Grant is closed

Oct 2014 – Jun 2015

China Coal Power Finance

China

Country

China – East Asia

To provide an overview of the financial and institutional landscape of Chinese finance for domestic and overseas coal power projects, and analyse potential philanthropic interventions to shift Chinese domestic and outward finance from coal to clean energy.

$327,402 Grant Value

The Climate Policy Initiative and the China Centre for Energy Economics Research (CCER) undertook much needed research into mapping the landscape of the financial and institutional landscape of Chinese finance for domestic and international projects, and analyse potential interventions for philanthropy.

The primary outputs of the investment were two reports:

Report: Slowing the Growth of Coal Power Outside of China

Historically, public finance from Multilateral Development Banks (MDBs), as well as national development agencies and financial institutions in developed countries, has contributed significantly to overseas coal power development, to provide electricity access at low cost in developing countries and to support exports. Institutions such as the Japan Bank for International Cooperation, the Export-Import Bank of U.S., and the World Bank Group played important roles in financing coal power projects. In recent years, however, the Chinese government has been increasing its financial support of overseas coal power projects as backing from traditional lenders started to wane, and has become a key player in this space. In addition to public finance, in recent years Chinese power generation developers have also begun to invest directly in foreign coal power plants. In September 2015, the U.S. and China issued a joint statement highlighting China’s commitment to restrict public finance to projects with high pollution or carbon emissions, internationally as well as domestically.1 The practical details of this major policy change have yet to be defined – but the impact of this commitment may be significant.

The aim of the report was to help the wider community better understand the scale of Chinese finance in a larger global context as well as the drivers and economic incentives for the country and stakeholders involved. 

The report thus answers the following questions:

  • How significant is global coal power financing? What is China’s role in this?
  • Which projects are attracting Chinese financial support?
  • Which Chinese players are involved in these transactions?
  • What are the main incentives for China and for host countries to engage in these transactions?
  • If China reduced overseas coal power financing, would other financiers replace its role?


Report: The Role of Finance in State-Owned Enterprises 

This report focused on crucial questions around the financing of Chinese coal power plants namely: 

  • which actors (i.e. owners, lenders, policymakers) have played a major role in the deployment of coal-fired plants in China? 
  • What combination of economic and policy factors gave rise to the deployment of close to 1 TW of thermal capacity (mostly coal-fired power) by 2015? 
  • What is the financing structure that supports these coal-fired plants and how is it evolving? 
  • How do the dominant actors in this system benefit from coal power build-outs? 
  • How could the government best rein in these actors? 
  • What is the role of domestic and foreign private capital in power plant financing? 
  • And can the increased participation of private capital change incentives to slow the growth of coal power?

A synopsis of the report is as follows:

This project begins to explore a number of questions. In Section 2, it looks into the instrumental role that low-cost coal power generation has played in helping fuel China’s infrastructure-led economic development. In Section 3, it identifies the owners of coal-fired power generation capacity in China and highlight the critical role that State-Owned Enterprises (SOEs) have played in the deployment of coal power. In Section 4, it turns to the three government policy drivers that have supported SOEs: top-down targets from China’s National Development and Reform Commission (NDRC), government-set electricity tariffs that ensure relative long-term profitability, and the provision of almost unlimited, cheap government finance to SOEs so that they do not need to rely solely on pure corporate or project finance. In Section 5, it looks into macroeconomic changes that have occurred recently in China and how government support is evolving under this changing economic landscape. Section 6 looks into the complex relationship between state-owned enterprises and the central government – making the case that SOEs are gradually evolving into self-sustaining entities that are incentivised to continue expanding their coal-fired power generation assets on which external finance and policy support have limited impact.

Impact

The programme culminated in two reports that offered the analysis of the mapping and provided a detailed insight into the field of coal financing in China.

The primary aim of this work was to enable the philanthropic community to better understand the landscape of coal finance and then determine where best to invest resources.  The ambition was to increase the impact of philanthropic resources by improving understanding of coal-related financial flows.