Hogsback explores the Beijing coal-fired power decision

IF YOU get involved in a discussion about the most significant development in the global coal industry Hogsback suggests you do not make the mistake of naming the decision of the Chinese Government to close coal-fired power stations close to the country’s capital, Beijing.

Tim Treadgold

Interesting as that was, there was something more significant happening in the US where the question of African development was being debated at a business forum.

At almost the same time as China moved to clamp down on polluting power stations World Bank president Jim Yong Kim was proposing a change of policy that could cause the bank to drop its opposition to coal by agreeing to fund the building of coal-fired power stations in Africa.

For the coal industry the score on the day looks like one-all – but even that step backward was not what it seemed and once you peeled away the propaganda it might not actually be a step backward at all.

Putting the Beijing decision in perspective is important because it was easy to be misled, perhaps inadvertently, by early news reports and more so if you only consumed what coal’s critics had to say.

Take the Australian Financial Review report which had a reasonable headline: “China’s creeping threat to Australian coal” and then read the first words of the story: “Beijing moves to close coal-fired power plants ….” – which was true, but only up to a point.

The problem is the use of the capital’s name, which could easily be confused as a decision effecting the whole country when the decision only affected the capital itself.

So, “Beijing’s move to close coal-fired power plants …” is correct but it only applies to one city in a vast and over-populated country, which is demanding more power every day and will build the equivalent of the four coal-fired power stations close to Beijing by the end of next week.

Rather than threaten Australian exports of coal to China what is really happening is that those exports will go to where demand is growing – and to where the coal-fired power stations serving Beijing will probably be relocated because it is impossible to imagine that the Chinese Government will permit brown-outs in the capital.

The ABC, not normally a friend of the coal industry, got it right, eventually. Despite a predictable scare headline on its website: “Beijing coal ban another blow to Australia’s exports”, the body of story got to the truth by quoting the ANZ Bank commodity analyst Mark Pervan.

Pervan pointed out that the four power coal-fired power plants close to Beijing threatened with closure by the Chinese Government represented 3 gigawatts of electricity generating capacity, which is 0.5% of China’s annual needs.

“Put another way, they add 3GW a week to thermal power demand,” Pervan told the national broadcaster.

“So shutting down the thermal power plant capacity in Beijing would be replaced within one week in China.”

That is called putting a scare into perspective.

Meanwhile, on the other side of the world there was grudging recognition at the highest levels of global banking and government that without coal future generations of Africans would remain stuck in the same poverty and economic development trap as current and past generations.

That is why the World Bank president said on the sidelines of an African business development conference that the bank had to be sensitive to the idea that “Africa deserves to have power”

And where might that power come from? Coal, it seems, because what the highly qualified Kim Yong recognises is the bleeding obvious appeal of coal as the go-to fuel source that can deliver power at an affordable price.

For coal’s critics the comments of the World Bank president are pure poison because in a nutshell he has sold the case for coal.

“There has never been a country that has developed with intermittent power,” Kim Yong told news wire Bloomberg.

Africa, according to the Korean-born, Harvard educated banker who also has medical and anthropology degrees, is experiencing “almost energy apartheid” where two thirds of the population lacks access to power.

Where possible the World Bank will avoid backing coal-fired power projects, but: “at the same time we’ve got to respect the Africans’ demand for access to power”

Boiled down, it is a classic difference between what the rich world can afford, the luxury of high-cost power from sources such as gas and renewables, and what the poor world can afford – and that is the world’s go-to fuel source, coal.

On balance, a week that looked like a loss for coal became a winner with Hogsback looking forward to a coal critic commenting on the “energy apartheid” quip from a man who really knows what he’s talking about.

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