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Energy security and economic fears drive China's return to coal

Stock MarketsSep 30, 2020 23:26
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28/28 © Reuters. The Wider Image: Energy security and economic fears drive China's return to coal 2/28

By David Stanway

QINGYANG, China (Reuters) - Red coal trucks zip up and down narrow dirt tracks, churning up clouds of dust in China's remote Gansu province. Nearby, the towering stanchions of a new railway bridge rise out of a muddy river winding through the hills.

The Huaneng Group, one of five big Chinese state utilities, is building a $1.9 billion 4 gigawatt coal and power project in the northwestern region near the city of Qingyang, with the aim of delivering its electricity to the east of the country.

The Zhengning Power Plant Project, which was revived in July four years after it was put on ice, encapsulates the competing pressures that lie behind China's economic and climate policies.

President Xi Jinping surprised the world last week by pledging China would aim for "carbon neutrality" by 2060, but Beijing remains worried about energy security, jobs and growth, especially as the economy recovers from the COVID-19 pandemic.

In a sign of the conflicting forces at play, in the very same province of Gansu, at least three coal-fired power stations have shut since 2017, bankrupted by rising environmental costs and the widespread availability of cheaper, renewable energy.

China is adding wind, solar and hydropower projects at a heady pace so the Zhengning plant itself is unlikely to threaten any of the country's carbon targets, and coal could still decline as a proportion of the country's energy mix.

China is also decommissioning outdated coal-fired plants and replacing them with new, more efficient power stations that will burn less coal and provide crucial baseload electricity to support the country's shift towards more renewable energy.

Yet China still added 11.4 gigawatts of coal-fired capacity in the first six months of 2020, more than half the amount built worldwide during the period. A study by research group Global Energy Monitor (GEM), also showed that nearly 250 GW of coal-fired plants are under development in China - enough to power Europe's biggest economy, Germany.


"New coal plants are a way for provinces to support other industries like coal mining and heavy industry," said Christine Shearer, coal programme director at GEM, which tracks fossil fuel infrastructure worldwide.

"You have a lot of entrenched coal interests in China and the central government has not reined them in, despite Beijing's strong support for clean energy," she said.

Neither China's energy regulator nor the provincial government in Gansu responded to requests to comment for this story. Huaneng did not immediately respond to faxed questions.

The Zhengning project was put on the backburner in 2016. Utilisation rates for coal-fired plants were plummeting and China's appetite for fossil fuels seemed to be on the wane.

But Huaneng submitted a 500-page environmental impact report in July to relaunch the project. Even though it warned it could damage farmland and water supplies, construction is due to begin this year, with the first unit set to generate power by 2023, according to state media reports.

The main site is marked out with flags bearing the insignia of China Energy Construction Group, the state-owned engineering company that will build the plant.

The surrounding brittle, mountainous landscape is already being transformed by new coal mines, bridges and apartment blocks for incoming workers, and some local residents used to growing fruit are packing up.

"This used to be farmers' land, mainly for planting apple trees," said Wang Chunxiang, who owns an orchard near the construction site. "Now, the farmers have long gone."

China has vowed to end its long and problematic love affair with coal to reduce smog and slash greenhouse gas emissions.

It has cut the share of coal in its total energy mix from about 70% in 2010 to 57.7% by the end of last year, and it aims to hit 53% by 2025 by aggressively promoting renewables.

China had just over 1,000 GW of coal-fired power last year, but it also had 759 GW of renewable energy - almost three times more than the United States and equivalent to the United States and the European Union combined, data from the International Renewable Energy Agency showed.


Xie Zhenhua, China's veteran climate envoy, said last week that coal demand peaked in 2013 and Beijing was preparing to adopt tough new measures in its 2021-2025 five-year plan to reduce consumption further.

A study co-authored by a Chinese government-backed research institute said in January that China must end the construction of all new coal-fired power plants to meet its long-term climate goals in the most economically feasible manner.

But some experts believe projects such as the Zhengning plant show coal is making a comeback. And despite Xi's surprise announcement at the United Nations, China is not expecting its carbon dioxide emissions to peak until 2030, at the latest.

An analysis by CarbonBrief of post-COVID stimulus plans in eight provinces that produce half of China's CO2 emissions shows planned spending on fossil fuel energy projects outstrips new investment in renewable energy by three to one.

Experts fear the decision by U.S. President Donald Trump to withdraw from the 2015 Paris Agreement has eased the pressure on Beijing to be more ambitious. They have also expressed concern that China's past success in meeting its climate targets could lead to complacency among policymakers.

China met its 2005-2020 carbon intensity goals three years ahead of schedule, and some government scholars believe carbon emissions could peak well before the country's 2030 target, even without taking any additional measures.

The government is trying to control the number of new coal plants and has set up a traffic light warning scheme that flashes red to regions with too much capacity and green to provinces that can go ahead with construction.

In June, the state planning agency also criticised local authorities for building too many new facilities. However, observers say the economy remains the main preoccupation.

"Beijing is reluctant to do anything that might slow economic growth, which is why you see the central government slapping the provinces on the wrist for all the newly permitted plants ... but not actually doing anything about them," said Shearer at GEM.

Amid growing geopolitical tensions, power projects fueled by domestic coal could also become more attractive because the government is keen to improve self-sufficiency and ease its dependence on foreign energy supplies.

China has the third largest coal reserves in the world but it became a net importer of the fossil fuel in 2009 and has been the world's biggest importer of oil in 2017.


The National Energy Administration (NEA) said in June that China needed to refocus on energy security to "align with the developing environment and changing trends at home and abroad".

"The NEA has made energy security the number one priority now," said Li Shuo, senior climate adviser with environmental group Greenpeace. "It doesn't provide favourable conditions for a green and low-carbon transition."

China wants to ensure its recovery is not disrupted by the sort of crippling power shortages that hit the country in 2011.

Some also argue China needs more coal-fired projects to provide the stable baseload required during periods of heavy demand, said an official at a leading power firm who declined to be identified as he was not authorised to speak to the media.

But as workers at the Zhengning plant prepare to start construction, coal-fired power plants elsewhere in Gansu are being driven out of business.

On the outskirts of the provincial capital Lanzhou, the two giant cooling towers of the Liancheng plant have stood idle since 2018. With most workers relocated, a skeleton staff guards the property, tends to a small flower garden and feeds an elderly watchdog tethered to a truck.

Opposite the plant's chain-locked gates, a row of restaurants and repair shops have also shut - collateral damage in a province-wide campaign by state-owned power firms to restructure and divest loss-making assets.

The Liancheng plant - owned by Huaneng rival, the Datang Group - suffered a fatal blow in 2015 when its main customer, a smelter run by state-owned aluminium giant Chinalco, was decommissioned. Court documents say Liancheng had racked up as much as 1 billion yuan in debt when it went bankrupt last year.

Residents said while the closures have had an impact on the local economy, at least the air was clean now.

"The pollution used to be really heavy, especially when you add in the exhaust fumes from all the vehicles coming and going," said Li Wanzhen, a retired local resident.


A power plant in the town of Huating in the east of Gansu province also closed six months ago, forcing adjoining coal mines to find new markets. Nearby, bent-backed labourers black with dust unloaded coal from a truck - violating environmental rules to deliver fuel to local residences and businesses.

The Gangu power plant in the south of Gansu, which is also owned by the Datang Group, declared bankruptcy in 2017. Local officials said its assets have recently been sold to a private firm but the plant was unlikely to reopen.

"Before they did the environmental protection this place was really filthy, but in the last couple of years the environmental protection was really strict and we stopped seeing the smoke," said Wu Shenbin, a worker loading chemical fertiliser onto a truck near the plant. "After that, it shut down."

Still, losses are not a major concern, because most of the builders and plant operators are state-backed firms that can write off debts, the power firm official said.

But the new plants could still end up saddling China with too much surplus capacity, said He Jiankun, a government adviser and director of the Institute of Climate Change and Sustainable Development at Tsinghua University.

"Strictly controlling the rebound in coal consumption is an important task facing the current economic recovery process," he said in written remarks published on social media.

Near the Zhengning site, Wang, a 53-year-old mother of four who built a lavish home with the proceeds from her family's fruit business, is resigned to leaving once construction gets underway - and the dust and noise make conditions intolerable.

"They haven't given us any specific date when we should move ... It's going to be a lot of trouble," she said. "We only just built this house six years ago and it's going to be hard to give it up."

Energy security and economic fears drive China's return to coal

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