Coal Power Overcapacity and the Investment Bubble in China

I

Executive Abstract

Electricity consumption growth in China has experienced dramatic changes from

high to more moderate rates with the advent of the new economic normal. According

to the China Electricity Council (CEC), in 2014, the annual utilization hours of power

generation units was the lowest since 1978, with 4286 hrs - 235 hrs less than in 2013.

Additionally, utilization hours of thermal units was 4706 hrs - 314 hrs less than in

2013, representing even less than the previous low record of 4719 hrs in 1999. It is

expected that the utilization rate will continue to decline in 2015. According to

available data (up to September 2015), the national average utilization hours of

thermal units is 3247 hrs, down by 7.55% compared to the same period last year.

According to existing trends, it is expected that average utilization hours of thermal

units may fall below 4400 hrs in 2015.

Several factors may lead to this decrease in utilization. Besides the impacts of

renewable energy sources and abnormal weather (cool summers and warm winters),

the mismatching between capacity growth and electricity demands is of primary

concern. In 2011, total electricity consumption grew by 11.97%. However, the

number dropped to a mere 3.77% increase in 2014; the lowest since 1998. For the first

nine months of 2015, there has been only 0.8% growth, a further reduction of 3%.

However, despite this decrease in demand, investor interest in coal power capacity

remains unabated. According to CEC, total capacity will reach 1460 gigawatts (GW)

in 2015, growing by 7.1%. For coal power sources, new additions will reach as high

as 214 GW during the 12th

Five-year-plan (FYP) period.

Lack of strategic power projections and the underestimated lead-time of

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

0

1000

2000

3000

4000

5000

6000

2011 2012 2013 2014 2015(expected)

ho

ur

operating hour growth rate

II

power-source installation has led to a mismatch between capacity installation and

electrical demand. Additionally, the growth of coal-power is higher than electrical

demand, which mainly results from the significant economic advantages caused by

low coal prices and high feed-in tariffs.

This report provides a brief analysis on the power sector during the 12th

FYP

period, with a particular focus on the utilization of thermal (coal power) fleets, as well

as a discussion regarding market space for coal power units and the risk of excessive

investment on coal power during the 13th

FYP period are discussed. The methodology

and the research process are shown in the Figure below.

- Power sector development

under the 12th FYP period

- Thermal (coal) power utilization

status under the 12th FYP period

Current State

Analysis

- Economic development

under the 13th Five Year Plan

- Power consumption structure

- Electricity consumption elasticity coefficient

Future

Demand

Outlook

- Electric power and energy balance

- Targets for renewable energy development

- Reasonable scale of coal power capacity

(national, regional, key provinces)

Power

planning

- Reasonable proportions of capacity

currently under construction

- Sensitivity analysis

- Investment risk

Quantifying

Coal Power

Over-capacity

Conclusions and

Policy Suggestions

The main findings are:

Under the new economic normal, electricity demand has declined to more

moderate rates since 2014. However, because of the delay in strategic planning and

III

the lengthy lead-time of new installation, the addition of coal power units remained at

a relatively high level in 2014. According to our estimate, utilization hours of thermal

units will drop to 4330 hrs and the overcapacity of coal power units will range

between 80-100 GW by 2015. This overcapacity risk in the coal power industry

should be evaluated closely by both the government and the industry.

Under a potential 4.2% growth in annual electricity demand during the 13th

FYP

period, total electricity consumption could reach 6920 hrs in 2020. Constrained by the

15% non-fossil fuel-derived energy goals and a target annual operating hours of 4800

hrs, the rational capacity of coal power would be around 910 GW. Active

implementation of clean power substitution could push electricity demand to the

expected ceiling (4.9%) and push up the rational scale by 50 GW. A 13.4% to 14%

rise in the share of the non-fossil fuel energy supply by the power sector is equivalent

to replacing 22 GW coal power. Under all non-fossil scenarios, the rational capacity

of coal power in 2020 would be significantly lower than the current industry forecasts

of 1040-1100 GW.

If all the Environment Impact Assessment (EIA) approved 160 GW coal power

projects (2012-2014) were commissioned in 2020, there would be an excess of 70-120

GW coal power. With a normal schedule of old unit decommission, this excess may

be manageable. However, if all the coal power projects submitted for EIA approval

(283 GW until the end of September 2015) were put into operation by 2020, the

excess capacity would reach 200 GW and control would be difficult to maintain. Such

large-scale overcapacity could result in disastrous effects, costing as much as 700

billion CNY—an investment that is unlikely to be recovered. This overcapacity could

cause utilization hours of coal power units to decrease to 3800 hrs, further

deteriorating the economic performance.

Unnecessary installation of coal power fleets may also inhibit renewable energy

development and deployment, leading to serious curtailment of renewable energy.

This inhibition, with the added crowding-out effect of investment interference, would

actively lead to block China's strategic opportunity for transitioning to a low-carbon

energy economy.

For the provinces of Shanxi, Hebei, Jiangsu and Zhejiang (except for Xinjiang),

actual coal power capacity could be in an acceptable excess of 2-3 GW under a partly

commissioned scenario. However, under a fully commissioned scenario, actual

capacity may be substantially higher in all provinces but Zhejiang (with an excess of

IV

2.3 GW). Shanxi could have the largest excess (21 GW), followed by Xinjiang (15.5

GW) and Jiangsu (10 GW).

Going forward, future policy must be strategic in order to address these concerns

with the coal power industry. Of top priority is consistent and coordinated power

planning. Overall, power planning with seamless coordination between unit planning

and grid expansion is vital. Ideally, this coordination will occur on both national and

local levels and should be aimed at integrating multiple sources of power generation.

The ministry in charge of energy affairs (National Energy Administration, NEA and

National Development and Reform Commission, NDRC) should function as the

primary governing body charged with regulation and information dissemination.

Power planning during the 13th

FYP should be released in a structured and timely

fashion in order to guide market investment with adequate and transparent

information. An early warning mechanism on coal power investment should also be

established. It is strongly recommended that the competent authorities regularly

publish electricity market prospective reports, update electricity demand outlooks

regularly, and provide early warning on potential coal power overcapacity risk when

detected.

Contents

Executive Abstract ........................................................................................................................... I

1. China’s power sector during the 12th FYP period ......................................................................... 1

1.1 Electricity consumption ....................................................................................................... 1

1.2 Power generation capacity .................................................................................................. 2

1.2.1 Overall analysis ......................................................................................................... 2

1.2.2 The growth of coal power ........................................................................................ 4

1.2.3 The growth of other power sources ......................................................................... 5

1.3 Trans-regional power delivery ............................................................................................. 6

1.3.1 Trans-regional transmission development during the 12th FYP period .................... 6

1.3.2 Trans-regional power and energy exchange during the 12th FYP period ................. 8

1.3.3 Outlook of trans-regional delivery in the 13th FYP period ...................................... 10

2. The operation status of thermal power during the 12th FYP period ............................................ 10

2.1 Overall analysis .................................................................................................................. 10

2.2. Regional analysis .............................................................................................................. 12

2.3 Case analysis of typical provinces ..................................................................................... 13

2.4 Impact factors of low utilization rate ................................................................................ 13

2.5Factors contributing to high coal power investment ......................................................... 14

3. Newly EIA approved coal power projects .................................................................................. 15

3.1 Overall analysis .................................................................................................................. 15

3.2Regional analysis ................................................................................................................ 16

3.3 Typical provinces ............................................................................................................... 18

4. Electricity demand outlook and low-carbon development targets during the 13th FYP period ... 18

4.1 Electricity demand outlook ............................................................................................... 18

4.1.1 Structural factors affecting electricity demand ...................................................... 19

4.1.2 Electricity demand projection ................................................................................ 20

4.2 The goal of non-fossil primary energy share and low-carbon electricity .......................... 20

4.2.1 Power sector’s contribution to the 15% target ...................................................... 21

4.2.2 Officially declared clean energy development target by 2020 ............................... 22

5. Coal power investment bubble during the 13th

FYP period ........................................................ 22

5.1 Coal power development space during the 13th FYP period ............................................. 23

5.2 Sensitivity analysis of coal power development space ..................................................... 25

5.3 Quantification of Coal Investment Bubble during the 13th FYP period ............................. 26

5.3.1 National level analysis ............................................................................................ 27

5.3.2 Regional Analysis .................................................................................................... 29

5.3.3 Typical provinces .................................................................................................... 30

6. Conclusion .................................................................................................................................. 32

6.1 Research conclusions ........................................................................................................ 32

6.2 Policy recommendations ................................................................................................... 33

AppendixⅠ: Transmission capacity of 27 UHV lines .................................................................... 35

Appendix Ⅱ: New EIA approved coal power projects from 2012 to 2015 ................................... 38

1

1. China’s power sector during the 12th

FYP period

1.1 Electricity consumption

During the 12th FYP period (2011-2015), electricity consumption growth in China has

experienced radical adjustment from high to more moderate rates with the advent of the new

economic normal. According to CEC, total electricity consumption grew by 11.97% [1]

in

2011. However, this growth dropped to a mere 3.77% in 2014, representing the lowest

recorded since 1998 [2]

.The electricity demand has continued to decline during 2015.

According to NEA, the growth seen from January to September 2015, comparing same period

last year, has been only 0.8%, an additional reduction of 3% [3]

. According to existing

information, growth in demand is not likely to exceed 2% [4]

in 2015. Information on

electricity consumption and its growth during the 12th FYP period is shown in Figure1-1:

Figure1- 1 Electricity consumption in the 12

th FYP period

Reference: [1, 2, 5, 6]

.

On a regional grid level, electricity demand in six regional grids has been declining in

the 12th FYP period, which is consistent with the national trend. The downward amplitude in

the Northwest grid is particularly notable.

4703

4966

5342

5523 5634

11.97%

5.60%

7.58%

3.77%

2.00%

0%

2%

4%

6%

8%

10%

12%

14%

4200

4400

4600

4800

5000

5200

5400

5600

5800

2011 2012 2013 2014 2015（expected）

TW

h

Electricity consumption Electricity demand growth

2

Figure1- 2 Regional electricity demand growth in the 12th

FYP period

Reference: [1, 2, 5, 6]

.

In this report, five provinces were selected for a case study at the provincial level,

including two coal power base provinces (Shanxi and Xinjiang), two load center provinces

(Jiangsu and Zhejiang), and one province saturated with heavy industry and plagued with

serious air pollution (Hebei). During the 12th FYP period, electricity demand dropped by 9%

in Zhejiang, Jiangsu and Hebei. Meanwhile, the growth in power export provinces like Shanxi

and Xinjiang fell from high rates (more than 25% for Xinjiang and 13% for Shanxi in 2011)

to negative growth in 2014(Figure 1-3):

Figure1- 3 Electricity demand growth in typical provinces in the 12

th FYP period

Reference: [1, 2, 5, 6]

.

1.2 Power generation capacity

1.2.1 Overall analysis

0%2%4%6%8%

10%12%14%16%18%20%22%

2011 2012 2013 2014

North China East China Central China

Northeast Northwest Southern

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2011 2012 2013 2014

Hebei Shanxi Zhejiang Jiangsu Xinjiang

3

During the 12th FYP period, new additions to the power sector kept capacity at a high

level. The total generation capacity was 1063 GW [1]

in 2011, increasing to 1360 GW [2]

by

2014. According to data until the end of September 2015, the new additions reached

capacities as high as 74290 megawatts (MW) in 2015, growing by 21790 MW compared to

the same period last year. In particular, the new addition of thermal units was 39550

MW—13750 MW [3] more compared with the same period last year. According to CEC, total

capacity will reach 1460 GW at the end of 2015, growing by 7.1%, and non-fossil energy

power capacity will account for approximately 35% [2]

. There will be 320 GW of hydropower,

28.64 GW of nuclear power, 110 GW of grid-connected wind power, 36.5 GW of

grid-connected solar power and 11 GW of biomass [2]. Investment in the power generation

sector has maintained high growth since 2014, coexisting with the low growth of electricity

demand. This mismatch, caused by the planning lag and lead-time issues, requires

strategically structured adjustments in order to avoid long-term negative impact, which is the

core concern of this report.

Figure1- 4 The growth of total generation capacity in the 12th

FYP period

Reference: [1, 2, 5, 6]

.

1062.36 1146.75

1257.68

1362.21 1458.97

9.95%

7.94%

9.67% 8.31%

7.10%

0%

2%

4%

6%

8%

10%

12%

0

200

400

600

800

1000

1200

1400

1600

2011 2012 2013 2014 2015(expected）

GW

Total capacity Growth rate

4

Figure1- 5 Generation capacity mix of China in the 12th

FYP period

Reference: [1, 2, 5, 6]

.

During the 12th FYP period, renewable energy has developed rapidly, and installed

capacity and power generation continue to increase steadily. By comparing the new capacity

additions from 2015 with the amount added in 2011, the share of coal power has declined

while the share of renewable energy has increased year by year.

Figure1- 6 The structure of newly-added generation capacity in 2011(left) and 2015(right)

Reference: [1, 2]

.

1.2.2 The growth of coal power

During the 12th FYP period, coal power capacity increased dramatically from 710 GW [1]

in 2011 to 830 GW [2] by the end of 2014. Although the growth trend is slowing down, the

rate of coal power capacity was still relatively high (4.3%) in 2014 despite renewable energy

deployment[2]

. This amount was higher than the growth of electricity consumption. Notably,

the new addition of coal power dropped from 59.95 GW [1]

in 2011 to 34.22 GW [2]

in 2014.

According to CEC, the new addition of coal power is expected to be 38 GW [2]

at the end of

67.23% 66.17% 63.27% 60.93% 59.49%

5.09% 5.31% 5.91% 6.61% 6.89%

28.98% 30.05%

32.86% 34.45%

36.28%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014 2015（expected） Coal Other thermal Hydro

Nuclear Wind Solar and others

Non-fossil

5

2015 and the annual new addition of coal power is nearly 43 GW [1, 2, 3, 4]

during 2011-2015.

Figure1- 7 The growth of coal power in the 12th

FYP period

Reference: [1, 2, 5, 6]

.

1.2.3 The growth of other power sources

During the 12th FYP period, other sources of power also maintained rapid growth. While

the growth of hydropower remained relatively stable, the growth of wind power stabilized at

25.2% [2]

in 2014 after a substantial increase of 56.3% [1]

in 2011. The grid-connected wind

power capacity was 95.81 GW at the end of 2014, and the scale in Inner Mongolia and Gansu

reached 20.7 GW and 10.08 GW [2]

, respectively. The growth of nuclear power recovered in

2014 after the freezing point in 2012 due to the impact of Fukushima nuclear accident. Solar

power capacity was further developed and grid-connected solar power capacity reached 26.52

GW at the end of 2014, growing by 67% [2]

, with the majority being from photovoltaics (PV).

For 2011 and 2013, the growth of PV capacity reached as high as 864% [1]

and 342% [6]

,

respectively. Wind power has entered the stage of large-scale commercialization, while solar

power is rapidly moving towards it. Clean and non-fossil fuel power is developing rapidly to

achieve the goal of 15% non-fossil fuel[7]

in primary energy supply by 2020. Ambitious

targets of 20% non-fossil primary energy and greenhouse gases (GHG) that peak by 2030

have been proposed in China’s Intended Nationally Determined Contributions, (INDCs)

submitted to the United Nations recently [8]

. Because of the inevitable trend towards a

low-carbon transition of the energy and power system, it is of vital importance to discuss the

prospects of coal power in China.

7.77%

6.25%

4.87%

4.30% 4.58%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0

100

200

300

400

500

600

700

800

900

1000

2011 2012 2013 2014 2015(expected）

GW

Coal power Growth rate

6

Figure1- 8 The capacity growth of major clean generation technologies in the 12th

FYP period

Reference: [1, 2, 5, 6]

.

1.3 Trans-regional power delivery

1.3.1 Trans-regional transmission development during the 12th

FYP period

The spatial distribution of power resources and power loads makes trans-regional

delivery a challenging and inevitable choice for China. Overall, power load centers are

concentrated in East China, North China, South China, and part of Central China. However,

power resources are most concentrated in Northwest China. With the construction of a

long-distance transmission network, abundant power resources in the Northwest can be

transferred to these load center regions.

Limited by research purpose and report length, this report mainly focuses on the

trans-regional ultra high-voltage (UHV) transmission network. According to publicly

available statistical data, there are nearly thirty UHV routes in operation or under construction

(Figure 1-9). Among them, the number of direct current (DC) lines accounts for about

two-thirds, with transmission capacity at about 147 GW, and the rest are alternating current

(AC) lines with about 62.2 GW transmission capacity. (Refer to Appendix I for detailed

project information.)

7.83% 7.08%

12.41%

6.97% 5.45%

16.13%

0.00%

16.62%

35.62%

44.06%

56.31%

32.86%

24.57% 25.21%

14.81%

0%

10%

20%

30%

40%

50%

60%

2011 2012 2013 2014 2015（expected）

Hydro Nuclear Wind

7

Northeast Power

Grid

Northwest Power Grid

North China Power Grid

East China Power Grid

Central China Power Grid

Southern Power Grid

±800kV DC

1000kV AC

±1000kV DC

Figure1- 9 Prospect of UHV transmission network in China

Reference: [35-61]

.

East China contains a dense network of AC UHV transmission lines, accounting for 68%

of total AC transmission capacity, with 32.8 GW delivery capacity inside the region and 9.4

GW delivery capacity from other regions (table 1-1). There are 4 AC UHV transmission lines

in North China, mainly for internal delivery, and partly for delivery to East and Central

China.

Table 1-1 trans-regional UHV power transport capacity Unit: GW

Export

Import Northern East Central Northeast Northwest South Total

North AC 15

15

DC 10

10

East AC 9.4 32.8

42.2

DC 18

22.2

30

70.2

Central AC 5

5

DC

10

42.06

52.06

South AC

DC

15 15

Total 57.40 32.8 32.2 0 72.06 15 209.46

Reference: [35-61]

.

8

The Northwest grid is a primary DC UHV export region with 8 transmission lines

delivering electric power to East China and Central China and accounting for about 50% of

DC UHV trans-regional transmission capacity. East China is the main DC UHV import

region, with 8 input lines receiving electricity from Northwest, North and Central China,

accounting for 48% of DC UHV trans-regional transmission capacity (table 1-1).

1.3.2 Trans-regional power and energy exchange during the 12th

FYP period

0-300

300-400

400-550

550-700

700+

North China Power Grid

Northwest Power Grid

Northeast Power Grid

East China Power Grid

Central China Power Grid

Southern Power Grid

Figure1-10 Trans-regional power exchange in China

Among the six regional power grids, the Northwest and Northeast power grids are

usually exporters of power and energy, while the North China, East China and Central China

grids are generally importers, with the South power grid playing an important role in

exchanging power with the Central China grid (Figure 1-10).

In 2011, the trans-regional power delivery experienced significant growth. However,

there was a big decline in 2012, largely because of enhanced power supply capacity in load

center regions and slowing electricity demand. In 2013 there was very little growth of

trans-regional power delivery (Figure 1-11).

9

Figure1-11 Trans-regional power exchange in China, 2010-2013

Reference: [1, 5, 6]

.

Figure1-12 Trans-regional electricity exchange in China, 2010-2014

Reference: [1, 2, 5, 6]

.

Trans-regional energy exchange has been increasing each year in 2011-2014. By the end

of 2014, the amount of trans-regional electricity delivery had reached 274.1 TWh, increasing

by 13% as of 2013 scale and nearly doubling the 2010 scale [2]

. In addition, we can see that

trans-regional electricity delivery increased rapidly in the first three years of 12th FYP period.

However, the growth rate has been falling since 2014. According to available data,

trans-regional electricity delivery reached 230.3 TWh from January to September in 2015, a

growth of only 1.0% [3]

. Based on these trends, we expect the rate of trans-regional energy

delivery will drop significantly in 2015.

0

20

40

60

80

100

120

140

160

2010 2011 2012 2013

GW

regional power exchange

13%

20% 21%

13%

0%

5%

10%

15%

20%

25%

0

50

100

150

200

250

300

2010 2011 2012 2013 2014

TW

h

Regional transport power Growth rate

10

1.3.3 Outlook of trans-regional delivery in the 13th

FYP period

With the commission of more UHV power transmission projects; there will be a total of

27 UHV lines in operation by 2020, including 18 DC transmission lines and 9 AC

transmission lines (See Appendix Ⅰ). From a regional perspective, the trans-regional

transmission capacity of Northwest grid will reach 72 GW, among which Xinjiang will hold a

substantial share (48 GW), including 3 AC and 5 DC lines for export. The power exchange

capacity of North China will reach about 60 GW, among which 35 GW is for trans-regional

delivery. The electricity exchange capacity of Central China will be about 32 GW, 22 GW of

which is used for trans-regional transmission. East China and South China grids will mainly

improve the capacity of internal power exchange, without significant trans-regional export.

Among the case study provinces, Shanxi and Xinjiang are considered as the power export

provinces, while Hebei, Jiangsu and Zhejiang are power import provinces. It is estimated that

trans-regional power transmission capacity in Shanxi will reach 13 GW by 2020, and the

maximal trans-regional power transmission capacity of Xinjiang could reach 46 GW.

According to the estimate, the national trans-regional electricity delivery is expected to be

about 520 TWh in 2020, nearly doubling the 2014 scale.

2. The operation status of thermal power during the 12th

FYP period

2.1 Overall analysis

Figure 2-1 shows the statistics on operating hours of thermal power during 2011-2014. A

general downward trend can be seen. In the first nine months of 2015, the average operating

hours of thermal power is 3247hrs, a reduction of 7.55% compared to the same period in 2014

[3]. Assuming 8% reduction of the entire year, the number of annual thermal power operating

hours in 2015 may be 4330 hrs. Based upon a reasonable annual utilization of 4900 hrs, in

2015 roughly 80-100 GW of overcapacity in coal power is expected.

11

Figure 2-1 Change of thermal power operating hour during the 12th

FYP period

Reference: [1, 2, 5, 6]

.

Ever since the 11th FYP period, the operating hours of thermal units in China has shown

a distinct downturn. The number of hours has gradually fallen from as high as 5800hrs [9]

in

2005 to a reasonable range of 5000-5200hrs in 2010 and 2011(Figure 2-2), when power

shortages was no longer a concern in China. With the exception of an increase of 30hrs in

2013, the number of hours dropped significantly during the 12th FYP period and the rate of

decline is increasing. It is estimated that operating hours of thermal power will fall by

approximately 18.38% during the 12th FYP period, with annual decline by 3.98%.

Figure 2-2 Change of operating hour of thermal power during 2005-2015

Reference: [9-11]

.

Since there is no publicly available data on the operation hours of coal power in China,

5305

4982 5012

4706

4330

5.40%

-6.10%

0.60%

-6.10%

-8.00%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

3500

3700

3900

4100

4300

4500

4700

4900

5100

5300

5500

2011 2013 2015（expected）

gro

wth

ra

te

op

era

tin

g h

ou

r

operating hour growth rate

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

3000320034003600380040004200440046004800500052005400560058006000

op

era

tin

g h

ou

r (h

ou

r)

Thermal power Coal power

growth rate of thermal power growth rate of Coal power

12

our estimate of national average coal power operating hours since 2009 is based on fuel mix

data from thermal power use as well as empirical values of annual operations of other thermal

units. Generally speaking, during the same year, the operation hours gap between coal power

and thermal power is small, with just about 100 hrs more in coal units than thermal units. Our

estimate also reveals a similar trend. Hence, due to issues with data availability, our analysis

uses thermal power data to approximate coal power statistics.

2.2. Regional analysis

Figure2-3 Thermal power operating hour in six regional power grids, 2011-2014

Reference: [9-11].

Figure 2-3 reports the operating hours of thermal units in China’s six regional grids

during 2011-2014. Regional patterns are consistent with the national trends, with the

exception of a slight increase in 2013. In 2011, supply and demand was balanced in South

China grid, Central China grid, Northwest grid, and North China grid, and thermal operating

hours were about 5000 hrs [1]

in these regional grids. There was power shortage in the East

China grid, and the operating hours of thermal units was about 5400 hrs [1]

there. However,

due to weak increases in demand in the Northeast grid, there was an excess of power supply;

thermal power operating hours was as low as 4300 hrs [1]

. In 2013, under the direction of the

regional industrial development and the enhancement of trans-regional UHV transmission

lines, thermal operating hours in the Northwest grid was up to 5500 hrs [6]

, largely pushing up

the power industry and local governments’ expectations on future expansion of coal power

capacity. Surplus continued in the Northeast grid and thermal operating hours declined to

around 4000 hrs [6]

. In 2014, except for the Northeast grid, thermal power operating hours in

other regional power grids continued to decline. In the East China grid the number fell by 530

3500

3700

3900

4100

4300

4500

4700

4900

5100

5300

5500

2011 2012 2013 2014

ho

urs

North China East China Central China

Northeast Nothwest South China

13

hrs, largely due to the decrease in demand and electricity import [2]

. In the South China grid,

thermal power operating hour fell by 645 hrs due to lack of demand as well as strong

hydropower development [2]

. With sluggish demand increases in 2015, it is expected that

thermal power operating hours are likely to decrease even more sharply than in past years..

2.3 Case analysis of typical provinces

Figure 2-4 reports the situations of thermal operation in typical provinces during the 12th

FYP period. The numbers in 2015 are estimated based on the data for the first half year.

Figure 2-4 Thermal operating hour in case provinces during the 12th

FYP period

Reference: [9-11]

.

Annual operation hours of thermal units in the five case study provinces consistently

declined over this period. In 2014, operating hours of thermal units in Hebei, Jiangsu and

Xinjiang were still higher than 5000 hrs [10]

. However, in 2015, the number in the rest may be

less than 5000 hrs (with the exception of Jiangsu). The operating hours of thermal units in

Zhejiang was less than 5000 hrs in 2014, while in 2015 the number will likely be as low as

4000 hrs. In 2015, for Shanxi, a major coal power province, the thermal unit’s operating hours

are expected to be less than 4200 hrs.

2.4 Factors Impacting low utilization rate

The factors contributing to low utilization rate of thermal (coal) power are as follows.

(1) The most important factor is the mismatch between coal power capacity installation

and power demand. With the institution of the new economic normal, electricity demand is

also losing its momentum. In 2014, total electricity consumption grew by only 3.8% [14]

,

roughly half of the growth rate in 2013. But in the same year, generation capacity increased

5686

5268 5296

4522

4007

5785 5734 5690

5240 5105

5979

5767 5649

5248

4745

5284

5046 5147

4938

4175

5752 5621

5527

5231

4903

3900

4400

4900

5400

5900

2011 2012 2013 2014 2015（E）

op

era

tin

g h

ou

r

Zhejiang Jiangsu Xinjiang Shanxi Hebei

14

by 8.31%. For the first nine months of 2015, electricity consumption increased by only 0.8%

comparing same period last year, while generation capacity increased by 9.4% [3]

. Because of

this large mismatch, electricity generation in these units decreased by 2.2% [3]

. For thermal

units, the operating hours went down by 265 hrs, 83 hrs more than the decline over the same

period in 2014.

(2) Because of the transition to renewable energy, coal power will continue to serve as

an increasingly ancillary service [12]

. Gas power, which is the best candidate for providing

peak loads and system flexibility, is underdeveloped in China. Hence in China, mainly coal

power units and partly adjustable hydropower units serve as mechanisms for peak load

regulation. With the integration of more renewable energy sources, the operation hours of

coal power will certainly decrease. It is, therefore, likely that gas power and pumped storage

hydropower may not be able to provide enough system flexibility. This could, in turn, cause

the operation hours of coal power to continue to decline.

(3) Abnormal warm winters and cool summers in recent years led to a decline in

electricity demand. For example, in July 2015, due to the impact of El Nino effect, continuous

precipitation in the middle and lower reaches of Yangtze River resulted in an abnormally cool

summer. On the other hand, a warmer winter occurred in 2014 and is expected to happen

again in 2015 [13]

. The declined power load for cooling in summer and for heating in winter

reduces the overall operating hours of generating units.

2.5 Factors contributing to high coal power investment

China's energy resource endowment and the cost advantage of coal power generation led

to a coal-dominated energy mix of power generation infrastructure that has persisted, despite

the dramatic increases in renewable energy deployment. Local governments in regions with

abundant coal resources and power generation enterprises have always had abundant interest

in investing in coal power projects. These investment interests are because of the following

factors:

(1) Low coal price while high on-grid wholesale tariff encourages generators’ investment

enthusiasm. In recent years, coal price has dropped down continuously and lowered the cost

of coal power generation. Although NDRC has debased the benchmark tariffs of coal power,

the price reduction is less than actual cost reduction. Though fewer utilization hours cut

generators’ revenues, low coal prices enable generators to take advantage of generous profits

[15]. Additionally, the current model involves local government’s participation in the planning

of generation units’ annual operating hours. This, in turn, also adds to generators’ stable

15

return expectations.

(2) The provincial governments have been delegated with the rights of approving

thermal power projects under their jurisdiction. This, to a certain extent, indulges the

investments interests and desires of local governments. In addition, the economic downturn

pressure further fosters local governments’ preference for capital-intensive projects such as

coal power. Data shows that, in the first half of 2015, there was a total of 23.43 GW new

additions in coal power capacity, a 55% increase compared to the same period in last year.

According to media reports, though not yet confirmed by the government, the scale of newly

approved thermal power projects was as high as 200 GW in the first half of 2015 [16]

.

(3) These substantial economic advantages compared with renewable energy empower

coal power with a huge market opportunity in China. At present, the cost of renewable energy

is still high, while coal power remains relatively inexpensive. Although the production costs

of onshore wind power and utility-scale PV in some areas have been close to that of coal

power, the prices of offshore wind power and Concentrating Solar Power (CSP) are much

more expensive. Hence, in all, coal power projects are more lucrative and have more stable

profit expectation than renewable energy. Therefore, to realize the low carbon power sector

transition in China, it is very important to eliminate institutional barriers that hinder the

development of renewable energy.

3. Newly EIA approved coal power projects

3.1 Overall analysis

Figure 3-1 Statistics on EIA approved coal power projects, 2012-2015

160

10

30

83

123

approved, 2012-2014 applied, 2015 pre-approved, 2015 approved, 2015

16

Reference: [17]

.

The project team adopts this database from Greenpeace [17]

, which operates under

construction coal power projects from EIA applications and approval by the national and local

environmental protection departments. According to the database, from 2012 to September of

2015, a total of 283 GW1 coal power projects have been submitted for EIA approval, among

which the approved projects in 2012-2014 are 160 GW2. In this report, the projects approved

before 2015 are regarded as under construction, accounting for 56.6% of new coal power

projects and the other 123 GW projects are new applications or newly EIA-approved in 2015,

accounting for 43.4%3

[17]. (See AppendixⅡ)

3.2Regional analysis

From the regional perspective, the Northwest grid takes the leading position in coal

power development. On the one hand, the western provinces are China's coal power bases,

while in some eastern regions new coal power projects have been strictly limited. On the

other hand, western regions are also wind power and solar energy bases in China. Due to the

intermittence of renewable energy, the current developmental model involves bundling

renewable and coal power together for export into load center regions. To some extent,

renewable energy has accelerated the development of coal power in some western provinces.

In addition, there are a large number of new coal power projects in the North China Grid. The

projects in Northwest and North China Grids account for about 50% of the national total.

1. This data is different from the statistics released by China Electricity Council (CEC). According to a CEC report

on power sector’s operation status from January to September in 2015, the total scale of power generation projects

is 177GW, among which thermal power is 78GW. There is a possibility that some approved projects ceased

construction, and some commissioned projects did not receive environmental protection certificate are included in

the under construction projects.

2. According to Greenpeace, there are another 4510MW coal power projects under construction but without

receiving government approval.

3. Coal power projects approved during 2012-2014 refer to projects approved by Ministry of environmental

protection, not including CHP projects approved by local environmental protection departments. 2015 Projects

include those new ones until the end of September 2015 (By Ministry of environmental protection from January to

March 2015 and by local environmental protection departments from April to September 2015).

17

Figure 3-2 Statistics on EIA approval of new coal power projects in six regional power grids

Reference: [17]

.

Figure 3-3 Regional distribution of approved coal power projects

Reference: [17]

.

Inside the regional grid, the new coal projects in the Northwest Power Grid are mainly

located in Xinjiang and Shaanxi, those in Southern China Power Grid are mainly located in

Guangdong and Guizhou, North China power grid mainly in Inner Mongolia, Shandong and

Shanxi, while East China grid mainly in Anhui. The scale of new coal power projects in each

of the above provinces is more than 14 GW, while in Guangdong and Shanxi the scale is

more than 20 GW, especially in Xinjiang it is more than 30 GW [17]

(See AppendixⅡ). These

provinces can be easily divided into two categories: one is rich in coal resources, such as

Xinjiang, Shanxi, etc., the other is a load center or close to load center with high demand

growth expectation, such as Guangdong, Anhui, etc. There are much fewer new projects in

0

10

20

30

40

50

60

70

80

Northwest North China Central

China

East China South Northeast

GW

approved, 2012-2014 approved, 2015 pre-approved, 2015 applied, 2015

23.9%

23.0%

17.5%

16.0%

15.2%

4.3%

Northwest North China Central China East China South Northeast

18

Central China due to a shortage of coal resources and few in the Northeast due to weak

demand.

3.3 Case study provinces

In the five case provinces, new coal power projects are mostly concentrated in western

regions rich in coal resources, among which 34.23 GW and 27.01 GW [17]

projects are located

in Xinjiang and Shanxi, respectively.

Figure 3-4 Statistics on EIA approval new coal power projects in case provinces

Reference: [17]

.

4. Electricity demand outlook and low-carbon development targets during the

13th

FYP period

4.1 Electricity demand outlook

0

5

10

15

20

25

30

35

40

Xinjiang Shanxi Jiangsu Hebei Zhejiang

GW

approved, 2012-2014 approved, 2015 pre-approved, 2015 applied, 2015

19

Figure4- 1 Electricity demand growth in China, 2000-2014

Reference: [1, 2, 5, 6]

.

Since 2000, total electricity consumption has grown dramatically. By the end of 2014,

total consumption reached 5220 TWh [2]

, fourfold compared with 1330 TWh [6]

in 2000. As

indicated in Figure 4-1, the growth rate has gradually slowed down from the 10th FYP to the

12th FYP, and the electricity consumption elastic coefficient has gradually reduced from 1.36

to 0.88 [6]

. From the perspective of structural change, the share of primary industry

consumption fell; the share of secondary industry reached a peak of 75.25% in the 11th FYP

period and then gradually declined to 74.02% [1-6]

in the 12th FYP period, while the shares of

tertiary industry and household consumption went up.

4.1.1 Structural factors affecting electricity demand

Electricity demand during the 13th FYP period will likely be affected by many factors.

First, economic growth rates have switched from two-digit rapid growth rates in recent

decades to the new economic normal, which highlights restructuring, growth quality and

sustainability. A strong linkage has been demonstrated between electricity demand and

economic development. Hence, electricity demand will also likely slow to more moderate

speeds.

Second, in terms of industrial electricity consumption patterns, there will likely be little

change in the growth of primary industry and the share of primary industry in total industrial

electricity usage is generally small. Therefore, the impact of primary industry on total

13.24% 11.21% 7.09%

1.36

1.00

0.88

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

0%

20%

40%

60%

80%

100%

10th FYP 11th FYP 12th FYP (by 2014)

household tertiary industry

secondary industry primary industry

power demand growth rate electricity consumption elastic coefficient

20

electricity demand can be ignored. The traditional electricity-intensive sectors in the

secondary industry have been saturated in their market demand. Together with the

requirements for improving energy efficiency, electricity demand in these sectors will slow

down and even decrease. The strategic emerging industries will contribute most of the

electricity demand growth in the secondary industries. But, the electricity consumption

intensity of strategic emerging industries is much lower compared with traditional

electricity-intensive sectors. Meanwhile, the transformation of economic development toward

tertiary industry will also be accelerated in the future. Therefore, electricity demand growth in

secondary industry will likely decrease. Thus, tertiary industry will be the main force of

electricity demand growth. With the emerging of new service sectors, the popularization of

office automation and the electrification of the transportation sector (especially the

development of electric vehicles), tertiary industry will maintain strong growth in electricity

demand in the future [18]

.

Finally, regarding household electricity consumption, the increase in developed cities

like Beijing, Shanghai and Guangzhou will also likely slow and most future growth in

demand will come from the central and western regions. Besides, with the improvement of

living standards and rural infrastructure, household consumption will also play a strong

supporting role in electricity consumption growth for a long time [19]

.

4.1.2 Electricity demand projection

In this report, a consumption elastic coefficient is employed to project the growth of

electricity consumption during 2016-2020. As indicated in Figure 4-1, the elastic coefficient

of electricity consumption is continuously descending in China, which is consistent with the

experiences of other developed economies. In order to achieve the requirement of a well-off

society by 2020, which was proposed in the 18th CPC National Congress, the bottom line of

annual economic growth is 6.5% [20]

. Consensus on the prospective GDP growth during 13th

FYP is around 7% [21-22]

.

Based upon our analysis, we assume that electricity consumption elastic coefficient will

stay around 0.5-0.7 during 2016-2020 and thus use 0.6 [19]

in our recommended scenario.

Accordingly, we estimate that annual electricity demand growth will stay around 3.5%-4.9%

during the 13th FYP period and employ 4.2% as the recommended scenario.

4.2 The goal of non-fossil primary energy shares and low-carbon electricity

21

After 2013, capping primary energy consumption and excessive growth of coal

consumption in particular, and accelerating the development of non-fossil energy have

become the tone of national energy policy in China.

4.2.1 Power sector’s contribution to the 15% target

The National Plan on Climate Change (2014-2020) by NDRC clearly requires the power

sector to reach 15% non-fossil primary energy target and to cap primary energy consumption

at about 4800 Mtce [7]

by 2020. For the power sector, it is imperative to optimize the mix of

power generation. On one hand, it is important to cap coal use for power generation and

realize clean coal utilization. On the other hand, it is of vital importance to accelerate clean

energy deployment, especially wind and solar energy [23]

. Relevant national policy guidance

is as follows:

Develop clean and efficient coal power: Raise the proportion of coal efficiently used

for power generation; enhance the emissions standards of new coal units. The heat rate of

newly built coal-fired power generating units should be less than 300 grams of standard

coal/KWh while the pollutant emissions standard should be close to that of gas power [24]

.

Develop gas power: In Beijing-Tianjin-Hebei, Yangtze River delta, Pearl River delta,

and other key atmospheric pollution prevention and control areas, develop utility-scale simple

cycle gas power units orderly. Combined Cycle Gas Turbine (CCGT) Combined Heat and

Power (CHP) units and distributed gas units should also be deployed according to heating

load situations in these regions.

Develop nuclear power with safety as the top priority: Initiate new nuclear power

projects timely in coastal regions while taking strictest safety standards. Also conduct

research on the feasibility of building inland nuclear power projects. Combining technology

import and independent innovation, breakthrough should be realized in key technologies

including AP1000, CAP1400, HTGR, faster reactor and nuclear fuel reprocessing technology

[25].

Vigorously develop renewable energy: Attach equal importance to large-scale

development and distributed integration, and speed up the development of renewable energy

[26]. Advance the construction of large hydropower bases actively. Develop

medium-and-small size hydropower stations according to local conditions. Implement the

planning and construction of pumped storage power stations and strengthen the

comprehensive utilization of water resources. Plan and build nine large wind power bases and

22

the supporting power grids projects. Vigorously develop distributed wind power in south and

east China. Develop offshore wind power steadily. Advance the construction of PV power

bases and synchronize transmission channels construction with local integration. Speed up the

demonstration of distributed photovoltaic application. Deploy demonstration projects of solar

thermal power generation and enhance grid-integration service for solar power generation [25]

.

4.2.2 Officially declared clean energy development target by 2020

According to related policy documents, the state has already made clear targets on clean

power development:

Active and orderly development of hydropower: By 2020, the conventional

hydropower capacity will reach 350 GW and annual generation will reach 1200 TWh [7]

. Plan

and construct pumped storage power stations with scientific verification.

Safe and efficient development of nuclear power: By 2020, installed nuclear power

capacity will reach 58 GW, while the capacity under construction will reach more than 30

GW [25]

.

Rapid development of wind power: Speed up the construction of large-scale wind

power bases, build small-and-medium-sized projects and offshore projects according to local

conditions, and strengthen the construction of grid integration projects. By 2020, grid

connected wind power capacity will reach 200 GW, and wind power be competitive with coal

power in term of generation cost [25]

.

Acceleration of solar power: Develop centralized large-scale and distributed PV

projects simultaneously. Encourage the construction of distributed PV power generation in

large-scale public buildings, public facilities, industrial parks, etc. By 2020, installed PV

capacity will reach 100GW, and the price of PV generation should be equivalent with

electricity retail price [25]

.

Active development of geothermal, biomass and Ocean energy: Adhere to the policy

of overall planning, localization and diversified development. Actively promote the efficient

use of geothermal energy, biomass and ocean energy. By 2020, the supply of geothermal

energy will reach 50Mtce [25]

.

5. Coal power investment bubble during the 13th

FYP period

Based on the preceding forecast on electricity demand, as well as analysis on the

officially declared clean energy development targets, we can now quantify the development

space of coal power.

23

5.1 Coal power development space during the 13th

FYP period

Status analysis of

power sector

Electricity Demand

Economic

development

outlook

National

Regional

Provinces

Electricity

consumption

elastic

coefficient

Balanced coal

power capacity

Renewable

power

planning

Electric power

exchange

Figure5- 1 Logical framework of power planning

According to preceding analysis, the growth rate of total electricity demand would be no

higher than 2% in 2015 and about 4.2% during the 13th FYP period. By 2020, total electricity

consumption would reach around 6920 TWh. The development potential of coal power is

quantitatively analyzed under a demand scenario and with full consideration of clean energy

targets. Considering the integration of more renewable energy, we assume that the normal

utilization of coal power will be reduced to 4800 hrs4. Meanwhile, for our analysis, we

assume that all the other types of generation units remain at normal utilization. In this report,

the rational capacity of coal power is quantified based on the officially declared clean energy

and renewable power development targets by using a power planning model [27-28]

. Without

detailed load characteristic data, only electric power and energy balance is considered in

estimating coal power capacity. Hence, the quantitative results inevitably suffer from some

4 4. There was still a shortage of electricity in some parts of China in 2011. However, the shortage didn’t happen

in 2012 and 2013 when annual utilization hour of thermal units was about 5000hrs. Hence, we regard 5000hrs as

rational utilization hour of coal power at this stage. With substantial increase in wind power and PV capacity, the

utilization hour of coal power will drop due to assuming more flexibility service function. Since the planning also

requires stronger development of flexible power sources like pumped-storage and gas power, we only assume a

slight decline in the rational utilization hour of coal power.

24

estimate errors. Quantitative analysis (Table 5-1) shows that, during the 13th FYP period,

China’s balanced coal power capacity would be 910 GW, approximately 42GW of additional

capacity on the basis of estimated CFPP capacity by the end of 2015.

In a report released in March 2015 by CEC, the expected electricity demand is 7700

TWh, the total installed capacity is 1960 GW and the coal power capacity is 1100GW [2]

.

While the forecasts conducted by Wu Jingru are 7400 TWh, 2000 GW and 1040 GW [29]

,

respectively. Our estimated coal power capacity is significantly lower than these reports have

projected and the difference is mainly in demand projection and the guiding planning

principle.

Table5- 1 Generation capacity planning during the 13th

FYP period

Installed capacity (GW) Generation (TWh)

2015 2020 2015 2020

Hydropower 293 350 1025.5 1225

Pumped storage 23.35 70 18.7 56.

Coal 868 910 3906 4371

gas 61.7 100 185 300

Nuclear power 28.6 58 200.5 406

Wind 110 200 220 400

Solar 36.5 100 58.4 160

Biomass 11 14 46.2 58.8

Total 1432 1802 5641.6 6920.5

Based on regional power consumption growth during the 12th FYP period and national

electricity demand projection during the 13th FYP period, we can make predictions on

regional electricity consumption growth. Demand growth in the Northwest grid would be

significantly higher than the national average. The growth in the Southern China grid is

projected to be similar to the national average, while in the North China, East China and

central China grids, demand growth will be slightly lower than the national average. We also

expect that demand growth will be the slowest in the Northeast.

Table5- 2 Regional power demand growth forecast during the 13th

FYP period5

National

average

North China

Power Grid

East China

Power Grid

Central China

Power Grid

Northeast

Power Grid

Northwest

Power Grid

Southern

Power Grid

Demand

growth 4.2% 3.8% 3.8% 3.8% 2.4% 7.5% 4.3%

Based on clean power development status, regional power demand growth prospective

and the development of a trans-regional transmission network, we can make predictions on

5. According to regional electricity demand growth in the past 5 years, we decomposed the national electricity

demand during the 13th FYP into each regional power grid by also considering with the characteristics of regional

economic development.

25

regional power development. We find that North China and East China will have a large gap

that will need to be filled by import. Meanwhile, northwest, northeast and south grids will be

the main export regions. We then quantified the regional balanced coal power capacity in

2020 (Figure 5-2).

Figure5- 2 Balanced coal power capacity in six regional power grids, 2020

5.2 Sensitivity analysis of coal power development space

Change in electricity demand can have a huge impact on power planning. The hypothesis

of high growth (4.9%) corresponds to strengthening electricity substitution, i.e., promoting

the transition of energy consumption patterns through the implementation of electric boiler,

electric furnace, electric vehicles, etc. The full implementation of electricity substitution will

greatly accelerate the growth of power demand The main consideration under a low growth

scenario (3.5%) is the potential to strengthen energy efficiency and conserve electricity,

which could make demand growth at a relatively low level by implementing demand

management and developing energy efficient products. The moderate growth or the

recommended scenario is a proper balance considering economic restructuring, power

demand growth, electricity substitution and energy efficiency.

In addition, the 15%6 non-fossil primary energy target by 2020 will also require a faster

low-carbon transition in the power industry. According to the officially declared clean energy

target, non-fossil energy supply from the power sector, including hydropower, nuclear power,

wind power, solar power and biomass power generation, could contribute about 13.4% of

primary energy (4800 Mtce) by 2020. Therefore, to ensure full realization of 15% non-fossil

6. Besides power sector, other non-fossil energy utilization including geothermal energy, solar heat water, biogas

and biofuel can supply 50-80Mtce primary energy. Hence, 13.4%-14% by power sector can properly ensure the 15%

non-fossil primary energy target.

0.0

50.0

100.0

150.0

200.0

250.0

300.0

North China East ChinaCentral China Southern Nothwest Northeast

251.8

209.7

139.8 128.2

114.5

66.6

GW

26

fuel energy target, it is necessary to regulate the expansion and use of coal power.

With the planning model, sensitivity analysis is carried out by considering the fluctuation

ranges of electric power demand growth (3.5%-4.9%) and power sector’s contribution to 15%

non-fossil primary energy target (13.4%-14.0%). The results show that, under different

demand growth scenarios, China’s balanced coal power capacity could fluctuate around the

recommended capacity with a range of 50 GW. Different shares of non-fossil energy by the

power sector also affect the development space of coal power. In sum, we find that a 1%

increase in the power sector’s share will cut down the market space of coal power by 38 GW.

Under the recommended growth scenario, if the power sector contributes 14% of non-fossil

primary energy instead of 13.4%, the reasonable coal power usage should be lowered from

910 GW to 888 GW. Also, the planned capacity of wind and solar power (including

solar-thermal power) should be raised up to 230 GW from 200 GW and to 120 GW from 100

GW, respectively (equivalent to replacing 22 GW coal power). According to the latest media

report, the planning of PV could further be adjusted to 150 GW [30]

, replacing another 8 GW

coal power.

Figure5- 3 Sensitivity analysis on reasonable coal power capacity in China, 2020

In general, with the recommended annual power demand growth of 4.2% during the 13th FYP

period and annual operating hours of 4800 hrs, China’s balanced coal power capacity would

be around 910 GW by 2020. Because China has already committed to employ electricity

substitution as part of its national energy strategy, another 50 GW of coal power addition will

be necessary for implementing the strategy. Under such a situation, the capacity of coal power

will reach around 960 GW.

5.3 Quantification of Coal Investment Bubble during the 13th

FYP period

800

820

840

860

880

900

920

940

960

13.4% 14.0%

960

937

910

888

863

840

GW

non-fossil primary energy share by power sector, 2020

High-demand Medium-demand Low-demand

27

According to the most recently available data, as of September 2015, there are about 283

GW new coal power projects EIA (either approved or waiting to be approved [17]

) in China. If

all projects were successfully put into operation by 2020, the coal power capacity would reach

1151 GW, about 200 GW higher than the reasonable scale of 960 GW corresponding to high

demand scenario, under which active electricity substitution strategy is fully implemented.

Large-scale overcapacity would lead to huge investment waste and could further deteriorate

the operation efficiency of coal power and block the low-carbon transition of the power

sector.

The integration of more renewable energy into the power system requires more system

flexibility and reduces the operational efficiency of coal power to some degree. But of greater

concern is that the growth rate of coal power capacity exceeds the growth of electricity

demand. Approval of power projects are generally based on historical and present electricity

demand, while the construction period of coal power project is generally 3-4 years. A strong

implication here is that systematic and accurate prediction on future demand must be made in

advance. Additionally, an integrated power planning program should be enacted as well as an

early warning and regulation system be put in place to remedy the errors in prediction,

planning and its actual implementation. Only in this way, can the efficiency of power sector

investments be ensured with high confidence, while the installation of coal power capacity

and power demand growth can be properly coordinated.

In this report, we employ annual operation hours as an indicator for the utilization

efficiency of coal power. It is assumed that when the number is less than 4500 hrs utilization

rate will be too low to be acceptable [31]

. In other words, an investment bubble can be detected

when national average utilization of coal power is less than 4500 hrs.

5.3.1 National level analysis

Based on preceding analysis, the reasonable scale of coal power in 2020 would be

910-960 GW, about 42-92 GW over the 2015 base, under which the national average

utilization hour would move around 4800hrs and stay within reasonable level.

28

Figure 5-4 The influence of new capacity addition on annual operating hour during 13th

FYP period

(under recommended demand growth scenario)

As shown in Figure 5-4, by 2020, if coal capacity stayed in the 2015 level (868 GW)

utilization hour would increase to 5035 hrs. Although energy balance would not be a problem,

the power balance could be. The integration of more large-scale renewable energy could

endanger the stability of the power system without more flexible generation sources

(including coal power). In the case of more reasonable 4800 hrs, coal power would reach 910

GW by 2020. However, according to data of new projects under construction during

2012-2014, if all projects under construction were commissioned by 2020, total coal power

capacity would reach above 1030 GW and utilization hours could fall to 4243 hrs. If all EIA

approved (and to be approved) projects by September 2015 were put into operation, total coal

power capacity would reach 1150 GW and utilization hours would fall below 3791 hrs.

We then separate the influencing factors of coal utilization hour into two aspects, the

change in electricity demand and the growth of coal power capacity. As we can see from

Figure 5-5, both factors have significant impact, but unchecked capacity growth actually

contributes a larger share.

5035 4800

4243

3791

0

1000

2000

3000

4000

5000

6000

0 42 160 283

coa

l p

ow

er o

per

ati

ng

ho

urs

(h

ou

rs)

new coal power capacity, 2015-2020 (GW)

29

Figure 5-5 Factors contributing to decreasing coal power operating hour

5.3.2 Regional Analysis

By the end of 2013, China's thermal power reached 870 GW [6]

, among which most is

coal power except for a small share of gas turbines and biomass generators. Again, because of

data availability, we use thermal units in 2013 to approximate coal power units as the

beginning of analysis. We can differentiate three scenarios. The first one is an ideal state

under which utilization hours of coal power stay around 4800 hrs and a reasonable scale of

coal power is built by 2020. The second, or partly commissioned, includes a scenario where

only 160 GW projects under construction during 2012-2014 are put into operation while the

rest of the approved projects are not built by 2020. The third scenario represents on in which

all the projects submitted for EIA approval by September 2015 (283GW) will be put into

operation by 2020.

Table 5- 3 Regional coal power scenarios by 2020 Unit: MW

2013

2020

Ideal scale

2020

Partly

commissioned

2020

Fully

commissioned

Excess capacity

Partly

commissioned

Fully

commissioned

North China 246640 251840 265520 311840 13680 60010

East China 209320 209670 237490 254600 27820 44920

Central China 137400 139810 165620 187110 25810 47300

Northeast 66250 66560 74270 78420 7710 11860

Northwest 87790 114500 130230 155510 15730 41010

South China 122320 128180 156890 165510 28720 37340

Total 869720 910570 1030020 1152990 119450 242420

47.64% 52.36%

reducing electricity demand increasing coal power capacity

30

Figure 5-6 Operating hour of coal power units in six regional grids, 2020

From Table 5-5, under the recommended scenario of medium electricity demand growth

and with the existing scale of new coal power projects, there will likely be an excess capacity

of 119-242 GW in China by 2020. On a regional level, the degrees of overcapacity vary.

Under the partly commissioned situation, excess in East China, Central China and South

China grids will be above 25 GW. With fully commissioned, the excess scale in North China,

East China, Central China and Northwest will be more than 40 GW.

Utilization hours can directly reveal the impact of excess investment. As shown in

Figure 5-6, in a partly commissioned scenario, utilization hours of coal power in all six

regional grids is lower than 4600 hrs. In particular, in the Central China and South China

grids, the number is below 4000 hrs. Under fully commissioned situation, utilization hour will

further decrease to about 3900 hrs for North China and East China grids, 3700 hrs for South

China grids, and only 3534 hrs for Northwest Grid.

5.3.3 Typical provinces

These five case provinces represent three different scenarios in our study. Hebei and

Shanxi are provinces saturated by heavy industry while seeking transformation. Zhejiang and

Jiangsu are provinces with high electricity demand but unable to manage self-sufficiency.

Xinjiang is planning to export electric power on a large-scale. These five provinces also have

different prospective of electricity demand growth. With saturated heavy industry, Hebei and

Shanxi will likely experience lower than national average growth. Thus, new additions to

thermal power must been strictly balanced with demand growth, while taking electricity

substitution into full consideration. Since local economy and tertiary industry is already well

3000

3200

3400

3600

3800

4000

4200

4400

4600

4800

North

China

East

China

Central

China

Northeast Nothwest Southern

ho

urs

balanced scenario partly commissioned fully commissioned

31

developed, Zhejiang and Jiangsu may also have lower growth than the national average.

During the 13th FYP period, efforts should be put on alleviating the existing overcapacity

of coal power, integrating more renewables locally and receiving more imports. New

construction of coal power should be rigorously restricted. Xinjiang is less developed in the

manufacturing industry, but the “One Belt, One Road” initiative will boost its industry

development. So its power demand is expected to be much higher than the average. But the

growth potential of coal power there is uncertain and highly depends on the scale of electric

power exports during the 13th FYP period. According to available information, Xinjiang is

trying to realize economic growth by more power export and is making every effort to

construct more power transmission channels [32]

. However, in our opinion, for Xinjiang,

above all it is the outlook of electricity market and the stressful water resource supply

incurred by coal power development that must be carefully considered.

Similar to the national and regional analysis, in the power planning model we estimated

the reasonable scale of coal power in each of these provinces. Detailed projections on power

and energy exchange among provinces must be considered in the estimation process. Based

on regional market outlook, demand forecast of individual case provinces and analysis of

trans-provincial power exchange, we can estimate the reasonable coal power capacity for

these provinces by 2020 (table 5-6).

Table 5-6 Coal power capacity of 5 provinces, 2020 unit: MW

2013

2020

Ideal scale

2020

Partly

commissioned

2020

Fully

commissioned

Excess capacity

Partly

commissioned

Fully

commissioned

Hebei 41870 43870 45070 47300 1200 3430

Shanxi 52050 57190 57750 79060 560 21870

Zhejiang 49950 50530 52590 52830 2060 2300

Jiangsu 75550 78460 79300 88020 840 9560

Xinjiang 29390 48120 47110 63620 0 15500

In terms of the absolute scale of coal power excess, under the partly commissioned

scenario, with the exception of Xinjiang, the other case provinces will have overcapacity but

will likely have the excess under control. However, under the scenario that all the approved

units are commissioned by 2020 (except Zhejiang with low excess scale at 2.3GW) the other

case provinces will have much more capacity excess. This is especially serious for Shanxi

with over 21 GW excess and for Jiangsu and Xinjiang with about 10 GW and 15.5 GW

respectively.

As to the operation efficiency, under the partly commissioned scenario (except in

Xinjiang), operation hours of coal power units in other case provinces will be lower than the

32

optimal, at about 4600 hrs. Under a fully commissioned scenario, except in Zhejiang,

operating hour in other provinces could dramatically drop to less than 4500 hrs. The worst is

Shanxi, where coal power operating hours may lower to 3472 hrs; the next is Xinjiang where

the number would barely stay around 3600hrs (Figure 5-7).

Figure 5-7 Projection on the operation hours of coal power in case provinces, 2020

6. Conclusion

6.1 Research conclusions

In this report, we provide a brief analysis of the power sector during 12th FYP period,

with a particular focus on the utilization of thermal (coal power) fleets. Then the market space

for coal power units and the risk of excessive investment in coal power during the 13th FYP

period are also estimated. The findings are:

Under the new economic normal, electricity demand growth has reduced to more

moderate rates since 2014. However, because of the delay of planning implementation and the

lead time of new unit installation, the new addition of coal power units remained at a high

scale in 2014. According to our estimate, utilization hours of thermal units will drop to 4330

hrs and the overcapacity of coal power units will range between 80-100 GW at the end of

2015. The overcapacity risk in coal power industry deserves close attention from the

government and the industry.

Under the assumption of 4.2% in annual electricity demand growth during the 13th FYP

period and constrained by the 15% non-fossil energy target, the rational capacity of coal

power would be around 910 GW. Active implementation of electricity substitution will push

up the rational scale by 50 GW. If by 2020 the capacity of wind power and solar power was

3000

3200

3400

3600

3800

4000

4200

4400

4600

4800

5000

Hebei Shanxi Zhejiang Jiangsu Xinjiang

ho

urs

balanced scenario partly commissioned fully commissioned

33

increased to 230 GW and 120 GW respectively, the share of non-fossil energy supply in the

power sector would increase from 13.4% to 14%, equivalent to replacing 22 GW coal power.

If solar power capacity was increased to 150 GW, it would replace 8 GW more coal power.

There would be an excess of 70-120 GW if all the 160 GW [17]

coal power projects

approved during 2012-2014 were commissioned by 2020. With the normal decommission of

old units, such an excess may be partially resolved7. On the contrary, if all the coal power

projects submitted for EIA approval (283 GW) [17]

were put into operation by 2020 the excess

capacity would reach as high as 200 GW and be out of control. Such a large scale of

overcapacity will bring forth disastrous effects, costing as much as 700 billion CNY, which is

an investment that is unlikely to be recovered. The utilization hours of coal power units would

decrease to 3800 hrs and further constrain the economic performance of generators.

Unnecessary capacity installation of coal power would also inhibit renewable energy

deployment, leading to serious renewable energy curtailment. This crowding-out effect of

investment could also block China's strategic opportunity in deploying the low-carbon energy

transition.

For the case provinces, under the partly commissioned scenario, except for Xinjiang,

actual coal power capacity in Shanxi, Hebei, Jiangsu and Zhejiang may be in an acceptable

excess of 2-3 GW. However, under a fully commissioned scenario, actual capacity would be

substantially higher in all provinces (excluding Zhejiang). Shanxi would have the worst

impact with an excess of 21 GW, Xinjiang would experience an excess of 15.5 GW, and for

Jiangsu would have an excess of nearly 10 GW.

6.2 Policy recommendations

Strengthening consistent and coordinated power planning must be the top priority [33]

.

Overall power planning with smooth coordination between generation planning and grid

expansion, among different power sources [34]

, especially the matching of flexible resources

to adapt to renewable energy integration, and between national and local levels should be

formulated. After delegating the authority of project approval to provincial level, the

instructional functions of national planning must be emphasized. In other words, local

governments must approve new energy projects based upon the national power sector

planning formulated by the competent ministries (NEA and NDRC).

7. If employing the CEC statistical data (80GW), together with the 110GW approved projects (yet to be

constructed) since 2015, the sum is also consistent with the partly commissioned scenario in our report. In other

word, whether new coal power projects would be approved and whether all the approved projects would be

constructed, deserves careful attention from both central and provincial governments, in particular those with large

approved projects such as Xinjiang and Shanxi.

34

NEA and NDRC should coordinate and function effectively, including timely releases of

information and regulation. Power planning for the 13th FYP should be planned and released

to guide market investment with adequate and transparent information.

An early warning mechanism on coal power investment should be established. It is

strongly recommended that these competent authorities regularly publish an electricity market

prospective report, update the electricity demand outlook regularly and provide early warning

on potential coal power investment risk when detected.

35

AppendixⅠ: Transmission capacity of 27 UHV lines

NO. Route Type Origin Destination Provinces along

the route

Capacity

(MW)

1

North Shanxi-Nanjing in

Jiangsu ±800kV HV DC

transmission project

DC Shanxi Jiangsu

Shanxi, Hebei,

Shandong, Henan,

Anhui, Jiangsu

8000

2

Southeast Shanxi-

Nanyang-Jingmen 1000kV

UHV AC demonstration

project

AC

Hubei Shanxi, Henan,

Hubei 5000

3 Ximeng-Shandong 1000kV

UHV AC project AC

Inner

Mongoli

a

Shandong

Inner Mongolia,

Hebei, Tianjin,

Shandong

9000

4

Shanghai temple in Inner

Mongolia-

Shandong ±800kV HV DC

project

DC

Shandong

Inner Mongolia,

Shaanxi, Shanxi,

Hebei, Henan,

Shandong

10000

5 West Mongolia-South Tianjin

1000kV UHV AC project AC

Tianjin

Inner Mongolia,

Shanxi, Hebei,

Tianjin

6000

6 Ximeng-Taizhou in Jiangsu

±800kV HV DC project DC

Jiangsu

Inner Mongolia,

Hebei, Tianjin,

Shandong,

Jiangsu

10000

7 Ximeng-Nanjing 1000kV

UHV AC transmission project AC

Jiangsu

Inner Mongolia,

Hebei, Beijing,

Shandong,

Jiangsu

9400

8

North Zhejiang- Fuzhou

1000kV UHV AC

transmission project

AC Zhejian

g Fujian Zhejiang, Fujian 6800

9

Huainan-Nanjing-Shanghai

1000kV UHV AC project in

North-loop of East China

Power Grid

AC Anhui Shanghai Anhui, Jiangsu,

Shanghai 26000

10

The left bank of

Xiluodu-Jinhua in Zhejiang

±800kV HV DC project

DC Sichuan Zhejiang

Sichuan, Guizhou,

Hunan, Jiangxi,

Zhejiang

8600

11 Xiangjiaba-Shanghai ±800kV

HV DC transmission project DC

Shanghai

Sichuan,

Chongqing,

Hubei, Hunan,

Anhui, Zhejiang,

Jiangsu, Shanghai

6400

12 Jinpin-Sunan DC

Jiangsu Sichuan, Yunnan, 7200

36

±800kV HV DC

transmission project

Chongqing,

Hunan, Hubei,

Zhejiang, Anhui,

Jiangsu

13 Ya’an-Wuhan 1000kV UHV

AC project AC

Hubei

Sichuan,

Chongqing, Hubei 12000

14 Jinshang-Jian ±800Kv HV

DC project DC

Jiangxi

Sichuan,

Chongqing,

Guizhou, Hunan,

Jiangxi

10000

15

Yuheng in North

Shaanxi-Huaifang in

Shandong 1000kV UHV AC

transmission project

AC Shaanxi Shandong Shaanxi, Shanxi,

Hebei, Shandong -

16 North Shaanxi-Jiangxi ±

800kV HV line DC

Jiangxi

Shaanxi, Shanxi,

Henan, Hubei,

Anhui

-

17

Longbin-North Henan

1000kV UHV AC

transmission project

AC

Henan Shaanxi, Henan -

18 Jiuquan-Hunan ±800kV HV

DC transmission project DC Gansu Hunan

Gansu, Shaanxi,

Chongqing,

Hubei, Hunan

8000

19

Longdong-Jiangsu

±800kV HV DC delivery

project

DC

Jiangsu Gansu, Shaanxi,

Henan, Jiangsu 10000

20

Ningdong-Shaoxing

±800kV HV DC transmission

project

DC Ningxia Zhejiang

Ningxia, Shaanxi,

Shanxi, Henan,

Anhui, Zhejiang

8000

21 Zhundong-East China

±1100kV HV DC project DC Xinjiang Anhui

Xinjiang, Gansu,

Ningxia, Shaanxi,

Henan, Anhui

12000

22

Zhundong-Chengdu in

Sichuan ±1100kV HV DC

project

DC

Sichuan Xinjiang, Gansu,

Shaanxi, Sichuan 10450

23

South Hami-Zhengzhou ±

800kV HV DC transmission

project

DC

Henan

Xinjiang, Gansu,

Ningxia, Shaanxi,

Shanxi, Henan

15610

24

North Hami-Chongqing ±

800kV HV DC transmission

project

DC

Chongqing

Xinjiang, Gansu,

Sichuan,

Chongqing

8000

25

Chuxiong in Yunnan-

Huidong in Guangdong

±800kV HV DC transmission

DC Yunnan Guangdong Yunnan, Guangxi,

Guangdong 5000

37

project

26

Pu’er in Yunnan-

Jiangmen in Guangdong

±800kV HV DC transmission

project

DC

Guangdong Yunnan, Guangxi,

Guangdong 5000

27

Northwest Yunnan-

Guangdong ±800kV HV DC

transmission project

DC

Guangdong

Yunnan, Guizhou,

Guangxi,

Guangdong

5000

38

Appendix Ⅱ: New EIA approved coal power projects from 2012 to 2015

The project team adopts the coal power project database from Green peace, which

includes coal power projects approved by national and local environmental protection

departments since 2012 to September 2015.

Unit: MW

Total

2012-2014

approval

2015 application and approval

application Pre-approval approval Total

North China

Beijing 0 0 0 0 0 0

Tianjin 2000 2000 0 0 0 0

Hebei 5425 3200 0 50 2175 2225

Shandong 15229 4400 2024 4460 4345 10829

Shanxi 27010 5700 2640 700 17970 21310

Inner Mongolia 15540 3580 0 1400 10560 11960

Total 65204 18880 4664 6610 35050 46324

East China

Shanghai 0 0 0 0 0 0

Zhejiang 2877.5 2640 0 0 237.5 237.5

Jiangsu 12473.5 3750 1063.5 0 7660 8723.5

Anhui 19248 13140 700 1320 4088 6108

Fujian 10676.1 8640 0 2000 36.1 2036.1

Total 45275.1 28170 1763.5 3320 12021.6 17105.1

Central China

Hubei 7877 3100 0 105 4672 4777

Henan 11356 7320 0 2036 2000 4036

Hunan 3929 3920 0 0 9 9

Jiangxi 13345 6000 2000 0 5345 7345

Sichuan 6000 2000 0 0 4000 4000

Chongqing 7200 5880 0 0 1320 1320

Total 49707 28220 2000 2141 17346 21487

North-east

Liaoning 8244 5420 0 0 2824 2824

Jilin 1450 700 0 750 0 750

Heilongjiang 2475 1900 160 0 415 575

Total 12169 8020 160 750 3239 4149

North-west

Shanxi 14640 8700 0 0 5940 5940

Gansu 3420 3420 0 0 0 0

Qinghai 3320 1920 0 0 1400 1400

Ningxia 12112 10680 700 700 32 1432

Xinjiang 34232 17720 0 16512 0 16512

Total 67724 42440 700 17212 7372 25284

South China

Guangdong 20392 16492 0 0 3900 3900

Guangxi 6640 5920 0 0 720 720

Yunnan 600 600 0 0 0 0

Guizhou 14160 10860 660 0 2640 3300

Hainan 1400 700 0 0 700 700

Total 43192 34572 660 0 7960 8620

39

Total 283271.1 160302 9947.5 30033 82988.6 122969.1

40

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42

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