China’s energy sector is lumbering under the weight of a coal power glut prompting the central government to step in, writes Feng Hao.
China’s central government has ordered local authorities to delay or cancel construction of new coal-fired power plants, as regulators attempt to reduce a glut in capacity, just one year after decisions were delegated to the provinces.
The National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) have ordered a halt to construction of coal-fired plants in 13 provinces where capacity is already in surplus, including major coal producers such as Inner Mongolia, Shanxi and Shaanxi. A further 15 provinces will be required to delay construction of already-approved plants.
Harsh punishments have been threatened for construction that goes ahead in breach of the new regulations. Operating licenses will be denied, connection to the power grid blocked, and financial institutions will halt lending to transgressors.
The curbs come as Chinese government departments are asked to make rapid policy adjustments in response to slowing electricity demand, as the country shifts towards a less wasteful and less energy-intensive economy, and aims to reduce the amount of coal power generation.
China’s central government decided early last year to decentralise the authority to approve environmental impact assessments on coal projects starting from March 2015 onwards.
But the problem goes back further, say analysts, pointing to the Chinese economy’s addiction to debt-fuelled capital spending.
“The document shows the government has realised how serious the overcapacity issue is, and that decisive measures need to be taken to solve it,” Song Ranping, developing country climate action manager at the World Resources Institute (WRI), toldchinadialogue.
“The government now needs to make sure this is implemented and evaluate how successful the measures are, so that controls can be further tightened if necessary,” he added.
Central and local governments need to address issues such as oversupply at an earlier stage, Song said. He pointed to the need for an ‘early warning mechanism’ that flags up local decisions that exacerbate the surplus.
A clear price signal that a surplus of coal-fired power is uneconomic is lacking in China, because the country’s power tariffs are state controlled. That means energy producers still receive a good price despite the oversupply.
The communique issued last week by the NDRC and the NEA comes in the wake of announcements made at China’s twin legislative sessions in March and in the country’s 13th Five-Year Plan, which placed a strong emphasis on greener, smarter economic growth.