPPEI, especially, is the de facto policy advisor for National Energy Administration on electricity regulatory matters. [READ More about the players in China’s power sector]
“In the coming 14th FYP, the growth of nuclear, hydro, gas, wind, and solar power would still not be enough to cater to electricity security. We need to develop coal power moderately. This is the most realistic, most economical option based on our nation’s conditions.”Liu Shiyu of EPPEI said, according to a recent feature story of China’s Nengyuan Magazine.
“I personally would not agree to just cut off all coal power construction.”
“China needs to at least add 150GW new coal-fired capacity in 14th FYP.” “We lack load-balancing resources in China, “the most practical solution is to modify the coal-fired power (technically, to become peaker units).”Zhang Lin of CEC told Nengyuan in the same article
Meanwhile, the “big brother” of the industry State Grid also spoke out in the name of energy security.
Coal power will serve as the stabilizer in the system. Around 2030 we should maintain 1200GW or more coal power capacity in the system. We should not phase out coal too fast or too early. In key demand centers we should prepare a series of coal-fired peaker units to safeguard system operation.Zhang Yunzhou chairman of State Grid’s Energy Research Institute recently published an article, stating.
Yet to Reach the Consensus
As two conflicting opinions exist, Beijing’s final plan for coal power in the 14th FYP remains unclear.
We will hear more on the matter in the coming years.
“At the moment, the priority is to reach industry consensus on the necessity of coal power,”Liu of EPPEI said.
Without that conclusion being cleared, investors will remain hesitant to pour capital into the coal power sector, which is good news to renewable, storage units, and cleantech.