Nearly all of China’s power generators will be brought into the national emissions trading scheme that starts next year, but the industry must be on top of developments to avoid additional costs in what are already difficult times, the head of China Electricity Council said Thursday.

The planned 2017 launch of a national carbon market will cover nearly all of China’s generators if the government goes ahead with its plan include any company that consumed at least 10,000 tonnes of standard coal in any of the years between 2009 and 2013, said Wang Zhixuan, head of China Electricity Council.

If managed well the ETS could add to profits, but companies that fail to sufficiently prepare may be hit by increased management costs on aspects of generation, energy saving and fuel switching, he told the 21st Century Business Herald.

The slump in fuel prices and an announced government campaign to rid China of its massive overcapacity in energy-intensive industries create difficult circumstances for the nation’s power industry, and many companies have already recorded huge losses.

Wang said an effective carbon market would be the cheapest way for power companies to improve their performances on energy efficiency and environmental protection.

In the first year of the carbon market, companies will receive all or most of their CO2 allowances for free, but Wang said power companies would come under increasing pressure as the government gradually increases the share of permits that are auctioned.

Many companies have also expressed concern about benchmark-based allocation, which is likely to add to the woes of coal-fired plants, he added.

There are also worries in the industry that carbon pricing is difficult to combine with various government targets on economic growth and power consumption, Wang said.

SLOW RESPONSE

So far the power industry has been slow to adjust to the economic downturn and the government’s desire to shift to cleaner fuel sources, although it has now surpassed Europe to become the world’s biggest renewable energy generator.

Electricity demand growth slowed to a trickle last year, but China still saw massive fossil fuel investments.

In the first nine months of 2015, the government approved the construction of over 150 new coal plants – with a combined generation capacity exceeding that of Italy – even though coal consumption fell.

Over half of those new coal plants being built violate environmental regulations, according to Greenpeace.

Ratings agency Fitch on Thursday said it expected the woes for China’s coal sector to continue in 2016.

“Twenty-eight out of the 33 coal companies listed on China’s Shanghai and Shenzhen Stock Exchanges have just released their 2015 full-year financial result previews, and 20 reported a net loss after excluding any one-off gains,” Fitch said.

Some 150 Chinese power companies, or nearly a sixth of total generation capacity, are covered by China’s seven pilot carbon markets, so many firms will have some experience with emissions trading when the national ETS launches.

By Stian Reklev – stian@carbon-pulse.com

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