After covering much of the expansion in power generation across Asia over the last decade, coal power investment is now slowing down everywhere outside of China. This has been reflected in the fate of China-backed coal power projects, with far more proposed capacity cancelled than progressing into construction in recent years. The slowdown in new coal is an opportunity for both recipient countries and financiers, including China, to pivot fully to zero carbon technologies to meet energy security goals and sustainable economic development.
New research by the Centre for Research on Energy and Clean Air (CREA) found that 4.5 times more coal-fired power capacity linked to China has been shelved or canceled than constructed since 2017. Significantly, developments in recipient countries are the primary driver behind the wave of cancellations.
“The slowdown in new coal is an opportunity for both recipient countries and financiers, including China, to pivot fully to zero carbon technologies to meet energy security goals and sustainable economic development.”
The recent cancellations contrast with earlier trends. To date, over 120 gigawatts (GW) of coal capacity outside of China have seen financing, engineering, and equipment supply from the country. In the past, this enthusiasm to build out coal was reciprocated in much of the developing world. Foreign investment filled a local financing gap and helped meet the growing demand for electricity alongside the hope of bolstering economic growth.
However, in the past five years, policy and market change in recipient countries have further diminished coal’s profitability in national power systems and decreased the need for additional baseload capacity.
Domestic economic and political pushback have contributed to the cancellation of 72 GW of China-backed coal capacity that was being planned but was not yet under construction at the start of 2017. Concerns around negative environmental, climate, and social impacts in the form of air pollution, livelihood disruptions, and ecosystem degradation have projects facing public resistance, and even litigation.
In addition, some of the countries hosting China-backed coal projects have massive overcapacity on their grids and shrinking demand for new power capacity, especially where demand growth has been overestimated. Operating coal plants in countries like Bangladesh, South Africa, and Zimbabwe have recorded low annual utilization rates. Additional coal capacity would only worsen the situation.
Finally, solar and wind technologies have seen an unprecedented drop in cost, which has expanded the market for their adoption and decreased coal’s competitiveness. Even in countries with a large fleet and pipeline of Chinese-backed coal such as India, Indonesia, and Vietnam, it has become cheaper to generate electricity from new renewable energy (RE) technologies than from new coal plants.
Looking ahead, we expect this trend in cancellations of Chinese overseas coal projects to continue. With pledges of climate and clean energy financing from developed countries and pronouncements of greening the Belt and Road initiative from China, emerging economies have an opportunity to jump start their energy transition by creating the enabling environment to attract more domestic and foreign investment in their renewables sectors.
The Chinese utilities and banks behind most overseas projects are already the world’s largest developers and financiers of clean energy projects—at home. China is well positioned to support RE deployment globally, but this will not happen without incentives and proactive interventions.
“Weak emission standards in host countries have been exploited by project developers, allowing overseas coal projects to emit, on average, five times the air pollutant emissions limits allowed for new coal plants in China.”
Host country policies will also influence the quality of investments. It is worth remembering that despite the promise of more efficient and advanced coal technology, our research found that weak emission standards in host countries have been exploited by project developers, allowing overseas coal projects to emit, on average, five times the air pollutant emissions limits allowed for new coal plants in China. Not a single project for which we were able to compile emissions data would have been legal to build in China.
Moving forward with planned coal investments would lock in completely avoidable carbon emissions, as well as increase air pollution-related health impacts and costs in host countries. The stranded asset risk for new coal is also higher, especially with increasing coal prices, construction and maintenance costs, and already existing underutilization. Coal plants also lack the flexibility required in future power systems, which will need to integrate more diverse generation sources and account for higher uncertainty and variability due to climate change.
In short, recipient countries can move away from coal and open new markets to promote energy security and sustainable long-term development. Governments and investors should cancel all additional coal power projects, and not waste time and resources in keeping the industry on life support. Instead, policies must align to re-direct investments towards clean energy.
Isabella Suarez is the Southeast Asia Analyst at the Centre for Research on Energy and Clean Air.