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Environment

China, India pouring cash into coal plants that may not be used

Analysts say any coal-fired plant completed after 2016 will not be profitable enough to operate in the future. So why are utilities still building them?

World Press Photo 2016 Category Daily Life China coal.

A coal-fired power plant in Shanxi, China. A new report warns that there may not be enough demand for new plants.

If you are a worker at a Chinese coal-fired power plant, you may not have much to do these days.

Last year, the many coal plants located across China were sitting idle nearly half of the time, according to a new report released on Wednesday. The 50 percent utilisation rate is down from 60 percent in 2011. It is the lowest level since 1969, and it is predicted to keep falling. Coal use in China has fallen for the past two years in a row.

And yet, new coal plants are still being planned and constructed at a frenetic pace. In 2015 authorities approved three times as many new coal plant projects as the previous year. "China is effectively adding more than one redundant coal power plant each week," the report by the NGOs Sierra Club, Greenpeace and CoalSwarm concludes. The total amount invested in unused plants could total one trillion US dollars.

The Chinese situation is part of an Asia-wide trend. Since 2010, 473 gigawatts (GW) of new coal capacity went online in 33 countries. 85 percent of these plants were built in China and India, with the remainder mostly in Indonesia and Vietnam.

East and South Asia saw a 17.5GW and 3.7GW growth in coal-fired generation capacity over the past year, respectively. By contrast, almost no new coal plants are being built in Europe and North America, and many old plants are being retired. The European Union saw a 4.1 GW drop in coal-fired generation capacity in the past year, while North America saw a 0.8 GW drop and Latin America a 0. GW drop. Africa saw a 1.1 GW drop.

Smog in India.

Joggers exercise on a smoggy morning in New Delhi.

Why the discrepancy?

Lauri Myllyvirta, a coal expert with Greenpeace based in China, says dysfunctional planning systems and cheap credit are to blame for counter-intuitive investment by utilities.

"China is the most dramatic example, where the market for new coal has been completely obliterated but the state-owned power company has almost uncontrolled access to cheap credit," he says. "The power market is being regulated in a way that makes coal-fired power plants easy to build, even if they’re operated at a very low realization rate."

Much of the new planning was authorised in the immediate period after September 2014, when authority for issuing permits for new plants was shifted from the national goverment to the provinces. This resulted in a rush for new projects which the regional authorities thought would bring jobs to their areas. 149 permits were issued in the three months after that decision, compared to 32 permits in the months before.

While the over-investment in China seems at least partly accidental, in India it has been a result of concerted government policy. "The Indian government has been promising a very large supply of low-cost coal and has been heavily promoting the view that there will be demand for new coal-fired power plants," says Myllyvirta. "But even in India where power generation from coal is growing, investment has run way ahead of demand. The realization rate has been falling for several years, mainly because the power market just can’t support the plants."

11 GW of India’s coal capacity is currently lying idle, and this is expected to increase this year, according to the report.

China coal mine in Qitaihe.

An underground coal mine in Qitaihe City, China.

End of the road for coal?

The recent decrease in demand can be largely attributed to the economic slowdown. But analysts predict that decrease to continue even once the economy picks up due to two factors: future emissions reduction measures agreed at last year’s

UN climate summit

in Paris, and the increased implementation and falling cost of renewable energy. In India a carbon tax has been proposed and China is moving forward with emissions cap-and-trade schemes.

Analysts are predicting that as a result, many of the 1,500 plants being planned for construction in the coming years worldwide will not be built. A separate report published recently by the UK's Energy and Climate Intelligence Unit found that China, India, Indonesia and Vietnam are likely to build less than half of their planned coal plants. But even if only half of the planned plants are built, new plant construction in Asia will outpace old plant retirement in Europe and the Americas by five times.

The coal industry disputes the report’s assumptions, noting that both India and China have made future coal use a central part of their emissions reduction plans submitted in Paris. Benjamin Sporton, chief executive of the World Coal Association, notes that the report does not mention that the new plants are using new "high-efficiency coal" technology that they say will be half the price of gas and one-fifth the price of wind in Asian countries in the future.

"That’s one of the things that China is focused on, taking down the older less efficient and smaller plants and building new large plants," he says. "In China, sure they’re having some economic trouble which is causing some of these issues. But I don’t see that as being a long-term situation ... even when plants are operating below capacity that provides an opportunity for an increase in generation, because when electricity is needed, those plants are there."

Sporton believes that high-efficiency coal will have no problem integrating with the emissions commitments made by these countries in Paris. But climate campaigners fear that the glut of new plants will result in a carbon-intensive and economically inefficient future.

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