Analysts: China coal consumption continues to drop

Analysts: China coal consumption continues to drop

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Good news for the world but not for coal producers is that the slowdown in China’s economic growth rates has coupled with massive clean energy investment to ensure a continued fall in the Chinese coal market.

As businesses around the world digest the news Chinese economic growth is now at its slowest rate in 25 years, a silver lining could be found in the latest evidence the country’s energy sector is steadily reducing its reliance on coal.

China-coal-burning-power-plantThe British environmental news website BusinessGreen reports official government figures released ahead of the latest economic figures stated that electricity demand grew only 0.5 per cent last year, while coal imports were down 35 per cent in December 2015.

With the government reporting that the economy grew 6.9 per cent last year, the latest energy data suggests the country is continuing to enhance its energy efficiency and sharply reduce its reliance on coal as new renewable and gas capacity comes online.

That is certainly the view of Institute for Energy Economics and Financial Analysis (IEEFA), which has published an analysis of the latest Chinese energy data detailing how electricity demand grew at its slowest rate since 1998.

China-coal-stockpile-GreenpeaceIt also estimated that overall coal-powered generation fell four per cent year-on-year while coal consumption fell five per cent, continuing the decline that started in 2014.

Moreover, coal consumption per kWh thermal power generated fell 1.3 per cent last year, continuing steady improvements in power plant efficiency.

Analysts are predicting the trend that has seen China shift away from coal and towards cleaner sources of energy far faster than anyone expected will continue.

China-Tianjin-eco-city-wind-turbinesLast week Bloomberg New Energy Finance (BNEF) highlighted how China’s investment in renewable energy and energy efficiency rose 17 per cent last year to a record $110bn, further cementing its position as the world’s largest clean tech market.

Meanwhile, the Chinese Coal Association is predicting coal demand will fall again this year and the IEEFA estimates that with up to 65GW of new wind, hydro, solar and nuclear capacity expected to come online this year any increase in power demand will be covered by new zero emission generation. Consequently, the think tank reckons Chinese coal consumption will fall five per cent this year, representing a continuation of the slowdown that has afflicted the market since 2013.

tim-buckley-headshot-financial-analystTim Buckley, director of energy finance studies at IEEFA, said in a statement the results were part of a global trend that would have major repercussions for coal exporters, such as Australia and Indonesia.

“The decoupling of economic growth and electricity demand is a key driver of the Chinese energy transformation and is being witnessed first hand,” he said in a statement.

“The implications of these changes are huge, China’s total country emissions are on track to peak potentially a decade earlier than their official target of no later than 2030.

“This comes at the same time that America has confirmed a 10 per cent year-on-year decline in coal consumption in 2015 (and down a staggering 29.7 per cent yoy to-date in early 2016), plus a three year moratorium of new Federal coal mine leases.

Ben Caldecott Stranded assets program director Oxford University“That the three largest economies globally are all moving rapidly in concert to exceed the COP21 Paris agreement sets a very positive scene for 2016.”

BusinessGreen reports his comments were echoed by Ben Caldecott, program director at the Smith School of Enterprise and the Environment, who warned investors needed to be aware of the shifting nature of China’ energy mix.

“Great strides continue to be made in China in terms of growing clean energy investment and improving energy efficiency,” he said.

“This has significant implications for coal-fired power stations in China, in terms of utilisation rates and profitability, as well as for thermal coal miners that have made big bets on seriously flawed projections of China’s future demand for imported coal.”

IEEFA’s analysis follows a new research note from banking giant Barclays, which argued that while further action was needed from China to close the ’emissions gap’ and put the world on track for less than two degrees Celsius of warming, the country was set to over achieve against its official emissions target.

china windThe national climate action plan China submitted as part of last month’s Paris Agreement committed it to ensuring emissions peak by 2030, cutting emissions per unit of GDP by between 60 and 65 per cent by the same date, and ensuring it sources a fifth of its energy from clean sources.

“China should be able to achieve or outperform all three of these targets,” Barclays said.

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