Energy

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

If you're looking for a culprit for the choking smog that's engulfed China this week, there's a clue in customs data released by the government Wednesday.

Coal imports in November amounted to nearly 22 million metric tons, their highest level in almost three years. Combined with domestic production at a year-high and thin exports, China's apparent coal demand looks to be roaring back. Down as much as 14 percent from a year earlier in July, it was off less than 1 percent last month.

Burn Baby Burn
China's apparent coal demand reached its highest level all year in November as winter started to bite
Source: Bloomberg Intelligence, China Customs General Administration, National Bureau of Statistics of China, Gadfly calculations
Note: Y-axis has been scaled from 200 to highlight increase in net imports during 2016.

Some of this is to be expected. Despite having the biggest installed renewable-energy capacity of any country, China still depends on coal for as much as three-quarters of its power generation. One reason thermal-coal prices have surged over the past year is the sheer difficulty of changing that equation.

With winter biting, alternative sources of energy haven't stepped up to the plate. Natural gas is constrained in terms of import capacity and priced to be uncompetitive with coal. To make matters worse, at present it's being rationed. As for renewables, solar isn't such a big contributor to electricity supply when the days grow shorter and smog darkens the sky, and the slow wind speeds that have contributed to the blanket pollution will be hampering wind-energy generation, too.

When the Wind Blows
Northeastern China's major wind power provinces are going through a calm patch. Chart shows deviation from three-year average wind speeds, by province
Source: Bloomberg

Politicians in Beijing can't be blamed for the weather that's accentuating the smog, and they can be forgiven for the state of the legacy generation systems they've inherited. The same can't be said of their plans for the future, however.

China's 13th Five Year Plan for energy, released last month, sharply reduces installation targets for renewables, meaning coal could take the lion's share of new generation installed by 2020. The 216 gigawatts of new capacity that thermal-power stations will be able to add before reaching a 1,100 gigawatt cap are greater than the plan envisages from all forms of non-fossil energy put together.

Back in Black
Coal will account for the bulk of China's new generation capacity under the reduced ambitions in the final version of its 13th Five Year Plan
Source: Bloomberg New Energy Finance, National Development & Reform Commission

The plan isn't all bad. Increased investment in the country's grid will help find markets for the renewables that are going unused at present. Bloomberg New Energy Finance estimates that such curtailed energy amounts to 21 percent of wind and 23 percent of solar generation capacity. It also reckons that renewables will overshoot the government's targets while fossil fuels will undershoot thanks to projects already in train, meaning coal will end up adding only 113 gigawatts, while wind and solar PV will add 103 gigawatts and 60 gigawatts respectively.

Cough Cough
Beijing PM2.5 pollutant concentrations, 30-day moving averages
Source: U.S. Department of State
Note: People are recommended to limit outdoor exertion at levels above 150. Levels above 300 are considered hazardous, and people should avoid outdoor exertion altogether. The daily level on Dec. 21 was 437.

Still, for all the justified concern about the new direction of U.S. energy policy under President-elect Donald Trump, it's worth reflecting that China is also sliding backward in its commitments to clean up its energy mix.

Xinhua quoted President Xi Jinping Wednesday as saying that officials need to promote clean energy for heating in winter in order to avoid the pollution problems China is currently experiencing. He could start by overhauling the government's own planning. Without a faster transition toward renewables, the smog will only get worse.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net