Russell: China goes after low-hanging coal fruit, the real challenge is at home

The Chinese leader used an address at the United Nations to state his country, the largest emitter of gases associated with climate change, would halt financing of coal-fired projects and boost help to developing countries to switch to cleaner renewable energy.

Given China is the largest financier of such projects, and an earlier commitment from Japan and South Korea to exit coal power projects, the move does call into question the viability of a large chunk of the world’s planned coal-fired plants.

Global Energy Monitor (GEM), a U.S.-based group that tracks coal power globally, told Reuters that 44 coal plants slated for an estimated $50 billion in Chinese financing could be impacted by the decision.

The pro-renewables think tank, Institute for Energy Economics and Financial Analysis (IEEFA), said a review of coal power proposals in countries with significant project pipelines indicates 56% of the total capacity is being supported by China.

Among countries with large Chinese support for coal power projects are Indonesia, where about 54% of the 18 gigawatts (GW) of planned plants have Chinese backing, and Bangladesh, where 88% of about 10 GW are supported by Beijing.

It’s worth noting that several of these planned projects were already in difficulty prior to Xi’s announcement, with high costs relative to competing renewable technologies and battery storage, climate change concerns and domestic opposition to rising air pollution.

A massive rally in seaborne thermal coal prices to near all-time highs, and a similar spike in rival fossil fuel liquefied natural gas (LNG), will also undermine the case for coal-fired projects based on imported supplies, given the ever-present risk of price volatility, especially as the world transitions to cleaner energy.

Thus it is likely Xi’s commitment has sounded the death knell for many outstanding projects around the world because alternative financing outside of direct government support will be hard to find.

China’s own plants key

The question then becomes whether this is enough to make much difference to the outlook for coal-fired power.

If all the planned projects with Chinese backing are cancelled, this would remove about 50 GW from the coal-fired pipeline.

According to GEM data there are 296.66 GW of coal projects in the announced, pre-permitted and permitted phases globally, so the Chinese-financed total amounts to about one-sixth of these. And more than half of them, or about 163 GW, are inside China itself.

Of countries that aren’t reliant on Chinese financing, only India has a significant pipeline of coal plants, with 20.7 GW in the announced, pre-permitted and permitted stages.

What the numbers show then is that if Xi really wanted to make a difference to the pipeline of coal-fired power plants, he has far more to do at home that he has internationally.

China has 96.68 GW of coal-fired generation under construction, more than half the global total, and has 1,047 GW operating, which is almost exactly half of the world’s capacity.

China’s operating coal fleet is also roughly four times bigger than the fleets of either of the next two biggest coal-reliant countries, India with 233 GW and the United States with 232.8 GW.

U.S. coal generation is likely to continue its rapid de-commissioning in coming years, especially considering the decarbonisation commitment of President Joe Biden.

There is also a question over Indian coal-fired power given many of the existing power plants can’t compete economically with renewables. Recent history has shown that coal is the first to exit the system in periods of soft power demand.

Overall, China’s announcement that it will stop funding coal power projects overseas is a positive development in mitigating climate change. The real game-changer, though, would be a commitment to ending its pipeline of domestic coal-fired plants.

(Editing by Tom Hogue)