ANALYSIS-In China's coal country, full steam ahead with new power plants despite climate pledges

Credit: REUTERS/TINGSHU WANG

By Colleen Howe and Ella Cao

YULIN, China, Nov 30 (Reuters) - On a flat, dusty patch of land 13 kilometres (8.1 miles) west of Yulin in the heart of China's coal country, construction workers braved sub-freezing temperatures at the site of a planned 700 megawatt(MW) power plant set to open in less than a year.

Surrounded by cranes, the main building at the 3 billion-plus yuan ($419 million) Yushen Yuheng plant is taking shape, part of a spate of new coal-fired power construction in China even as the country pledges to begin reducing coal use during its next five-year plan, beginning in 2026.

China has decommissioned 70.45 gigawatts (GW) of coal-fired plants in the last decade, and is building far more renewable energy capacity than any other country. Analysts say coal use may peak as soon as this year.

But a sudden flurry of approvals of new coal-fired plants in recent years raises doubts about China's commitment to phasing out the fossil fuel, and its key role in the country's energy security plans shows the difficult task that lies ahead for world leaders.

The surge in new coal-fired power stations has provided an economic lifeline for some, including a woman surnamed Li, who owns a fruit shop near the Yushen Yuheng plant. She said she left her hometown of Yangquan in neighbouring Shanxi province after curbs on coal stymied development there, and is betting on growth around the Yushen Yuheng plant.

"Overall my business is good, at least better than when I was in Yangquan," Li told Reuters. "Here you can see white smoke coming out of huge chimneys, which you don't see in my hometown anymore."

Cutting coal use is key to global efforts to combat climate change and a focal point of the UN's COP28 climate talks, which start this week in Dubai.

Coal power makes up about 70% of emissions in China, which has committed to being carbon neutral by 2060. After 2025, it is unclear whether China will approve new coal plants.

In the third quarter of this year, however, China permitted more new coal plants than in all of 2021, according to Greenpeace, even as most countries have stopped building new coal-fired power and are phasing out plants.

"With energy security becoming a code word for coal in recent years, there is a clear-cut path to receive approval on building more new coal while you still can," Greenpeace project leader Gao Yuhe said.

Xu Mingjun, general manager of Shenhua Energy, China's largest coal company, told investors in September that the company was taking advantage of this window of opportunity to bolster coal development.

More than 95% of the global coal plant capacity that began construction this year was in China, according to U.S. think tank Global Energy Monitor (GEM).

China's renewed obsession with energy security follows a crippling domestic coal and power shortage in 2021, as well as a European energy crisis last year in the aftermath of Russia's invasion of Ukraine, which sent prices of natural gas soaring.

Despite overseas pressure, China climate envoy Xie Zhenhua told diplomats in September that energy security concerns meant phasing out fossil fuels remained "unrealistic".

Researchers with the Development and Research Center, a think tank attached to China's cabinet, said in September that coal-fired power capacity could rise by more than 200 GW by the end of the decade - more than all the power capacity in Canada.

COAL NOW, COAL FOREVER?

Once a stop on the ancient Silk Road, the Shaanxi province city of Yulin has pledged to cut the number of coal mines by 2025.

But like many cities in China's coal country, coal revenues and jobs are an incentive to keep building. Yulin's revenue jumped nearly 60% in 2022 on higher coal prices but dropped almost 20% annually in January-June 2023, according to Reuters calculations based on government data, highlighting the risks of coal reliance.

On the distant fringe of the city, another new coal power plant is rising from the sand on the edge of the vast Ordos Desert at the massive Jinjie Industrial Park - where rows of factories turn abundant coal reserves into oil and chemicals.

To be sure, China is seeking to mitigate the emissions impact of new coal plants, which Beijing says will eventually serve as backups to the massive amounts of renewable capacity being added to the grid.

The Yushen Yuheng plant replaces 702 MW of power from smaller, less-efficient plants, and its construction includes 60 MW of wind power, 260 MW of solar and 100,000 tons annually of carbon capture.

A 2022 regulation requires all new coal-fired plants to be built with the purpose of ensuring supply security and promoting new energy.

THE FUTURE

Concerned about power shortages, China's state planner announced a capacity price mechanism that, beginning in January, will pay generators to have coal plants operational, regardless of whether they are used.

Although many analysts believe China's coal consumption could peak as soon as this year, Beijing has been reluctant to commit to a more ambitious target, saying it will phase down coal between 2026 and 2030.

Shaanxi Yulin Energy, developer of Yushen Yuheng, plans to invest another 6 billion yuan to build two more coal units for operation in 2027, government-backed newspaper Shaanxi Daily reported in August.

Several workers in Yulin expressed little doubt about whether new coal plants make economic and environmental sense.

"Underground resources will never run out," said a truck driver at the Jinjie Industrial Park surnamed Duan. "There will always be coal."

Coal plant capacity beginning construction in China https://tmsnrt.rs/46Do5SH

(Reporting by Colleen Howe, Ella Cao in Yulin and David Stanway in Singapore; Editing by Tony Munroe and Gerry Doyle)

((colleen.howe@thomsonreuters.com;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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