Excess Capacity in China's Power Systems: A Regional Analysis

Publication Type

Report

Date Published

11/2016

LBNL Report Number

LBNL-1006638

Abstract

It is widely recognized that China's economy has entered a so-called economic "new normal," characterized by a lower overall economic growth rate, a structural shift toward a service economy, and widespread overcapacity in many industrial sectors.

As a consequence, China's energy consumption grew only 0.9%, and electricity consumption growth slowed to 0.5%, in 2015. Despite this downturn in electricity demand, power plant construction and permitting has continued at a rapid pace. Government agencies reported that 130 gigawatts (GW) of new generation capacity was added in 2015; other reports show that an additional 200 GW of coal-fired generation capacity is under construction, with more in the permitting process.

There are many factors that may have contributed to the overbuilding of coal power plants in China — declining coal prices, which led to higher profits for generators due to the lag in reducing their wholesale power tariff; overly optimistic expectations for economic and electricity demand growth; and local governments' preference for investment, which generates employment and tax revenues. However, there may be more fundamental issues at play. In particular, we argue that China's current planning process for the power sector is insufficient to meet emerging challenges under the economic "new normal," to address urgent air quality problems, and to support China's ambitious clean energy and climate goals.

Year of Publication

2016

Refereed Designation

Refereed