China’s growing role as funder of Africa’s proposed coal plants

China investment in Africa

China is emerging as a strong backer of coal in Africa, financing about half of the region’s current coal proposals outside South Africa.

By Christine Shearer

As of May 2016, there is 44 billion watts (gigawatts [GW]) of proposed coal plants in Africa, excluding South Africa – more than 24 times the region’s current coal capacity of 1.8 GW. About half of the proposed capacity (21.5 GW) is being financed by China.

An estimated 635 million people do not have access to electricity in Africa. Outside of South Africa, much of the continent lacks the centralized energy grids and fossil plants of the industrialized world. Yet this makes the country fertile ground for a more distributed energy system with high potential for renewable power, according to groups like the IEA and International Renewable Energy Agency.

However, China’s aggressive promotion of coal plants may conflict with the opportunity to provide cheaper and cleaner energy options for the continent.

Proposals in Africa

As part of the Global Coal Plant Tracker, CoalSwarm assessed the status of all Africa coal plant proposals. Projects that have not entered the permitting process are categorized as “announced.” Those that have completed the first permitting step are categorized as “pre-permit development,” and those with environmental clearance are categorized as “permitted.” (Proposals without activity for two years or more are categorized as either “shelved” or “cancelled.”)

Coal proposals in Africa

Of the 42.2 GW of capacity under development on the continent (excluding South Africa) and the further 1.8 GW under construction, most proposals (26.8 GW) are in the most preliminary “announced” stage. Nearly 40 percent of all proposals are concentrated in Egypt, which has recently but very aggressively been pursuing new coal plants.

China financing

About half of the proposed capacity (21.5 GW) is being supported by Chinese finance. Most of the financing so far is concentrated in Ghana, Kenya, Malawi, and Zimbabwe, where China financing is associated with 73 to 100 percent of the proposals. China is also backing half the proposed coal capacity in Egypt, Tanzania, and Zambia.

In total, China is financing 17 coal-fired power station projects totaling 47 units (there are often several units, or plants, within a power station). Where data is available on estimated costs, the 17 projects that China is supporting total US$29.35 billion. Of this, China has committed or is in discussion for committing US$21.86 billion, or about 75 percent of all project costs.

Financiers include the state-owned Export-Import Bank of China, the China Development Bank, and the Industrial and Commercial Bank of China.

Engineering contracts

Coal plants are capital-intensive projects and the largest capital expenditures are the construction contract and plant equipment. The international, nonprofit Climate Policy Initiative (CPI) noted in a November 2015 report that Chinese involvement in overseas coal plant funding is often intended to support its domestic players, particularly its engineering, procurement, and construction (EPC) companies and equipment manufacturers, which are often awarded the bids for constructing the plants and supplying the parts. The companies are mostly large state-owned enterprises, and are facing coal overcapacity and thus dwindling demand for power plant equipment and construction services.

China has added so many coal plants in recent years (724 GW from 2000 to 2015) that it is now reportedly facing excess capacity, with the average coal plant utilization rate falling from 60 percent in 2008 to 45 percent in 2016. This year China responded by suspending or halting 110 GW of coal development, and has hinted that it may suspend all new coal plants until 2018.

In response to the overcapacity, CPI argues that Chinese “EPC companies, primarily those in the thermal power sector, as well as equipment manufacturers specializing in boiler, generator, and turbine production, are eager to explore alternative outlets for their products and services in the international market… [and] the [Chinese] government is supporting their overseas expansion. Developing overseas power projects, including coal-fired power, is part of the State Council’s plan to absorb excess domestic production capacity.”

All 17 projects supported by China in Africa involve EPC contracts with Chinese companies, or are sponsored by Chinese companies. Companies include SEPCO, SEPCOIII, Shanghai Electric Group, and Sinohydro. Chinese lending to overseas power plants is also often tied to exports from Chinese equipment providers.

The future

China has emerged as a large funder of overseas coal plants. A 2015 report by Boston University found the China Development Bank and the Export-Import Bank of China provided US$118 billion in overseas energy finance between 2007 and 2014, compared with US$119 billion by the World Bank and the Asian, Inter-American, and African Development Banks combined. Coal-fired power plants took 66 per cent of the total energy-related lending, compared to 1 per cent for solar and wind power.

In September 2015, China indicated its commitment to restrict public finance to high-carbon projects, although it remains to be seen how strictly this policy is implemented. 

The lack of a centralized electric grid throughout much of Africa makes it ideal for a new type of energy system, one more rooted in distributed generation–similar to how many countries bypassed telephone lines for cell phones and cell towers. This effort, however, would require greater funding and assistance–not just on the part of China, but from all wealthy nations that are historically the biggest contributors to the climate crisis.

Christine Shearer is a Senior Researcher at CoalSwarm. Her twitter is here.

CoalSwarm also publishes CoalWire, a weekly bulletin on global coal industry developments. (You can sign up for it here.)