Yesterday, China’s National Bureau of Statistics released its 2016 Statistical Communiqué on Economic and Social Development.
For anyone interested in energy or climate change, this is one of the key documents of the year.
From an Australian perspective, coal is of course the resource to watch, given China is the world’s largest import market.
And the 2016 figures revealed coal is the biggest loser in China’s energy transition. For the third year running, production and consumption dropped, confirming that China is now well past its 2013 peak, while the utilization rate for coal-fired generators declined to 47.5% – an all time low.
Since China produces half the world’s coal, it’s almost impossible to overstate the importance of these numbers.
Perhaps the headline figures were coal consumption, down 4.7% and coal production, down a record 9.0% yoy to 3,410 million tonnes (Mt). This brought the three year average production decline to 4.9% p.a.; a decline of 564Mt in total.
Again, to put some perspective on this, the consumption cut equates to more than Australia’s entire lignite and thermal coal industry’s annual output combined.
This reversal is even more dramatic when you consider that as recently as 2014, the International Energy Agency (IEA) was forecasting Chinese coal consumption to grow through to 2030.
The most bullish of coal bulls may still attempt to point to the growth in new coal-fired as signs of hope. But over 2013-2016 China added a total of 200GW of new, effectively idle coal-fired power generation.
The result has been a collapse to a record low 47.5% capacity utilisation rate for the coal-fired power sector in 2016, down from a near term peak of 79% capacity utilization as recently as 2011.
This consequence of this has been the construction of an unexpected US$200bn of stranded assets, with thermal efficiency and economic returns dramatically below those anticipated at the time planning was commenced.
So what does this mean for coal exporters?
There’s no doubt that China’s short-term energy policy support resulted in a chaotic seaborne market for coal in 2016, but as thermal coal continues to lose market share, the declining trend for exporters such as Australia is unmistakable.
China’s coal imports in 2016 were 255Mt, down 72Mt net on the 327Mt peak reached in 2013. This reflects an 11% decline in 2014 and then -31% in 2015, followed by a short-term policy-induced recovery of +26% in 2016.
The move to restrict coal mining to 276 days in May 2016 was instigated to cut production and tighten pricing, to prevent a similar financial collapse of Chinese coal firms following Peabody Energy US’s move into Chapter 11 in April 2016. Having worked rather too well, this decision was reversed later in the year.
2017 is set to be another bleak year for China’s coal sector, with the government already announcing further curtailments in January and February. IEEFA forecasts that China could become an opportunistic thermal coal net exporter again over the coming decade.
The story for renewable energy in China is one of growth. The country has exceeded all expectations with its investment in renewable energy capacity, once again breaking its own world record for installation.
China plans to invest US$360bn in new renewable energy capacity by 2020, driving new employment and technology development.
A world record 33.2 gigawatts (GW) of solar was installed in 2016, double China’s then record 15GW installed in 2015, which itself was double the highest ever German record annual installs of 7.6GW achieved back in 2012. On-grid utility solar grew 34% yoy to 39TWh in 2016.
In terms of wind, China installed ‘just’ 17.3GW in 2016, down from the record annual install of 29GW in 2015, again set by China. Wind generation grew 19% to 211TWh.
Probably the most impressive achievement from China in 2016 was the decoupling of economic activity from energy demand. China’s total energy consumption grew just 1.4%, a fraction of the 6.7% real economic growth reported.
It’s clear the transformation in China’s energy sector is continuing apace. Energy productivity is improving rapidly, and when this is combined with record annual renewable energy installations, the result is that China continues to diversify away from coal faster than anyone expected.
Tim Buckley, Director of Energy Finance Studies, Australasia at the Institute for Energy Economics and Financial Analysis (IEEFA)
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