With the tighter power supply in the country's multiple places in the past two years, to ensure power security, there was a surge in the number of newly approved coal power projects in China in 2022. According to data from the China Electric Power Enterprise Federation, in the first 11 months of 2022, its newly approved coal power installed capacity has exceeded 65 million kilowatts, three times the 21.36 million kilowatts approved in 2021, signifying that coal power investment surged in 2022. This, in turn, causes the contradiction between the rise of energy demand due to economic growth and the realization of "dual carbon" development to become even more obvious. Such a situation also indicates that the path of China's green development is not always smooth, as it requires a balanced and gradual process.
Some organizations and institutes that promote green development are critical to the emergence of the growth of coal power investment, believing it to be a return to the old development path. A report of the Peking University's Institute of Energy pointed out that if local provinces cannot better balance the optimization of coal power transformation and the guarantee of supply with power-security and clean power transformation, but instead blindly allow a large number of coal power projects to operate, this will be detrimental to the realization of carbon peaking and neutrality.
In the opinion of the researchers at ANBOUND, these concerns about extensive development and the promotion of long-term green energy transformation are positive for China's energy security and structural adjustment towards sustainability. However, from the perspective of the central government's basic policy on energy issues, and from the view of the current power supply and demand balance, it is more realistic to use coal power investment to meet the current energy need. In particular, the role of energy stabilization should not be overlooked when it comes to economic stability in the new year. These practices, in fact, are not contradictory to the future green energy transition. China's green energy development and transformation are facing a very complicated situation, and it is anything but easy to achieve its "dual carbon" goals. Achieving the balance between long-term goals and short-term needs will be the key to the country's energy construction and security for a long time to come, where long-term stable economic growth and green development will need to be considered.
For the purpose of environmental protection and overcapacity reduction, since the 13th Five-Year Plan period (2016 - 2020), China has begun to reduce coal power production capacity. At that time, the country's National Development and Reform Commission (NDRC) and other departments proposed that period, "the construction of coal-fired power capacity would be suspended or postponed nationwide by 150 million kilowatts, and by 2020, the national coal-fired power installed capacity would be controlled within 1.1 billion kilowatts". In 2020, the actual installed capacity of coal power in the country was 1.08 billion kilowatts, and the policies to halt and delay the construction of coal power projects have achieved remarkable results. However, the one-size-fits-all policy has made the contradiction between power supply and rapidly growing demand increasingly prominent, which in turn has triggered a large-scale outbreak of shortages during the 14th Five-Year Plan period (2021 – 2025).
Despite the rapid growth of new energy installed capacity during this period, compared with stable coal power, its ability to cope with peak power consumption is still flawed. According to the report of Cinda Securities, from 2016 to 2020, the new installed capacity of new energy accounted for 40.6%, 54.4%, 53.6%, 50.8%, and 63.0% of the total new installed capacity respectively; The proportion of installed capacity only reached 44.2%, 34.8%, 31.8%, 42.0%, and 28.8% respectively, and the growth rate gradually slowed down. At the same time, the remaining exploitable margin of hydropower is insufficient, and the approval and construction of nuclear power stagnated for three years from 2016 to 2018, resulting in the peak capacity growth rate continuing to be lower than the maximum load growth rate. From 2011 to 2021, the average annual growth rate of full power installed capacity is 12.44%, while the peak capacity growth rate was only 7.37%. After 2014, the growth gap gradually widens. Some analysts believe that the growth rate of peak capacity installed capacity is lower than the growth rate of full power installed capacity, and the proportion of coal-based supporting power installed capacity in the total installed capacity is declining year by year, which is the root cause of power shortages. This also shows that the supporting and leading role of coal power in the entire power supply system should not be easily changed.
Figure: China's monthly thermal power investment in the past three years (in RMB 100 million)
Source: Cinda Securities
Such circumstances became even more prominent in 2021. In the summer of that year, when electricity consumption was at its peak, there were large-scale power cuts across the country, affecting industrial production and residents' daily lives, which directly impacted economic and social stability. At the same time, because of the rise in coal prices, there were flaws in the linkage mechanism of coal and electricity, causing coal and electricity enterprises to face enormous pressure. This situation continues this year. Some organizations estimate that in the first three quarters of this year, coal power companies across the country increased their coal purchase costs by an additional RMB 260 billion year-on-year due to rising coal prices. This not only poses challenges to the overall power supply but also new threats to energy and economic stabilities. Due to the intensified electricity shortage that began in 2021, the Chinese central government came out with policies focusing on resource endowment for the realization of the dual carbon goals, and coal power investment begin to receive renewed attention. It is worth noting that although the current investment in coal power has begun to pick up, it will still take time for it to be able to supply electricity, which means that the tight supply and demand of power in the country will continue for a considerable period of time.
Looking at global development, the conflict between Russia and Ukraine has intensified geopolitical risks in the energy sector and caused most European countries to reconsider their energy transition policies. Traditional coal power and nuclear power investments have then returned to the visions of policymakers. Researchers at ANBOUND have previously suggested that the global energy industry is undergoing a major shift. Major adjustments have occurred in many fields such as global energy production, trading, transportation, consumption, investment, and financial markets. This systemic adjustment has changed the established development pattern and trends in the global energy field in the past and will bring about a transformation in the industry and energy market. This shift also affects China's energy layout and security. Not only does China need to reconsider coal power investment, but that nuclear power and other clean energy sectors have to be adjusted to avoid unnecessary impact on the economic structure due to green development. Therefore, maintaining energy security and stability is of great significance to the stability of its economy and the prevention of systemic risks.
The reality of China's current energy resources shows that coal will be its main power supply for a long time. Even after the "dual carbon" goals are achieved, China's energy supply still needs to maintain a diversified structure.
Final analysis conclusion:
The resurgence of China's coal power investment in 2022 has caused contradictions between the energy demand due to its economic growth and the realization of the country's "dual carbon" policy to become more prominent. With the trend of global energy being reset, China needs to take a long-term approach to energy transformation and green sustainable development.
