China’s coal-fired power plants – many of them state-owned – may start losing money from next year because of overcapacity, electricity pricing reforms and tighter environmental constraints, according to a Greenpeace study. The warning comes as the country’s top economic planner said on Monday that the government would curb power output from burning coal over the next three years to reduce excess capacity and fight air pollution. How cleaner coal can play a part in China’s green ambitions The National Development and Reform Commission also said it would set up a risk-assessment system to measure power production efficiency. Yuan Jiahai, a professor at North China Electric Power University who led the Greenpeace study, said the past year’s investment boom in coal-fired power plants had been based on expectations of lucrative returns due to low coal prices and overpriced on-grid tariffs. In major coal-power-producing provinces such as Hebei, Jiangsu and Guangdong, investors could recover their investments in less than three years, according to Yuan’s research. This explained why many provinces were approving new coal-fired power plants despite Beijing’s pledge to pursue a low-carbon path. As the central government had delegated the power to approve such plants to local government agencies, a total of 210 coal-fired power plants that would cost billions of US dollars were approved in 2015 alone, according to the Greenpeace study. China’s coal-fired power producers set to play the ‘rebalancing’ game But a set of policy changes in the 13th five-year plan is expected to eat into profits, as the plants are now required to retrofit their generators with ultra-low emissions technology before 2020 and to join a nationwide carbon trading scheme from next year. This would raise the plants’ cost of generating electricity. “The unreasonably high profit margins could quickly disappear in the next five years, and with more new power-generating units being built, more will lay idle,” said Yuan, who studied the efficiency of 60-megawatt power plants in six major electricity-producing provinces – Shanxi, Inner Mongolia, Xinjiang, Hebei, Jiangsu and Guangdong. Electricity pricing reform – which aims to reduce government intervention and is already being implemented in small, incremental steps such as lowering on-grid tariffs – would also deal a blow to coal-fired power plants, though the reform could eventually be watered down due to vested interests, Yuan said. China Electricity Council official Zhang Weidong said the present pricing system – in which the economic planner sets the on-grid tariff – contributed to the industry’s worsening overcapacity as firms were given false signals for economic returns. China’s coal-fired power producers face tougher times after record profits this year China Guodian Corporation chairman Qiao Baoping last month said the power sector had an overcapacity of 20 per cent. The Greenpeace study also warned that shrinking electricity demand would further reduce power plants’ operating hours. Some plants in Guangdong could start incurring losses as early as next year, it said. Yuan said China should set more stringent ecological boundaries to curb such power plants’ growth. For instance, new projects should be banned in water-scarce provinces, he said.