China's renewables leadership challenged by $36b investment in overseas coal projects: report

Over a quarter of coal plants being developed outside the country are supported by Chinese banks and firms.

China’s clean energy leadership is under threat due to its support for coal power as it has committed or proposed about $36b in financing for about 102GW of coal-fired capacity in 23 countries, the Institute for Energy Economy and Financial Analysis (IEEFA) revealed.

According to a report, of the 399GW of coal plants currently under development outside China, Chinese financial institutions and corporations have committed or offered funding for over one-quarter of them (102GW).

Whilst the Chinese government has signalled it will restrict coal lending, the country has yet to formally limit its investment in coal plants. “Instead, Chinese finance is increasingly stepping in as the lender of last resort for coal plants, as other banks take active measures to restrict their funding,” said IEEFA researcher Christine Shearer.

The country with the most coal-fired capacity supported by Chinese finance is Bangladesh, followed by Vietnam, South Africa, Pakistan, and Indonesia. About 76GW of the 102GW of capacity is in pre-construction status.

IEEFA also revealed that Chinese companies often act as engineering, procurement, and construction (EPC) contractors for the projects, and increasingly as co-managers and owners as well. Of the 102GW of global coal-fired capacity supported by Chinese finance, 30GW involves joint ownership with Chinese corporations.

“The central government now places on the financial returns associated with large project development,” said Shearer.

Moreover, the biggest lenders are Chinese policy banks: China Development Bank and the China Export-Import Bank, followed by Chinese state-owned commercials banks such as the Bank of China (BOC) and the Industrial and Commercial Bank of China (ICBC). The corporations most involved are large state-owned entities, including utility monopoly State Grid Corporation of China, infrastructure group China Energy Engineering Corporation, and power giants State Power Investment Corporation and China Huadian Corporation.

Most of the capacity under development is categorized as ultra-supercritical technology (38%), followed by supercritical (35%) and subcritical (23%). This compares with subcritical technology making up 58% of plants funded by Chinese policy banks between 2001 and 2016.

“Yet Chinese finance still supports a high number of subcritical and supercritical plants, lagging the norms in carefully regulated markets,” Shearer added.

Funding for these projects leaves China increasingly isolated as other nations move away from supporting coal, IEEFA added. In terms of international financing for future coal plants by state-owned policy banks, China is by far the leader with 44GW of capacity, followed by South Korea with 14GW and Japan with 10GW.

“Whilst Japanese and South Korean finance are the second and third highest supporters of coal plants globally, Japan’s prime minister and national power giant Marubeni have stated publicly their intention to transition away from thermal coal, along with Japanese insurers Dai-ichi Life and Nippon Life, whilst South Korea is no longer permitting new coal plants and is increasing coal taxes in a deliberate turn toward renewables,” Shearer explained.

The report concluded that China should reconsider its funding for export coal mines, coal-fired power plants, and the associated rail and port infrastructure. The International Energy Agency (IEA) sees renewables contributing 60% of global additions to electricity generation capacity through 2022 and dominating over the next two decades, it said.

According to the firm, the Chinese Belt and Road Initiative (BRI) has driven $8b of solar equipment exports from China, helping China overtake the US and Germany to be the top exporter of environmental goods and services. “It makes sense for China to continue to build on its position as the global leader in renewable energy development as the world moves away from fossil fuel-based capacity,” Shearer said.