Chinese players are hardest hit as coal’s glory days come to a close.
Investors are no longer fired up about pouring funds into Chinese coal power plants. Investment in new coal-fired capacity in China crashed to less than 20 GW of coal power in 2016, a far cry from an annual average of 50 GW from 2011 to 2015 and 80 GW in 2006 to 2010, says Laszlo Varro, chief economist of the International Energy Agency. “This century so far was the century of coal, especially in China and India. This age of coal investment is now coming to an end--or at the very least, it is coming to a pause,” he adds.
Total energy investment worldwide in 2016 was just over $1.7t, marking a 12% decline on a year-on-year basis. China remained the largest destination of energy investment, taking 21% of the global total. Meanwhile, energy investment in India jumped 7%, cementing its position as the third-largest country behind the United States. The rapidly growing economies of Southeast Asia together represent over 4% of global energy investment.
End of an era
The makeup of investments in China exhibited a marked change in the past year, with a 25% decline in commissioning of new coal-fired power plants. Today, energy investment in China is increasingly driven by low-carbon electricity supply and networks, and energy efficiency.
“The administration introduced a so-called 'traffic light' policy last year to prevent overinvestment in coal capacity. A year after, we can see that this traffic light policy is proving to be effective,” Varro notes. “The investment decisions taken in coal 2016, totalling a mere 40 GW globally, signal a more dramatic slowdown ahead for coal power investment once the current wave of
construction comes to an end,” he adds.
There was also a decline in coal power generation investment in India. Varro notes that this can be attributed to two factors, namely, the financial difficulties of the Indian electricity sector and the increasing competitiveness of the solar power industry in India. “Questions are increasingly being raised about the economic necessity of new coal-fired power plants,” he says.
New sources in the spotlight
Coal’s loss is renewable energy’s gain, with renewable energy sources grabbing the lion’s share of funding in the past year. IEA’s report shows that investment in new renewables-based power capacity, at US$297b, remained the largest area of electricity spending, despite falling back by 3%. Renewables investment was 3% lower than five years ago, but capacity additions were 50% higher and expected output from this capacity about 35% higher, thanks to declines in unit costs and technology improvements in solar PV and wind.
"Renewables investment is doing really well. 85% of investments into RE went into electricity production, such as hydropower and wind power. The majority of spending is coming from both the government and the private sector, but there is still very little set aside for research,” Varro says.
Spending on electricity networks and storage continued its steady rise of the past five years, reaching an all-time high of US$277b in 2016. China accounted for 30% of networks spending, driven by distribution networks and a significant expansion of large-scale transmission. Another 13% went to India and Southeast Asia, where the grid is expanding rapidly to accommodate growing demand. In the United States (17% of the total) and Europe (15%), a growing share is going to replacement of ageing transmission and distribution assets.
Overall, the grid is modernising and moving from a pure electricity delivery business to an integrated platform for data and services, enabled by rapid progress in digital information and communications technologies, which grew to over 10% of networks spending. Investment in grid-scale battery-based energy storage is ramping up quickly, reaching over US$1b in 2016,” Varro notes.
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