Old King Coal may soon have outstayed his welcome

Building Brics: The damaging environmental effects of coal, which supplies more than two thirds of China's energy needs, are obvious to see in the skies over the country's cities.

The damaging environmental effects of coal, which supplies more than two thirds of China's energy needs, are obvious to see in the skies over the country's cities.

China consumes half the world's coal, it is the world's largest power market and the globe's largest carbon dioxide emitter.

So when will China's reliance on coal start to ease?

The good news is that greenhouse gas emissions from its energy industry are expected to peak in 2027 as renewable energy and gas play an ever more significant role in meeting China's energy needs, according to a report by Bloomberg New Energy Finance (BNEF).

Whether or not this positive scenario comes about depends on factors such as the cost at which China extracts shale gas reserves, water constraints on drilling and power generation and the speed with which environmental policies such as a carbon price are enforced, BNEF said.

China's projected electricity consumption growth is five per cent per year, which is equivalent to 88 gigawatts every year.

To put that in context, that is the equivalent of adding the total installed capacity of the UK every year.

The government needs to meet this demand while at the same time addressing growing public unhappiness about appalling smog in the cities. The government has boosted solar power targets and other renewables to try and improve the situation and head off any further unrest over hazardous environment.

By 2030, the power market will have doubled in size with an additional 1,583GW to reach 2,707GW.

However, coal's dominance will be challenged by competitive renewables, such as large-scale hydroelectric projects, increased awareness of environmental pollution, the prospects of shale gas and a potential price on carbon emissions.

"Renewables will contribute to more than half of new capacity growth and by 2030 installed renewable capacity will be equal to that of coal," the BNEF report said.

Coal-fired power generation capacity will decrease from 67 per cent last year to 44 per cent in 2030 although in absolute terms will continue to grow by 25GW per year, which is still almost one-third of new construction and equal to two large coal plants every month. Coal remains a significant threat to the environment.

"Despite significant progress in renewable energy deployment, coal looks set to remain dominant to 2030," said Jun Ying, the Beijing-based country manager and head of research for China at BNEF.

"More support for renewable energy, natural gas and energy efficiency will be needed if China wants to reduce its reliance on coal more quickly."

The report bases this forecast on its "New Normal" scenario, which the authors believe is most likely given the current policy, technology and economic situation.

Renewables including hydroelectric power will increase from 27 per cent to 44 per cent in 2030 at 47GW per year.

The key reasons underlying the rapid growth of renewable energy are similar to those observed in other countries, the BNEF said.

These include the continuously improving economics of wind and solar photovoltaic panel (PV) manufacture due to falling technology costs, increasing costs for coal-fired plants as a result of environmental controls and the expected uptake of distributed solar PV in China's commercial sector.

The president Xi Jinping has made much of his government's desire to make the "Beautiful China" dream a reality but are the technological and economic drivers there to help the country transform itself to create a cleaner future?

"The new Chinese leadership is responding to calls for more equitable and sustainable economic growth, a faster pace of reform and to concerns over environmental degradation," the BNEF said.

"Expected structural reforms will gradually reduce the government's interference in the economy, allow more private capital to enter state-dominated sectors such as energy, and impose further environmental controls," the report's authors said.

However, because renewables have a lower capacity factor relative to fossil fuels, the share of coal-fired power generation will remain dominant at 58 per cent in 2030. This is less than the 72 per cent seen last year, the report said.

Despite accounting for more than half of added capacity, renewables including hydro will only increase its share of generation from 21 per cent in 2012 to 29 per cent in 2030.