With China’s coal consumption beginning to fall but new generating capacity still coming online, “continued buildup of coal-fired power plants represents an investment bubble that will burst as overcapacity becomes too large to ignore,” Greenpeace International analyst Lauri Myllyvirta wrote earlier this week on The Energy Collective.
Although the pace has slowed since 2006, “the rate of coal-fired power plant additions and construction initiations in China is still breathtaking,” Myllyvirta reports. “39 gigawatts were added in 2014, or three 1000MW units every four weeks, up from 36 gigawatts in 2013.”
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The problem for plant operators is that power generation from coal fell 1.6% in 2014, total coal consumption fell 0.5% to 2.5%, depending on data source, and China has committed to cap its coal use in 2020.
“In fact,” she writes, “coal-fired capacity growth has outstripped coal-fired generation growth since 2011, leading to dramatically reduced capacity utilization and financial pain to power plant operators. The headline making the rounds in China is that capacity utilization, at 54%, was at its lowest level since the reforms of 1978 (which is when statistics began to be made available).”
Myllyvirta contrasts the way a coal plant would operate in China compared to some other countries.
“The conventional assumption in the power business is that once a coal-fired power plant or other capital-intensive generating asset gets built, it will run pretty much at full steam for 40 years or more,” she writes. “However, this is not how things work in China. The government is not going to scrap the internationally pledged 15% non-fossil energy target for 2020 because of excess coal-fired capacity.”
Instead, “the overcapacity will lead to losses for power generators and will be eliminated by closing down older plants, as has happened with coal mining, steel, and cement already.” So even if it leads to “massive economic waste, and a missed opportunity to channel the investment spending into renewable energy,” continued construction of new coal plants “does not mean locking in more coal-burning.”
