China risks wasting $490 billion on unneeded coal plants — study


China risks flushing down the toilet half a trillion dollars on new coal plants, which according to a study released Monday, the country doesn’t even need.

The report, published by London-based the Carbon Tracker Initiative, argues that not only does China not new coal plants, but also that existing capacity may come under financial pressure by 2020 from power market reforms and carbon pricing, which continue to squeeze coal generation out of the country’s power mix.

As of July this year, China had 895 GW of operating coal capacity or 2,689 plants being utilized less than half the time, with another 205 GW of capacity under construction, which is inconsistent with the goals of Beijing’s 13th Five-Year plan, the document shows.

It is clear that China does not need any more coal capacity as existing plants are running not even half the time —Matthew Gray, senior analyst and the study’s author

It also argues that slower power demand growth and low carbon capacity targets will likely strand coal capacity. Additional capacity beyond existing plants is only required by 2020 if power generation growth exceeds 4% per year and coal plants are run at utilization rate of 45% or less, according to the report.

“It is clear that China is coming to terms with the fact it does not need any more coal capacity in a market where existing plants are not even running half the time,” said Matthew Gray, senior analyst and the study’s author. “The dynamic policy environment suggests China is trying to work out how to avoid wasting half a trillion dollars on unneeded coal plants.”

Given the expected increases in non-coal energy generation — hydro, wind, solar, gas, nuclear and biomass — coal generation in China could fall by up to 8% from 2015 to 2020, Gray warned.

“There are clear signs that Chinese coal generation is peaking, as the growth in alternative energy sources can meet lower power demand growth during the 13 FYP. This can only spell bad news for exporters betting on China propping up the seaborne thermal coal market in the future,” said James Leaton, Carbon Tracker’s head of research.

A drop in coal-fired power, combined with the resumption of domestic production, may kill China’s imports from overseas. The country, instead, could become a net exporter of coal again before 2020, negatively affecting seaborne thermal coal prices, the report concluded.

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Above: Needed and unneeded coal capacity (GW) in 2020 based on existing plants as of 2016 and under construction under different coal plant capacity factors and power generation growth rates. (Source: Chasing the Dragon? China’s coal overcapacity crisis and what it means for investors)