Are China’s Banks Going Cool on Coal Power Plants in Africa?

• Green groups say ICBC has agreed it will not fund a controversial project in northern Zimbabwe

• Chinese lenders are finding the fossil fuel increasingly unattractive, analyst says

Coal developers in Africa may be forced to find alternative sources of financing or shift into solar and hydro, as Chinese lenders gradually shy away from plants powered by the fossil fuel, according to observers.

Coal projects worth more than US$20 billion in Africa have either been shelved or cancelled in recent years as environmental activists have piled pressure on lenders.

The number could be much higher if distressed projects are added, according to data compiled by the Green Belt and Road Initiative Centre (Green BRI Centre) at the International Institute of Green Finance.

The latest casualty is a US$3 billion coal-fired power plant in Zimbabwe, which China’s biggest bank, Industrial and Commercial Bank of China, reportedly said it would not fund after pressure from green groups.

ICBC is yet to make an official statement on the issue but Go Clean ICBC, a coalition of 32 environmental activists, confirmed that the lender committed not to fund the controversial 2,800-megawatt Sengwa coal project in northern Zimbabwe.

In an email to affected communities on June 18, Go Clean ICBC said: “ICBC also confirmed that they will not fund the Lamu coal project in Kenya as well as the Sengwa coal project in Zimbabwe.”

Lauri Myllyvirta, a China-watcher from the Centre for Research on Energy and Clean Air, said it was the “first time, to my knowledge, that a Chinese bank has proactively walked away from a coal power project”.

Myllyvirta said ICBC had signalled for a while that it was improving its risk management and sustainability policies.

“The real test for any such effort is whether you’re prepared to exclude deals that are too risky environmentally or financially, so if not a surprise this is a very positive precedent,” he said.

The Sengwa coal project is among US$15 billion worth of infrastructure that had been planned in the Southern African nation to remedy power shortages but have faced financing hitches.

According to the Green BRI Centre, Zimbabwe has announced in the past few years that multiple projects including Lusulu 2,3 and 4, as well as the 1.2 GW Gwayi Shanghai Electric coal plant, have either been shelved or cancelled.

Thomas Hale, a professor in global public policy at the ­Blavatnik School of Government at the University of Oxford, said “given that new coal plants are not compatible with global climate goals, it makes sense that investors are worried about coal becoming a ‘stranded asset’ sooner rather than later”.

Hale said China was now the only major country that had not fully ruled out financing new coal plants abroad “but we can see that Chinese banks are finding this technology increasingly unattractive”.

ICBC’s decision follows a trend set by the Asian Development Bank, a key financier of energy, which announced in May it was cutting all financing of fossil fuels. Other large banks such as Standard Chartered, BNP Paribas and Nedbank, have halted support for new coal mines.

Besides the Zimbabwean coal plant, several coal-related investments along the Belt and Road Initiative route have come under scrutiny and were delayed or cancelled.

One such project is Kenya’s Lamu coal-fired power plant, which was mothballed in 2019 due to mass protests and environmental impact assessment failures. ICBC, which had originally agreed to finance the US$1.2 billion project, pulled out.

Another is Egypt’s Hamarawein 6.6GW coal-fired power plant that was cancelled in February 2020. Of the US$4.4 billion needed for the project, US$3.7 billion would have come from China Development Bank. Egypt plans to invest in renewable energies instead, according to Beijing-based Green BRI Centre.

About half of the Chinese-backed coal-fired power plants that were announced between 2014 and 2019 have run into some delays and were either mothballed, shelved or cancelled, according to the centre.

Christoph Nedopil Wang, the centre’s founding director, said many Chinese financial institutions were recognising the increasing risks associated with overseas coal financing and Chinese authorities had issued clear guidance to restrict coal investments.

“It looks like it is getting harder to find financial institutions willing to take the risk of coal-fired power plants, also in Africa,” Wang said. “Ideally, we are seeing more investments in renewables, particularly solar and wind.”

Ted Nace, executive director of Global Energy Monitor, said that as global civil society turned sharply against coal on climate and public health grounds, and as clean power alternatives continued to drop in price, “we’re seeing a broad pullback from coal projects across the spectrum of private and public finance”.

“As shown by the ICBC’s decision to drop support for the Sengwa plant, China is not immune from the stigma that now applies to coal. Further actions of this sort can be expected, as funding shifts toward more acceptable renewables,” Nace said.

Analysts expect increased take-up of renewable energy by China, but it will not be dramatic in the short term.

Yun Sun, director of the China programme at the Stimson Centre in Washington, said other than hydropower, China traditionally had not been a big player in renewable energy in Africa.

“We’ve seen sporadic projects on wind farms or solar panels once in a while, but I would not call them the priority of Chinese efforts,” Sun said.

Sun said China was speeding up its green finance to belt and road projects in recent years, “but I don’t think we should expect them to suddenly become the main theme of China’s development financing”. “There will be renewable energy projects and their number could even be increasing. But the traditional projects will play a bigger role for the foreseeable future.”

Source: scmp