China leans on coal amid energy security push

Originally posted in The Financial Express on 06 March, 2023

China’s state planner underlined a greater role for coal in its power supply on Sunday, saying the fossil fuel would be used to improve the reliability and security of its energy system.

Soaring global energy prices following Russia’s invasion of Ukraine and domestic supply disruption have prompted Beijing to step up its focus on energy security in recent years.

The world’s second-biggest economy relied on coal to generate 56.2 per cent of its electricity last year, according to data from the National Bureau of Statistics, but has significantly boosted its use of natural gas and renewable energy in recent years to lower carbon emissions.

Fluctuating output from renewable plants, however, has led policymakers to lean on reliable and easily dispatchable coal power to shore up the country’s baseload supply. Last year, scorching summer temperatures and a drought in China’s southwest caused hydropower output to dwindle, leading to power outages.

“We will strengthen the basic supporting role of coal (and) take orderly steps to increase advanced coal production while ensuring safety,” said the National Development and Reform Commission (NDRC) in a report to the annual gathering of parliament.

China approved the construction of another 106 gigawatts of coal-fired power capacity last year, four times higher than a year earlier and the highest since 2015, driven by energy security considerations, research showed last week.

About 50GW of that went into construction.

“The energy security narrative is still going strong,” said Greenpeace China policy advisor Li Shuo.

“This has given impetus to China’s coal sector as seen in the rapid approval of coal plants across the country,” he said.

The NDRC also stressed the importance of ramping up domestic oil and gas supply.

“We will intensify the exploration and development of petroleum and natural gas at home to discover more untapped reserves and increase production,” it said.

Despite a strategy to boost use of natural gas as a bridge fuel to achieve its 2060 carbon neutrality, China is slowing an aggressive campaign started in 2017 to replace coal with gas.

Concerned about supply shortages amid high global prices, the planner pledged to “strictly control the expansion of projects to replace coal with natural gas”.

The state planner also reiterated its efforts to further reform the oil and gas sector, with a focus on improving the pricing mechanism for natural gas to better reflect the cost of production and procurement.

China imports about 40 per cent of its gas consumption.

“(We shall) develop sound mechanisms to adjust urban end-user prices of natural gas in step with procurement costs,” the report said.

China will also push ahead with construction of a second batch of major wind and solar plants, they added.

The reliance on coal was described as temporary by some to cover supply shortfalls as the country develops renewables.

“New renewables generation has not been able to cover all the demand growth in any specific year, which means some additional coal generation is still needed each year,” said David Fishman, senior manager of China-based energy consultancy the Lantau Group.

“In 2023 or 2024 we might see the first year where renewable generation totally covers new demand growth… after this coal consumption should start to decrease year-on-year,” he said.

China has pledged to reach peak carbon emissions by 2030 and carbon-neutrality by 2060.

Beijing is targeting reducing energy consumption per unit of GDP by around 2 per cent in 2023, said the NDRC report.