China’s Utilities Protest Plan to Ban Low-Grade Coal

On May 30th, Reuters released an article on Chinese utility companies protesting a proposed government plan to ban low-grade coal imports.  Opposition to the plan came from China’s top five utility companies, China Huaneng Group, China Datang Corp., China Huadian Group, China Guodian Corp. and China Power Investment Corp. with the major point of contention for the utility companies being the increased price of operation the ban would bring.

The National Energy Administration (NEA), acting under its parent commission, the National Development and Reform Commission (NDRC), has purposed the ban on low-grade coal in hopes of decreasing pollution, upping coal quality, and increasing domestic coal mining to boost available reserves.  The utility companies see the ban for an alternative perspective as it would increase prices and decrease profits, an already all to common trend for the above listed companies.  Further adding to the utilities’ financial strain is that the increased price of operation would not be offset by increasing prices to consumers as electricity prices are set at a low rate by the central government.

The NEA’s ban, even if only a proposal, brings to light the conflict that can occur when state policy does not alight with state-owned enterprise policy.  The purposed ban is said to be in line with 12th Five-Year Plan, yet the misalignment between government and corporate goals could not be more pronounced.  If the low-grade coal ban was paired with overall utility industry reform, it could provide a good starting point. However, the ban is not indicated as being part of an overall reform of utilities and is instead an effort to curb pollution and reform the Chinese coal mining industry.  The ban would also have a negative effect on trade with several of China’s coal import partners, chiefly Indonesia.

The NEA’s proposal would have a wide-spread impact on the Chinese utility industry as many power producers have been buoyed in recent years by the import of low-grade coal.  The other aspect of the NEA proposal to consider, in addition to how power utilities would be affected, is the implementation of reform in the Chinese coal mining industry.  If the undertaking were to stall or be left incomplete, the fallout would put not only Chinese utility companies in  tight spot, but also the government as well.  Expanding electric generation capacity and infrastructure is a key aspect of Chinese development plans.  To have one piece on that network, mainly its primary source of fuel, falter would have a negative impact both in China and globally as export oriented industries’ production would be stunted.  Concerns about Chinese electric utilities and coal consumption must be met with policies that views the two as linked and not separate issues.  Even is state and state-owned enterprise policy do not always align, they still must be seen as intertwined.

Geothermal Expansion in China

Today’s post will examine geothermal energy in China. People’s Daily Online posted a story from Xinhua in February on efforts to further tap Chinese thermal energy. As with most English language stories on Xinhua, the text is matter of fact and the facts are a matter of Xinhua. The story, while brief, does acknowledge an aspect of Chinese energy policy and development that is often over shadowed by stories on energy security and fossil fuels. Overall, the goal is to expand the use of geothermal energy in China to 50 million tonnes of coal equivalent (TCE). The link provides a definition and several energy conversions, most notably the number of megawatt hours (MWh) produced. Electricity production and development is crucial to China and its development.

Chinese domestic energy concerns have been focused on overall expansion of capacity in order to continue economic development. This has included not only increasing energy production but also expansion of infrastructure as well. Traditionally, this development has been undertaken using China’s plentiful and cheap coal resources. However, in recent years China’s coal production has found it hard to keep up with demand. Expansion of geothermal production will provide some relief to this problem as China is estimated to have significant reserves and production capabilities. The expansion of geothermal energy production would provide some level of domestic energy security and much desired pollution reduction.

An additional aspect of China’s geothermal expansion is the potential for export and resale. China’s increasing footprint in the developing world could provide manufactures of geothermal technology easy access to untouched markets. A large part of Southeast Asia and east Africa have potential for geothermal development. Ethiopia is looking to capitalize on its extensive geothermal potential. While the country is working with its own development bank and the World Bank, Chinese assistance was crucial to the creation of the new African Union headquarters in Addis Ababa. This relationship can easily play to China’s advantage and its Africa policy.

While there is great potential for geothermal growth in China, barriers do exist. A report released by Deblock Consulting outlined some of the technological obsticale faced by the geothermal power industry in China. Firstly, progress is slow with regards to technological application and limited to mid to low level geothermal energy sources. Secondly, exploration and development of geothermal sources has not made great progress either, further limiting its present applicability. Finally, a lack of standardizaiton and R&D has also emerged as a hinderance to geothermal energy development. All of this issues will have to be met in order for China to fully capture its geothermal energy potential both domestically and internationally. Once this is done, China will not only be able to increase its electrical generation capacity, but also provide much needed enrivonmentally friendly power sources domestically and internationally.