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Coal cold shoulder intensifies

China’s pledge to not fund any new coal-fired power plants outside of its borders should sound a loud alarm to those still entrenched in the business of moving coal by sea.

The promise, made by Chinese president Xi Jinping at the United Nations General Assembly debate in September, suits the Asia powerhouse both economically and environmentally. It also pulls the pipeline for new coal projects in Asia down to 22 gigawatts (GW), according to the Global Energy Monitor and the Centre for Research on Energy and Clean Air (CREA).

“China’s recent pledge to ‘not build new coal-fired power projects abroad’ solidifies a global financial trend away from coal, as several private and governmental institutions, most notably from Japan and South Korea, have made similar announcements,” said a report from the Global Energy Monitor and CREA. “Without Chinese financial support, most coal-fired power plants will struggle significantly to secure the massive up-front capital necessary for construction. The withdrawal of Chinese financing may seal off the coal-fired development pipeline once and for all.”

Before the announcement, over 65 gigawatts (GW) of coal-fired power plants were planned for construction in Asian countries outside of China and India. If all those dependent on Chinese support are cancelled, it would remove two-thirds of the planned projects, leaving only 22 GW remaining in eight countries.

In analysis of the changes, report authors Isabella Suarez and Russell Gray say that most of the cancellations would occur in Vietnam, where two-thirds (12.5 GW) of the 19 GW of projects in pre-construction status are linked to Chinese funds. Bangladesh accounts for 9 GW of the cancellations and Indonesia makes up 6.6 GW. Cambodia, meanwhile, would have its only remaining planned coal project, the 700 megawatt (MW) Botum Sakor power station, cancelled.

‘Death knell’

“China’s withdrawal of financing should sound the death knell for future coal-fired power projects,” Suarez and Gray said. “Coal-fired power can no longer compete economically with lower-carbon alternatives, and existing coal capacity has led to unreliability and financial burden on governments, power utilities, and consumers in the region.”

They add that financial institutions have been wary of backing coal-fired power for several years, and without government-backed public financing, most projects will find it “virtually impossible to raise the large up-front capital investment required for coal-fired power plants”. And even if they can secure the funds, the plants will likely be unprofitable.

Adding to the Chinese pledge, the Bangladesh Energy Ministry announced plans to cancel fifteen coal-fired power plants this year with 10 cancelled in June 2021, and a further six cancelled in November 2021. The Philippines’ Department of Energy, meanwhile, declared a moratorium on new coal permits on undeveloped “greenfield” sites in October 2020, which resulted in 2.8 GW being officially cancelled, in addition to almost 1 GW considered cancelled due to a lack of progress in the last four years.

Ilaria Mazzocco, a fellow with the trustee chair in Chinese Business and Economics at the Center for Strategic and International Studies, described China’s announcement as “a new and important development”. It aligns China’s position with that of other major economies and sends an “unambiguous signal” to financial institutions, investors, and companies both outside and within China that coal is “no longer a safe investment”, she said.

Potential pitfalls

However, there are caveats to the positivity: “While the announcement is a welcome development, it remains open for interpretation until further clarification is provided,” said Mazzocco. Many have interpreted the statement to refer to China’s role in financing coal; however, President Xi said that China would not “build” new coal-fired projects. “This leaves the door open for a stricter interpretation that includes financing as well as holding equity, or even state-owned enterprise involvement in construction.” It could also mean that scope remains for financing of projects already in the pipeline.

Additionally, the announcement is not directly related to China’s domestic policy: “While the latest announcement is a powerful signal, peaking carbon emissions—and doing so at a relatively low level—will require far more industrial, regulatory, and bureaucratic restructuring than is currently planned,” said Mazzocco. “Despite the rapid expansion of renewables over the past decade, coal’s importance in the country’s energy mix, and its politics, is still the biggest hurdle in reducing China’s emissions. Ultimately, China will have to stop building coal-fired power plants at home if it wants to meet its climate goals.”

Domestic concerns aside, Suarez and Gray still see the planned withdrawal having a “major impact on coal power projects in Asia that have not yet begun construction”. They go one stage further in their analysis, calculating that if the remaining 22 GW of planned coal capacity is cancelled, it would save over $27 billion in capital costs that could be spent on zero-carbon technologies, energy efficiency, and grid expansion and modernisation. Diverting that spend would also avoid adding approximately 103 million tons of CO2 emissions annually into the environment — the equivalent of Bangladesh’s total CO2 emissions in 2019.
Source: Baltic Exchange

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