Coal Shortages Force China’s Hand and Motivate It Speed up on Clean Energy

August 31st, 2011 BY Saikat | No Comments

Every booming economy could be handicapped by one vita resource – cheap energy. It’s no different for China whose economic juggernaut is entailing a high cost in terms of energy. Coal power plants are shutting down and causing massive outages. Estimates say that China is facing shortages of nearly 16 GW. Coal power is also getting increasingly expensive, thus forcing China’s hand and making it look at clean energy alternatives.

Coal prices have risen 75% since 2007, while electricity prices have only been allowed to rise 15%. Shortages of Chinese coal as local mines start to exhaust supplies are jacking up prices for imports and making China’s coal power plants economically unviable to run.

“Many coal plants have shut down their generators because the more they produce, the bigger the losses they will suffer,” said Li Chaolin, a coal and energy industry analyst at Anbound Group.

In the mood for expansion, China twelfth five-year plan unveiled this week ‘greener energy’ plans for 70 GW for wind and 5 GW of solar by 2015.

China is following a different approach than most other nations to speed up green energy. It could be a mistake in foresight. Unlike Europe, which is using Feed-in Tariffs to induce the addition of more green power to the nation’s grid, China is using competitive bidding to bring the costs of the new renewable energy generation. FITs are a safer bet in the long run for newer more untried energy sources, as generators are paid only for actual production.

China has to speed up on the energy fronts as more than 30 GW of energy shortage is forecasted as more coal plants go out of business. This steep decline was not factored in as precisely even as China’s economy went on the ascent. To offset this precarious state, China intends to build at least 75 GW of new clean energy to help supply new energy demands as its economy grows.

It will be very difficult initially as prices for alternative energy will start on a higher plane than the conventional ones. But over the long run, it may taper off as wind and solar generation is fuel-free.

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