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Will this have an impact on Chinese investments in Bangladesh’s power sector?

By on October 2, 2021 0

Chinese President Xi Jinping, in his official statement during the general debate of the 76th session of the United Nations General Assembly on September 21, announced that China will step up its support to other developing countries in the production of green energy. and low-carbon and would not build new overseas coal-fired power projects.

Such a statement from China’s senior management has important future implications for the clean energy and power sector in developing countries as China is a major investor / builder in the energy sector. coal-fired electricity throughout developing Asia, including Bangladesh. Hence, Bangladesh has the opportunity to shift from fossil fuel based power generation to the development of clean energy based energy sector in the coming years.

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President Xi made four points in his pledge on “Strengthening Confidence and Jointly Overcoming Difficulties to Build a Better World.” One of the important messages of the second point was to remain attached to the harmony between man and nature.

The key message is: China must accelerate the transition to a green, low-carbon economy and achieve green recovery and development. China will strive to reach its peak carbon emissions by 2030 and achieve carbon neutrality by 2060. It takes hard work and China will do everything to achieve these goals.

RECENT CHINESE COMPANIES INITIATIVES

Czech investments under the Belt and Road Initiative focused on energy transition. The Chinese embassy in Bangladesh has reportedly canceled planned coal-fired power plants.

Pakistan is discouraging investment in new coal-fired power plants, which is likely to be influenced by China’s decision to move away from coal-fired power plants, as China is a major investor in Pakistan’s power sector.

Indonesia has announced that it will stop building new coal-fired power plants after 2023. This announcement is likely to be influenced by China’s stance.

In the recent past, various Chinese public and private sector organizations have expressed reluctance to fund coal and fossil fuel-based power generation at home and abroad.

Major Chinese political leaders in their public statements indicated the political position. This is also reflected in the decline in Chinese overseas investment in coal-fired power projects and the growing share of investment in renewable energy.

China’s position on renewables and clean energy is reflected in its joint statement with the United States, in which it pledged to increase foreign investment in renewable energy to help developing countries switch to fossil fuels.

The Chinese Ministry of Commerce and the Ministry of Ecology and Environment have encouraged companies seeking foreign investment and cooperation to follow international green rules and standards.

Overall, China’s global investment in the power sector would likely provide for a change of direction through President Xi’s policy statement, provided this is institutionally and operationally implemented on the ground. .

POSSIBLE IMPACT ON THE ELECTRICAL SECTOR

Bangladesh could experience a number of impacts from future Chinese electricity and energy policy and operational modalities based on President Xi’s statement. It is important to understand the key messages of the statement.

The statement said China will not build any new coal-fired power plants. This is supposed to include no foreign public and private investment by Chinese companies, no engagement of Chinese companies as entrepreneurs in energy projects, and no participation or financing of Chinese financial institutions in coal-fired power plants. Such a position would end Chinese investment and engagement in the coal-fired power sector in Bangladesh.

The statement mentioned that China would support “other developing countries”. Bangladesh will also be included in the category. Currently, Bangladesh is classified as a least developed country. The status will continue until 2026, when the country will become a developing country.

It was announced that China will step up support to other developing countries in developing green and low-carbon energy. Therefore, Bangladesh could seek China’s support for clean energy development.

Support could take two forms: direct support for the development of the renewable energy sector and indirect support by discouraging fossil fuel power plants.

In the context of direct support, the nature of Chinese support could be of several types: (a) securing new Chinese investments for the production of electricity from renewable energies; (b) secure new public and private financing for Chinese enterprises for the production, transmission and distribution of electricity from renewable energies; (c) enable the proactive engagement of Chinese enterprises as an entrepreneur for the implementation of the production, transmission and distribution of electricity based on renewable energies; (d) be a shareholder in companies focused on the production of electricity from renewable energies with companies from other countries, including Bangladesh; and (e) promote green energy in other sectors, in particular transport, agriculture and manufacturing.

As part of the indirect support, China could promote green growth by not participating in projects related to fossil fuel-based power generation. These include not investing in the construction of HFO / HSD-based power plants and natural gas power plants.

More importantly, it is expected that China will not opt ​​to build LNG power plants. This includes Chinese public and private investments in LNG power plants, the establishment of floating storage regasification units (FSRUs) and land-based storage regasification units (LSRUs) and other related investments in the transport and distribution.

However, the most significant impact would lie in whether and how China will view its existing investment in fossil-fueled power generation and similar projects currently underway.

Data from the Bangladesh Bank showed that China has a total stock of foreign direct investment in Bangladesh’s power sector amounting to $ 450 million, all in fossil-fueled power plants.

Two coal-fired power plants with a combined capacity of 1,845 MW, backed by Chinese companies, are currently in operation, according to the Bangladesh Task Force on External Debt.

There are five other investments in coal-fired power plants by Chinese companies with a production capacity of 4,460 MW. The factories, located in Banshkhali, Barishal, Payra, Patuakhali and Saidpur, are now in different phases of implementation. However, these plants are not included in the list of 10 plants declared abandoned by the Ministry of Energy, Energy and Mineral Resources.

The important point is how China will withdraw its investment in the aforementioned projects. Given its official stance to switch from coal-fired power plants to renewable-based power generation, China is expected to withdraw its investments in coal-fired power plants which are in the “construction” phase.

China is expected to talk with Bangladesh to stop operating existing coal-fired power plants before their official lifespan. Given its position on reaching peak carbon emissions before 2030, China should negotiate with Bangladesh to shut down their operation by 2030.

All coal-fired power plant locations are expected to be replaced with renewable energy-based power generation, transmission and distribution backed by new Chinese investment.

SUGGESTIONS FOR PROMOTING ENERGY PRODUCTION BASED ON RENEWABLE ENERGIES

China is expected to take a proactive stance on investing in current and future power sector projects.

Bangladesh’s power sector would have space to develop the renewable energy sector if the five power plants supported by China are not implemented, and China withdraws its investments from these plants and redirects them to the production of electricity from renewable energies. China has taken a similar decision in the case of investments in Zimbabwe’s power sector.

Bangladesh’s coal-fired power generation will be curtailed and may enter a cleaner energy regime if China is prepared to repay the fund for operating two coal-fired power plants after they reach half of their capacity. life in 2030. In this case, the financing of the coal retirement led by the Energy Transition Council of the COP26 could be a possible option.

Bangladesh’s green energy regime will be stronger if China does not invest in power generation from LNG, FSRU and LSRU.

China could consider launching several renewable energy power generation initiatives that will greatly support the development of clean energy in the country.

First, Chinese companies that are currently committed to investing in coal-fired power plants can announce investments in renewable energy-based power plants and the development of smart grid systems at existing coal-fired power plant sites and in neighboring areas.

Second, Chinese investors and lenders might consider investing in large-scale renewable energy-based power generation projects.

Third, Chinese entrepreneurs might consider investing in building large-scale renewable energy projects.

Fourth, Chinese banks could undertake projects jointly with other international financiers to promote renewable energy.

The government of Bangladesh is expected to take proactive steps to sign a memorandum of understanding with the Chinese government to reduce the use of fossil fuels and promote the use of renewable energy as a base load in the electricity production. In this context, the Ministry of Foreign Affairs, the Ministry of Energy, Energy and Mineral Resources and the embassies of China in Bangladesh and Bangladesh in China should jointly take measures for the development of the mining sector. clean energy.

The author is the research director of the Center for Policy Dialogue.


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