The world’s largest power system “will face serious challenges in the next few years,” due to overinvestment in new generation capacity over the last decade, Bloomberg New Energy Finance warns in a recent report.
The report, China Renewables Curtailment and Coal Stranded Assets Risk Map, highlighted that the 1,614GW Chinese national power market was oversupplied by 35 percent at the end of 2016, and it faces a potential hit of $237 billion from stranded coal assets.
“China’s power generators, both renewable and coal, experience increasing competition for dispatch,” BNEF said. China’s current power market design does not allow for economically rational dispatch, it added, while lack of flexibility has been a major technical barrier, hindering the full utilisation of renewables, and hampering the reduction of coal-generated output.
The report noted that two-thirds of total national capacity was built in the last decade and the rapid build-out continued even as power demand growth slowed over the last five years. During that period, the market was driven by rapid power demand growth, governments’ generous subsidies and regional industrial competition.
Today, China’s renewable power generators face the worst curtailment rates in the world, with the national average curtailment ratio in 2016 at 17 percent for wind and 10 percent for solar. Yet, the country is still building over 50GW of wind and solar in high curtailment risk regions, said BNEF. To add to the pressure, regions with rich wind resources also have abundant coal.
The excess electricity supply could not be exported to other regions because of insufficient inter-regional transmission capacity.
“Coal power generators are entering an unprecedented period of uncertainty as regulators tighten environmental regulations and cancel new projects,” said BNEF. It added that no provinces in China are needing new coal generation.
The Chinese government is working on new regulations and energy policies to focus on streamlining investment planning and operation of the overall power industry. However, BNEF noted that the major challenge for power operators remains the lack of transparency on how central regulators decided investment risk ratings for each province.