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17 Jun 2022

Isabella Suarez, China Dialogue

China’s overseas coal pledge: 15 projects cancelled but grey areas remain

China’s no overseas coal pledge: 15 projects cancelled so far, but grey areas remain

27 May 2022

Despite vagueness around the exact scope of China’s announcement last September to end support for new coal power plants overseas, this new stance has already seen 15 pre-construction coal power plant projects with Chinese backing either shelved or cancelled, according to a recent analysis by the Centre for Research on Energy and Clean Air (CREA).

After examining the wording of the first official interpretation of the pledge, jointly issued last month by four central government ministries, we found that a further 45 pre-construction coal power plant projects could be re-examined, with the potential for around 70% of them to be scrapped.

The interpretation document, the “Guiding Opinions on the Joint Implementation of Green Development in the Belt and Road Initiative” (the “Opinions”), also leaves the door open to further cancellations or conversions of coal power projects because it recommends that firms involved with under-construction plants proceed “cautiously”.

However, remaining grey areas, as well as apparent loopholes for coal power plants in industrial parks and restarted projects, are holding back the potential of the pledge to fundamentally transform China’s role in developing countries’ energy sectors, slowing the move towards supporting and accelerating low-carbon transitions. [...]

Grey areas and exemptions

The “Opinions” make clear that any new project should be stopped. However, a number of recent contract signings expose grey areas around new coal power plants, falling into three categories: the construction of new coal power plants in existing BRI industrial projects; the expansion of existing coal power plants; and the revival of previously shelved projects.

Most concerning are two contracts for equipment and construction of power plants for major BRI-linked industrial nickel and steel developments in Indonesia. The first is an EPC agreement for Tianjin Electric Power Construction to construct a 1,520 MW nickel ore-supporting thermal power project in the Obi Island Industrial Park, signed on 14 February. No project technology is confirmed publicly, but the original proposal signed in 2018 by Ningbo Lygend and Indonesia’s Harita Group for the Obi Island park did include a 4.2 GW allocation for coal plants.

A second is an equipment supply contract for a 3 x 380 MW expansion of the existing Sulawesi Labota in Sumatra, signed by Anhui Electric Power Construction Engineering in December 2021. The power plant is also tied to steel and nickel processing at the Morowali Industrial Park – a project backed by Shanghai Dingxin Investment Group.

Chinese firms’ involvement in planned coal projects in industrial parks can progress separately from the ownership of the parks, in that industrial park developers need not directly finance coal projects built within the complex. However, if the industrial complexes make a guaranteed profit from power generated from the proposed coal plants, they are assuming financial risk for the project in the long term. This puts them at risk of future sensitivities around coal-generated steel and nickel – industries that China has also expressed support for greening.

The recent revival of the Houaphanh power station in Laos highlights another grey area. A development agreement was signed for the project by the Laos government and China International Water & Electric Corporation in 2012, and a completed feasibility study and franchise agreement came in 2016, but actual construction never began and was assumed to be shelved. But this April, North China Electric Power Design Institute, a subsidiary of China Energy Engineering Corporation, won a bid for engineering design and technical support on a 350 MW project. [...]