(Note article first published 2 May 2021 in China Environment News)
In February 2021, China’s embassy in Bangladesh sent a letter to the local Ministry of Finance stating that “the Chinese side shall no longer consider projects with high pollution and high energy consumption, such as coal mining [and] coal-fired power stations”.
Why did China suddenly announce a coal investment phase-out in Bangladesh?
In 2016, China and Bangladesh signed a memorandum of understanding (MoU) for 27 projects valued at $24 billion, including a variety of projects in infrastructure and energy. In February 2021, Dhaka requested to replace 5 projects in the MoUs worth $3.6 billion in Chinese loans.Included in the projects to be replaced were 2 coal projects: – the extension of Barapukuria coal mine’s existing underground operations ($256.41 million), and the Gazaria 350-megawatt coal-fired thermal power plant ($433.00 million). The Gazaria coal-fired power plant was supposed to be implemented by Rural Power Company Limited (RPCL). However, RPCL said that the company had to drop the idea to set up a coal-fired power plant in Gazaria in the wake of massive protest from local people against the coal plant in their locality. This eventually contributed to the decision by Bangladesh’s government to exclude the Gazaria power plant from the MoUs signed with China.
In response China’s embassy announced its the coal investments will be phase-out in Bangladesh, and suggested that the Bangladesh side select new projects, which should be smaller in scale and meet standard requirements, such as having an associated feasibility study and environmental protection plans.
The changes reflect Bangladesh’s current domestic energy situation, its energy development strategy shift and its recognition to stipulate greener development compared to coal-based energy.China’s response shows support for Bangladesh government’s willingness to move away from domestic coal-fired power plants investments – and possibly more broadly in the whole Belt and Road Initiative (BRI).
Bangladesh’s power overcapacity and cost issues
In 2020, gas and to a lesser extent oil accounted for the majority of Bangladesh’s electricity production (gas around 70%), while coal accounted for about 5%. The shares of renewables such as wind, hydropower and solar PV in the electricity mix were quite small, fluctuating from around 6% in 2000 to 2% in 2010, and then to 1.4% in 2020. The current energy mix is far away from achieving Bangladesh government’s target of meeting 10% of power demand from renewable energy resources by 2020. In addition, Bangladesh’s power system is characterized by massive overcapacities with risks of further deterioration. Planned capacity additions over the next five years would likely see capacity utilization decline further.
If power demand growth only reaches 7%, then capacity utilization could further decline to around 34%.Worsening overcapacity would have significant financial burden unless steps are taken to revise plans for new capacity. The Bangladesh government is well aware of the overcapacity risk and financial burden of coal-fired plants. The increasingly uneconomical position with coal is sparking a major rethink of such projects.An exit of coal financing would give more space for China to focus on greener and more profitable investment opportunities, such as renewable energies, in Bangladesh.
Greater focus on renewable energy investment
In 2020, Bangladesh government invited China to accelerate its renewable energy investment in Bangladesh because private sector investors were not driving forward solar deployment fast enough. A Bangladesh-China joint venture (JV) called Bangladesh-China Power Company (Pvt) Ltd Renewables plans to build 450 MW of new solar capacity and a 50 MW wind farm. As part of the Public Private Partnership (PPP), Bangladesh’s government would supply land for clean energy generation while China would invest an estimated $500 million in developing the planned solar and wind facilities, via the new joint venture.China’s Belt and Road Initiative has the potential to become the largest means for the diffusion of cleaner energy technologies throughout the developing world.
The BRI could not only help unlock markets for clean energy technologies for China but also meet the pressing energy needs of developing countries in a manner that is consistent with the overarching goals of the Paris Agreement on Climate Change. It will only succeed, however, if BRI countries do more to attract relevant green investments on the one hand, and if relevant investors, including Chinese investors, and relevant policies support this green BRI transition.
The Bangladesh-China renewables joint venture sets a good example for China’s BRI energy investment choices. By turning investment away from coal to renewable energy, China could not only help Bangladesh greening its energy mix, but also contribute to global climate goal.
Extract from article ‘China’s coal investments phase-out in BRI countries – Bangladesh case’, by the Green Belt and Road Initiative Center. – https://green-bri.org/chinas-coal-investments-phase-out-in-bri-countries-bangladesh-case/?fbclid=IwAR1ECXVwJCTeoDsuwhfwTmziY41mTaGJNuL5AOHhtADu9gGSvFILlPXSzUc
See also our previous article: ‘Beijing vows curbs on coal consumption’ https://www.facebook.com/…/permalink/3965355023518828View insights164 post reach