China ramps up coal-fired power amid heatwave and drought, despite increased CO2 emissions
Recent reports on the coal power and mining industries show that the Chinese Communist Party (CCP) has flouted its low-carbon vow since last year. The topic of reviving coal-fired power generation is no longer dodged by Chinese financial experts, especially after drought-related power shortages hit in July.
Previously reduced use of coal power needs to be accelerated, Cinda Securities, a Beijing-based financial services company, said in an Aug. 25 report, citing extremely high temperatures that are causing a significant drop in hydropower in major provinces such as Sichuan, the not only suffered from electricity and production restrictions, but also stopped supplying electricity to other provinces.
Another Beijing-based investment advisory firm, Capital Securities, took a similar view in its Aug. 26 report, saying global energy shortages will continue to push up prices for natural gas, oil and coal; However, compared to natural gas and oil, coal has the highest price-performance ratio for power generation, so China should speed up coal-fired power plant projects, it said.
As CCP leader Xi Jinping vowed to reach peak-carbon emissions by 2030 and net-zero emissions by 2060, emissions from coal-fired power in China’s carbon market, which operated last July, have been curtailed somewhat.
But the move is almost futile because carbon credits are so preferred, mostly free, and even allow the coal industry to profit from the sale of their excess credits, according to a May Studies (ISETS) report (pdf) from the International Society for Energy Transitions ) and EMBER, a non-profit, independent environmental energy think tank.
In addition, the carbon price per kWh of coal electricity in China is only RMB0.03 (about $0.0043), less than 8 percent of the price on the grid, the report estimates.
By the end of 2021, more than half of the provinces imposed restrictions on electricity generation as part of the CCP’s national campaign to reduce carbon emissions. After that, however, the authorities began to lift restrictions on the coal power sector.
As of the first quarter of this year, coal-fired power shares rose to 62.8 percent of the country’s total power generation, just under 70 percent at its peak, according to official data.
As the world’s largest coal producer and consumer, China has relied heavily on coal power, a key factor that makes it the largest carbon emitter of any country in the world.
Extreme weather affects power generation
Due to high temperatures, low rainfall and subsequent drought, dozens of rivers and reservoirs in southwest China have been drained or their water levels dropped dramatically, causing power generation in major hydropower provinces like Sichuan to fall by almost half.
Chongqing, a huge municipality in Sichuan Province, continues to experience high temperatures, with the highest reaching 45 degrees Celsius (113 Fahrenheit). The Yangtze River, which rises in the snow-capped mountains of the western highlands, has dropped to levels normally seen only during the winter dry season.
Power shortages led factories in Sichuan to implement power curbs and production cuts. Among them, factories of Taiwan’s electronics assembly giant Foxconn and China’s electric car battery maker CATL have shut down production. Japan’s Toyota and German Volkswagen factories in the region are also in a short-term shutdown.
China’s power system should be designed to be more resilient, accommodating the possibility of an extreme weather event every 10 to 15 years, warned David Fishman, a senior manager in the Shanghai office of Lantau Group, an Asia-Pacific energy consultancy. The Wall Street Journal quoted Aug. 29.
On Aug. 27, Beijing urged provinces to speed up approval of new power generation projects, mainly by building more coal and nuclear power plants.
Compared to nuclear power, which takes a long time to build (at least 10 years from design), the construction cycle for coal power is relatively short, typically just 18 months for a 600 MW unit.
In April, Yu Bing, deputy director of the National Energy Administration, said that under the current technical conditions and installation structure, coal power is the most economically viable, safe and reliable flexible regulatory resource.
China is accelerating the development of coal power
According to an industry development report by Cinda Securities, China’s investment in thermal power (mainly coal) has started to rise after falling for several consecutive years since electricity curbs and production cuts began in the second half of last year.
Citing data from the China Electricity Regulatory Commission, the report said China’s thermal energy investments continued to decline between 2016 and 2020, recovering after bottoming out in 2020; Thermal energy investment increased 21.5 percent year-on-year to 67.2 billion yuan (approx. -on-year) in 2021.
Data from Greenpeace showed that China approved 11 GW (gigawatts) of new coal-fired power plants in the fourth quarter of 2021, accounting for 59.3 percent of the year’s new installations, and 8.63 GW of new coal-fired power plants in the first quarter of 2022, or 103.1 percent increase over the previous year.
Coal procurement costs rose another 130 billion yuan (about 18.84 billion U.S. dollars) in the first quarter, much faster than sales tariff growth, according to the China Electricity Council’s April power supply and demand report.
Coal power advantages in China
Nevertheless, according to Capital Securities, the development of coal-fired power generation is still the best option for China to solve the current power shortage problem amid global energy shortages.
In addition to the abundant coal resources, coal has higher value for money compared to natural gas and oil. In other words, coal is cheaper than natural gas and oil to provide the same amount of heating power: if coal costs $1, natural gas and oil cost $2.11 and $1.41, respectively, when comparing the average price per heat unit.
In the first quarter of this year, coal-fired power generation accounted for 62.8 percent of total power generation, remaining the most important power source. China produced 1.08 billion tons of raw coal, up 10.3 percent year on year, according to an April report by the China Electricity Council.
Reduction of CCP carbon emissions
In October 2021, while facilitating the development of coal power, authorities also planned to refurbish coal-fired power plants in terms of energy conservation and heat supply, ostensibly to promote clean and low-carbon electricity.
At a coal industry meeting in April, Lue Qinggang, director of the Institute of Engineering Thermophysics at the Chinese Academy of Sciences, unveiled a new technology that can convert non-combustible solid coal fuels into gas-like fuels.
The application of this technology has been reported to realize “ultra low-emission” and clean coal power in the chemical coal industry.
As early as last December, authorities classified both coal and petrochemicals as feedstock energy uses and excluded them from overall energy use. This nominal split officially supports future unrestricted use of coal power.
In addition, China’s biomass power generation, such as the use of straw and other biomass and mixed coal, one of the means of energy saving and CO2 reduction in the coal industry, currently occupies a very small percentage, according to ISETS and GLUT.
After the CCP announced the suspension of climate change negotiations last month, its immature technology for capturing, storing and distributing carbon dioxide could make a breakthrough difficult in the near future, the Wall Street Journal reported Aug. 18.