Coal Shortages Speed Up China's Clean Power Plans

[Fernbay]

Coal Shortages Speed Up China's Clean Power Plans

By Susan Kraemer

Wed Aug 31, 2011 8:44am EDT

The Chinese government continues to expand its clean energy production plans, to replace increasingly expensive coal power that is shutting down coal plants and causing power shortages of at least 16 GW. China's twelth five-year plan unveiled this week plans for 70 GW for wind, and 5 GW of solar by 2015.

Unlike Europe, which is using Feed-in Tariffs to incentivize the addition of more green power to the nation's grid, China is using competitive bidding to drive down the costs of the new renewable energy generation. This might be a mistake: FITs are a safer bet in the long run for newer more untried energy sources, as generators are paid only for actual production.

China's first CSP tender generated an average solar power price of CNY0.96 (US$15) per kWh. The price being offered for CSP solar is about double the price of its conventional coal power. Wind is also more expensive, but now increasingly competitive.

A new development, peak coal, has shaken up the plan. Coal prices have risen 75% since 2007, while electricity prices have only been allowed to rise 15%. Shortages of Chinese coal as local mines are depleted are driving up prices for imports (US Coal Companies Reap Windfall From Australian Climate Catastrophe) and China's coal power plants are now under real financial stress.

"Many coal plants have shut down their generators because the more they produce, the bigger the losses they will suffer," Li Chaolin, a coal and energy industry analyst at Anbound Group told the Global Times.

As a result, as much as 30 GW of power shortages are forcast as struggling coal power plants in China are unable to stay in business. China intends to build at least 75 GW of new clean energy to help supply new energy demands as its economy grows. But the dramatic loss of coal power was not factored in several years ago.

It is a very difficult situation for China, with the payments for renewable generation starting out higher than those for the (now too expensive) coal. But although the prices it offers for new clean power generation will be higher initially, over the long haul China's energy costs will become cheaper since wind and solar are fuel-free. So the policy makes sense.

But for China, given the coal shortages driving blackouts, the decision is now sink or swim.