Commentary: China’s Plan to Cut Emissions at Coal Power Plants Could Actually Slow Its Green Transition

14 Aug 2024

By Shen Xinyi, Yu Aiqun and Liu Hongqiao

Zhangjiakou ZTP power station in Xuanhua District, Zhangjiakou City, North China’s Hebei province on Feb. 7, 2021. Photo: VCG

Burning coal is currently the biggest obstacle China faces to achieving carbon neutrality. The country is the world’s largest producer and consumer of the fossil fuel. It has the globe’s largest and youngest fleet of coal-fired power plants, which supply the country with more than 60% of its electricity.

In order for China to push ahead with its energy transition, it needs to maintain its rapid development of renewables while finding a solution for a coal power industry that seems incompatible with a green future. Policymakers hope to further optimize this coal power system, but this could lead to additional operational costs, higher capital burdens, and ultimately slow down the green transition.

On July 15, the National Development and Reform Commission, along with the National Energy Administration, unveiled an action plan aimed at promoting the co-firing of coal with biomass and green ammonia, as well as the use of carbon capture, utilization and storage (CCUS), to reduce emissions from the coal power industry.

The action plan sets an ambitious goal of reducing the emission intensity of coal-fired power plants to a level comparable to that of gas-fired power plants. However, the three methods mentioned are unlikely to provide a sustainable and economically viable decarbonization path for coal power in China. Instead, they might exacerbate the financial distress of the industry, drive up electricity prices, and further reduce the competitiveness of Chinese manufacturing.

‘Low-carbon’ coal power

The new plan sets a goal of reducing the carbon emission intensity of retrofitted coal power projects by 20% by 2025 and by 50% by 2027 — both from a 2023 baseline. That would put the carbon intensity of coal power in the same ballpark as that of “cleaner” gas-fired power plants.

The plan calls for “low-carbon” retrofitted coal power plants to increase the share of biomass and green ammonia in their fuel mix to 10%. It also encourages combining CCUS projects with enhanced oil recovery technology and chemical projects.

The plan also requires provincial governments and some state-owned power firms to propose retrofitting plans, but does not specify the scale of coal-fired plants that needs to be included.

Notably, the plan sets several prerequisites for the retrofitting, such as ensuring a sufficient supply of biomass fuel and renewable power, as well as having favorable geological conditions. Strict adherence to these requirements may mitigate the negative impact of building new biomass and ammonia projects, but it also narrows the number of coal power units eligible for retrofitting.

Additionally, the plan covers a range of financial measures, including ultra-long special treasury bonds, real estate investment trusts, green bonds and green credit. Generally, such financial instruments require strict adherence to green finance classification standards and provide evidence of sufficient profitability to cover borrowing costs. However, it would be very difficult for these biomass, green ammonia and CCUS projects to meet these requirements.

Cost ineffective

The economic feasibility of the technologies used by these projects remains questionable. First, they have the potential to increase both electricity prices and the systemic costs of China’s energy transition.

In China, the biggest limitations of biomass co-firing are high fuel costs and supply shortages. Biomass fuel also has a low energy density and is difficult to collect, store and transport. These characteristics mean that biomass fuel is only economically viable within a limited radius of where it is produced. As a result, many biomass power plants are not economically viable and start having operational difficulties if they are not sufficiently subsidized. If coal power plants start competing for biomass, the situation will worsen, causing fuel prices to skyrocket.

Green ammonia co-firing, which is new to China’s coal power industry, is not a promising solution either. It is very expensive to produce green ammonia. Moreover, the production of green hydrogen — the main raw material for green ammonia — through water electrolysis is extremely energy-intensive. Simply converting renewable power into green hydrogen results in a 40% energy loss.

Although China has made rapid strides in renewable energy development, its generation capacity has not yet reached a level that can provide sufficient and stable power to support this energy-intensive technological solution. Clearly, a more reasonable and cost-effective use of renewable power is to feed it directly into the grid to meet the country’s growing electricity demand.

CCUS is no exception. Past pilot projects have often been financed by public and international development funds. These projects have demonstrated that the technology is not only costly but also extremely energy-intensive. Applying such an expensive solution to coal power plants with an already declining utilization rate and poor profitability makes little sense.

Second, high-quality data is needed to evaluate the effectiveness of retrofit projects, which is likely to become a key obstacle in implementing the plan.

Accurate data is crucial for success. Currently, China has not established methodologies for measuring, reporting and verifying the emission reduction effects of co-firing technologies. This is precisely what the action plan attempts to explore.

The lack of a rulebook could mean that the grid operators, which are required to prioritize the consumption of “renewable” or “zero-carbon” electricity generated by retrofitted coal power plants, might have to improvise. However, coal power plants need to adjust their output according to real-time grid demand, making it nearly impossible to monitor the fuel composition on-site or determine whether and to what extent their electricity production meets “renewable” or “zero-carbon” standards.

Finding the right path

Since 2015, the coal power industry has faced severe overcapacity, with utilization rates at one point falling below 50%. They remain low today. However, widespread industry losses have not stopped the years-long boom in coal power plant construction, even as renewable power generation capacity has continued to grow.

While technological and managerial innovations can reduce environmental pollution from burning coal, such measures only have a limited impact on reducing carbon emissions from coal. The “clean coal” policies introduced in recent years have mainly focused on improving energy efficiency, meaning generating more electricity with less coal.

Since 2016, China has been working hard to retrofit coal power units for greater flexibility, hoping they can quickly respond to demand from the grid and stabilize it against intermittent renewable energy shocks. Coal power has been seen as a backup option, playing a supporting role as green electricity becomes the mainstay of the power system. However, the latest action plan seems to go against this trend, requiring renewable energy to help coal reduce its carbon emissions.

The new plan might divert the focus of the energy transition, and the worst-case scenario could lead to “greenwashing” — a process where businesses try to paint their projects as more eco-friendly than they actually are — and subsidy fraud. These retrofit projects also face the risk of being left unfinished.

China’s ongoing efforts to improve efficiency of pollution controls and coal-fired power plants have led to bluer skies and cleaner air. However, to decarbonize the power sector, China needs a carefully planned roadmap to phase out coal, rather than more investment in “clean coal” and “low-carbon coal.” Further investment in an already globally leading efficient coal power system will only increase the costs and add to obstacles facing China’s green transition.

Shen Xinyi is an analyst at the Centre for Research on Energy and Clean Air; Yu Aiqun is an analyst at Global Energy Monitor; and Liu Hongqiao is editor-in-chief of the weekly newsletter Shuang Tan. This article was first published in Shuang Tan.

This article has been edited for length and clarity.

Wang Xintong contributed to this article.