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In this new series we look at stunning statistics from the world of sustainability. What do they mean? What is the impact for investors? Today: China is closing down more than 100 coal-fired power projects. Big deal?
China has announced plans to cancel more than 100 coal-fired power stations – enough to power 13 cities the size of Amsterdam for a year. It’s a big number, but it should be seen in a wider context, warn Robeco’s Emerging Market Equities specialists.
The country’s energy regulator in January ordered 11 provinces to end the projects that would have generated 120 gigawatts of electricity, partly to combat the acute pollution problems that have left Chinese cities cloaked in smog.
Instead, China aims to produce more power from solar and wind energy, with plans to generate 130 gigawatts from renewable sourced by 2020 – a figure equivalent to the current entire renewable power generation of France.
“The 120 GW capacity close is substantial, but on the other hand there is new capacity coming online, so the figure is misleading,” says the team’s senior analyst Yaowei Xu. “The major purpose of the policy is to eliminate the outdated coal-fired power capacity, while controlling the growth of the new capacity.”
“China is still targeting capacity of 1,100 GW of coal-fired capacity by 2020, according to the 13th Five-Year Plan, compared to about 960 GW in end-2015. So there is still a net capacity addition – it will just be growing at a slower pace.”
“China is indeed shifting to more renewable energy usage, although it is still at a very early stage. The major swing factor long term is whether nuclear energy will ramp up faster than expected – but this won’t be known for five years or more.”
As investors, Robeco currently targets trends in China and other emerging markets, but is wary of the time taken to switch to sustainable fuels, and avoids the coal-fired power sector. “The shift from coal to renewable energy is just one example of the structural changes occurring in China,” says Fabiana Fedeli, portfolio manager of Robeco’s Emerging Market Equities fund.
“Over the next decade we expect to see the economy shift from being manufacturing and fixed asset investment-led, to more service oriented. That said, given the size of China, such a transition will take time, and not necessarily progress in a straight line. In our portfolios we make sure we are on top of these trends. In light of this, none of our portfolios currently holds coal-fired power utilities in China.”