China has planned to increase its power generation in order to keep pace with increasing demand. As part of a five-year plan ending in 2015, China plans to add 520 GW to its current power production expanding its capacity by 54 percent. Coal will be the primary source of energy in this increase.

China

Coal contribution in China’s energy production

Coal-fired plants will contribute about 58 percent of the increase in 2015 to remain the largest contributor to China’s power generation. However, the share of coal in China’s total installed generation capacity will reduce from 68 percent in 2010 to an estimated 65 percent by 2015. Hydropower will maintain its position as the second largest source of energy in China with a 19 percent estimated share by 2015.

Table 1: China power capacity plans

Source: China State Council
Source: China State Council

Plans for solar energy production

The strongest growth has been planned for in the solar energy segment and has been realized significantly so far. Nuclear power is also to expand considerably, nearly quadrupling by 2015. Wind power is planned to triple while gas-based power production is to double over the course of five years.

Other estimates suggest that China’s coal power capacity will expand to 1,166.5 GW by the end of 2020 from 655 GW in 2010. This means that a total of 511.5 GW will be added over a period of ten years. China Development Bank, a government-owned infrastructure financier, illustrates via its forecasts that the major expansion in coal-fired power will come by 2015. A further expansion will come between 2015 and 2020 but this growth will slow down after that and only 160.5 GW will be added over the next thirty years. This will probably be due to the deterioration of coal reserves.

Table 2: China coal fired power

Source: China Development Bank
Source: China Development Bank

China short on coal

China’s aggressive five-year plan has left the country short on coal. As a result. imports of coal have risen significantly. China’s import of thermal coal has increased 3.88 times over the past three years.

Figure 1: Production and imports of thermal coal in China (metric tonnes)

Source: Bloomberg
Source: Bloomberg

Imports of thermal coal have grown primarily but imports of other types of coal including brown coal and anthracite coal have also noticeably swelled. Imports of anthracite and brown coal have only started after 2010 to keep up with the five year aggressive power production plan.

Figure 2: Import of different types of coal in China

Source: Bloomberg
Source: Bloomberg

Pressure on coal industry

The government has faced severe criticism on its plan to increase power production and its increasing reliance on coal as a resource. The emphasis on coal as the principal source of power production may mean not only increased pressure on coal delivery infrastructure but also degenerating environmental conditions.

Figure 3: Power production cost in China

Source: Bloomberg
Source: Bloomberg

To counter such criticism, China has increased gas-fired power station capacities. However, gas is a scarce resource for China and this means that power generation from natural gas will remain limited. Furthermore, the cost of generating power from natural gas is almost double the cost of generating power from coal. Power generated via natural gas costs about 600 CNY per MWh while power generated from locally excavated thermal coal costs about CNY 300-570 CNY per MWh. Given these numbers, it is considered highly unlikely that the significance of coal for China will reduce any time soon.