Lower Prices For Renewables Mean Fewer Coal-Powered Generating Stations In China

China has a moratorium on building new coal-fired generating stations in ten regions of that vast country because they have more electricity available than there is demand for it. That moratorium will end soon, but analysts believe the plummeting cost of renewables will dampen the enthusiasm for new coal plants. Just because they could be built doesn’t mean they will be.

“The profitability of coal fired power plants is so low, there’s no incentive for them to build more,” Morningstar analyst Jennifer Song tells Bloomberg. “China as a whole has set consumption targets for renewable energy sources. We can see those large power groups also have quotas to build more renewable projects.” Power producers in China are under pressure from the central government to derive more of their electricity from renewables.

The majority of electricity in China is still derived from coal generating stations, and the International Energy Agency says the country will still be the largest consumer of coal through 2023. China’s booming (until recently) economy has been powered by access to abundant low cost electricity and most of that has come from coal powered plants.

Data released by the National Energy Administration on April 15 showed China’s investment in thermal energy during the first quarter of 2019 fell by 30% compared to a year ago. By contrast, spending on hydro power and wind power projects rose 48% and 30%, respectively. Coal mining stocks fell in Shanghai on the news. China Coal Energy shares were down 3.5%, while Yanzhou Coal Mining lost 2.9%.

“Most of the capital expenditure planned by coal-fired power companies will be in renewable energy,” Song Qiuyi, an analyst at Capital Securities in Shanghai, adding that the latest assessment from NEA won’t change the situation.

China’s leaders realize that pollution from coal-powered generating plants is largely responsible for the crippling smog that besets many of its major cities, especially Beijing. But those same leaders don’t want to cause a slowdown in China’s economy. The path between sustainability and prosperity is narrow and fraught with danger.

China’s efforts to transform its energy have been massive. It has spent more on renewable energy than any other country and it has switched many of its generating facilities to natural gas. What China does with respect to renewable energy will influence other governments around the world. Reducing its dependence on coal is a big step in the right direction and signals that era of coal as a source of electricity is nearly over.