My work: China’s coal revival poses challenge for gas

Posted: March 9th, 2020 | Tags: China, clean coal, coal, energy, natural gas, oil and gas, renewables | No Comments »

Interfax Global Energy Services closed in February 2020, so I am sharing some of my final articles here to preserve them. This article was published on 6 January 2020.

China’s coal revival poses challenge for gas

China’s coal-fired power fleet will continue to modernise and improve its environmental credentials during the upcoming 14th Five-Year Plan period (2021-2025). This could squeeze the potential room for gas-fired power generation to grow over the same period.

Chinese Premier Li Keqiang told a meeting of the National Energy Commission last October that, as coal continues to dominate China’s energy mix, efforts should be made to plan coal exploitation in a in a more environmentally responsible way. The remarks were widely seen as a shift from previous statements and a strong sign coal is regaining favour in China amid government fears about stuttering economic growth and energy security – both prompted by the bruising trade war with the United States.

Chinese gas industry officials have previously warned the role of gas in the power generation mix is facing stiff competition from so-called ‘clean coal’ and renewables. Beijing has promoted ultra-low emission coal technologies, which could limit the room for gas to expand over the next few decades.

China will continue phasing out smaller, outdated coal-burning power stations during the 14th Five-Year Plan period, replacing them with larger and more advanced facilities. This substitution means China’s overall coal-fired power capacity will be largely stable through the next five years.

Coal made up 67% of China’s electricity generation in 2017, followed by hydropower on 18%, according to the International Energy Agency. Gas represented less than 3%.

Incremental power capacity growth is more likely to be met by renewables than gas-fired power as the Chinese government has made clear it will rely mostly on clean energy to meet incremental energy demand during the 14th and 15th five-year plan periods – as stated in the Energy Supply and Consumption Revolution Strategy (2016-2030) policy document published in late 2016.

The renewables focus has been reflected in recent investment in generation capacity. Thermal power only accounted for 21% of China’s electricity construction investment in the first 10 months of 2019, compared with 36% for wind and 31% for hydro, according to the China Electricity Council (CEC).

50% renewables by 2030

Decarbonisation ranks high on China’s list of considerations when it comes to optimising the national electricity supply mix, alongside economics, availability and reliability. Beijing has decided it will rely mostly on clean energy to meet incremental energy demand for this decade, with non-fossil fuel sources – including solar, wind, nuclear and hydro – targeted to contribute 50% of electricity supply by 2030.

China will probably meet this target by continuous capacity additions in solar and wind – leaving gas-to-power out in the cold. The impact of this on gas-fired power generation will be seen mainly in its dwindling share of incremental electricity demand.

China’s electricity demand grew by about 540 TWh – or 8.5% year on year – in 2018, according to the CEC. This was the biggest increase in six years. Yet growth in electricity generated by solar and wind accounted for only 26% of the total growth. This will change considerably in coming years, with renewables poised to take an increasingly larger slice of the pie each year.

As the expansion of renewables will continue to outpace China’s overall power demand growth, both the coal-fired and gas-fired power sectors will suffer from declining utilisation hours. But coal power generation seems likely to fare better than gas thanks to lower fuel costs.

China’s modernising coal-fired power stations will have a lower carbon intensity than their predecessors. Chinese consultancies have forecast the average amount of coal needed by domestic plants to generate 1 kWh of electricity will fall to 306 grams this year from 333 grams in 2010.

The improved efficiency of the fleet will weaken China’s coal demand, keeping prices for the fuel depressed for the first few years of this decade. Coal prices could fall as low as RMB 540 per ton ($77/t) this year and RMB 510/t in 2021, which would be very difficult for gas-to-power to compete against.