At the same time as China is leading the world in exporting green environmental goods and services and building up the globe’s largest renewable energy industry, the country is also simultaneously funding over a quarter of the coal plants currently under development outside of the country.
Specifically, a new report, published by the Institute for Energy Economics and Financial Analysis (IEEFA), shows China is among the top global lenders in outbound clean energy investment — which is to say, in addition to the investment the country is directing to its own renewable energy industry, its financial resources are also going to support the development of clean energy industries around the world. However, China has also committed $35.9 billion in funding for 102 gigawatts (GW) of coal projects in at least 27 countries around the world.
The country receiving the most coal-fired capacity financial support from China is Bangladesh, followed by Vietnam, South Africa, Pakistan, and Indonesia. All in all, China is investing so much into international coal development that it is financing over one-quarter of the 399 GW of global coal-fired capacity under development outside of China.
“The International Energy Agency’s most conservative modelling forecasts declining global coal trade post 2018 for good reason,” said Report co-author Melissa Brown, IEEFA Energy Finance Consultant.
“Coal power locks importing countries into years of uncertainty about power prices as coal prices gyrate. By contrast, renewables are benefitting from huge technology improvements and have a deflationary impact on power prices.
“Many private global financial leaders, including most multilateral development banks, have come to see thermal coal as a poor investment with growing stranded asset risks. The World Bank, Standard Chartered UK, Generali of Italy, and Nippon Life of Japan have all turned their back on coal power for solid financial reasons.
“China is making great progress towards becoming a world leader in renewable clean energy at home, but outdated logic about power system design continues to dominate China’s overseas finance habits. China’s leading financial institutions lag their global peers in formally limiting investment in coal plants in international markets, imposing stranded asset risks on countries that will struggle to adapt as coal power becomes obsolete.” – Brown
Not only is China investing in overseas coal-fired power, though, Chinese companies are often acting as engineering, procurement, and construction (EPC) contractors for the projects they invest in, and sometimes going so far as to act as co-managers and owners. In fact, of the 102 GW of global coal-fired capacity supported by Chinese financing, 30 GW involves joint ownership.
This leads to coal-fired capacity being built where it is only economically viable through the intervention of Chinese investment — where, if China wasn’t subsidizing the costs, renewable energy would be the favored and economically cheaper option.
“These countries and more are instilling both a long-term dependence on volatile fossil fuel imports, and a dependence on China through coal plant joint ownership and/or strategic arrangements plus excessive foreign financial leverage, precisely at the time when prices for solar, wind, and energy efficiency costs are falling below imported coal power,” co-author Christine Shearer explained.
Part of the reason China is so vociferously supporting overseas development of coal-fired capacity is because most coal funding is being provided by public Chinese banks which also back state-owned enterprises receiving the contracts to build the plants which is employing a largely Chinese workforce.
“Those countries accepting Chinese coal finance are getting a bad deal from Chinese public institutional lenders as the total costs are prohibitive when compared to investment in deflationary renewable energy alternatives,” Shearer said. “With the majority of the planned Chinese coal projects yet to reach financial close in a number of countries, there is the possibility that the deals could fall through or be cancelled. Countries where Chinese finance is yet to be committed should re-focus their energy markets on investment in the grid improvements needed to support renewables.”
“As the cost of renewable energy undercuts new baseload coal-fired plants, IEEFA considers more private investment in cheaper zero-emissions energy to be a smarter path forward, rather than blindly agreeing to investment in outdated and expensive coal-fired plants backed by governments intent on filling their own coffers while everyone else bears the financial burden of global warming.”
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