China – the biggest consumer of electricity in the world – does not need any new coal fired power stations, and there are US$237 billion ($A307 billion) of potential stranded assets because of a massive over-build that already amounts to a 35 per cent surplus.
“There are no provinces in China where new coal generation capacity is needed,” the report by Bloomberg New Energy Finance and Cliamteworks says.
Only four provinces – Beijing, Shanghai, Jiangsu and Hebei – have a generation felt that is not equal or higher than peak demand. But there provinces can access imports and clean technology, and in any case are affected by severe air pollution. In fact, Beijing has closed down most of its coal fired capacity.
In response to this growing risk of stranded assets, and over-capacity, regulators have announced the cancelation or delay of over 190GW of coal power projects over the last financial year.
This began last September with the cancelation of 15 coal power projects, totalling 12.4GW last September, was increased in January with another 103 coal power plants totaling 114GW under construction cancelled or delayed until after 2020, and continued this September with another 40MW stopped.
“China faces a potential hit of $US237 billion from at-risk coal assets,” the report says. “Most recent investment data show that China is still constructing over 120GW of new coal generation capacity. These plants are all, according to our analysis, highly risky investments that will under-perform.”
The province with the biggest over-capacity in inner Mongolia, which has built some 75GW of coal capacity although it has peak demand of just 20GW.
Coal plant investors face major issues, mostly in the reform of power markets which will mean that their dispatch quotas, and ability to sell at government-mandated benchmark prices, will be eroded. They will have to compete in liberalised market.
But the over-build cuts both ways. The BNEF report notes that wind and solar facilities in China have been facing major curtailment problems, because they have been built in provinces with poor connections to major load areas, and will need an upgrade of grid connections.
“Renewable power generators (in China) face the worst curtailment rates in the world, with the national average curtailment ratio in 2016 at 17 per cent for wind and 10 per cent for solar,” it says.
“Will low-carbon renewable generation achieve priority dispatch over coal-fired power, as the market moves towards an economic driven merit-order? Or will wind and solar assets face economic hardship as curtailment continues even as subsidies decline?”
The report says the causes of curtailment vary significantly between different Chinese provinces. Grid congestion, poor market dispatch design, and power oversupply are all key factors.
Another issue is seasonal curtailment, related to seasonal variation in the amount of flexible capacity available to a local grid.
For instance, during the cold season, the overall power system flexibility becomes worse in northern China as the combined- heat-and-power (CHP) power plants from thermal plants operate as base load capacity to deliver heat.
Meanwhile, the southern parts of China will see worse power-system flexibility during the summer as hydro power becomes the base load. We account for this by calculating variation in the amount of non-dispatchable power from season to season.
It expects the construction of new high voltage power lines will lead to a decline in curtailment, although significant new capacity is planned for provinces most at risk.
“China’s 13th Five Year Plan calls for efficient allocation of resources and a market producing the right signals. It includes establishing a competitive wholesale market based on economic dispatch. This should allow renewables to be dispatched first, and should reduce curtailment significantly,” it says.
“Under the existing system, a protected portion of dispatch is supposed to guarantee minimum utilization for wind and solar. In the absence of economic dispatch, each provinces’ ability to reduce curtailment depends heavily on whether or not this guaranteed dispatch on grid operators is enforced.”