China’s Environmental Problems – 4/28/16

Facing economic uncertainty and environmental deterioration, Chinese officials have been more open to alternative energy and emissions regulation.

In late March, the Chinese government issued a major policy announcement known as “Document 625”. Document 625 focuses on renewable energy; it is meant to increase the amount of energy from wind, solar, hydro, and other renewables used on the power grid after years of under-utilization due to coal getting preferential access. The central feature of Document 625 is a mandate for grid companies requiring that they purchase at least a minimum amount of output from renewable generators. Because of the political power of the coal industry and falling coal prices, larger percentages of wind- and solar-generated electricity failed to reach the grid, a phenomenon called curtailment.

Document 625 introduces several new elements to China’s energy policy including: direct compensation of renewable energy generators for curtailment to be paid by conventional generators, priority access and guaranteed purchases of renewable energy, new renewable energy pilot programs, and a shift in controls from unreliable provincial governments to the central government.

A major problem with such policies is the lack of concern for the underlying causes of past renewable energy curtailment, as well as a lack of explanations for feed-in-tariff mechanisms and sustainable funding for renewable energy. Regardless, the central government is pushing through more progressive policies that are harder for local governments to skirt around.

New guidelines aimed at reducing pollution come at the expense of coal-fired power plants operators that have powered China’s growth for decades. Beijing, in guidelines released on Monday, halted plans for many new coal-fired power stations and postponed construction of a number of approved plants until at least 2018 increasing the possibility of indefinite suspension. The announcement, by the National Development and Reform Commission and the National Energy Administration, will affect about 200 planned coal-fired power generators for 105 GW of power, more than the total electricity-generating capacity of Britain.

World coal consumption

China, one of the 175 countries that signed the Paris climate accord, is aiming to reach a peak in carbon emissions by 2030 via investment in wind and solar energy capacity and reduced coal use. Yet China’s power industry local governments push for new power plants to create construction jobs and expand tax bases even as the growth slowdown has reduced electricity demand significantly, meaning many of the power plants would be underused if they were built.

Compared to the United States, where more coal-fired capacity is retired each year than is planned to come online for the foreseeable future, China’s energy sector is much less responsive to market signals about coal’s dim future. In China, coal prices dropping mean bigger profits for state-owned electricity generators when highly regulated electricity prices are constant.

Solar capacity in the nation has soared more than sevenfold since 2012, while wind has almost doubled exacerbating the conflict between easy money fossil fuels and meeting renewable energy targets. The idle rate was 15% for wind turbines last year and about 31% for photovoltaics in the northwestern province of Gansu, according to data from the National Energy Administration.

State Grid Corp. of China, which manages the electricity grid, has blamed a lack of planning for limitations on the amount of power renewable energy generators can sell. “Neither the technology the grid uses nor the availability of investment funds were problems,” Chairman Liu Zhenya said.

Despite laws prohibiting curtailment, fossil fuel power plants in practice “have priority over renewables, leaving less room for solar and wind power in a country with a large overcapacity of coal-fired power,” according to WRI. “There is also a lack of clarity on how the renewable energy integration mandate should be enforced.”

“For the first time, the management rules stipulate that renewable energy power plants be compensated by fossil fuel plants that squeeze out their share of guaranteed purchase, making it costly for fossil fuel plants to generate electricity that should have come from renewable sources,” said WRI.

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