By David Stanway, Sonali Paul and Christian Schmollinger

May 13, 2017 - China will suspend approvals for new coal-fired power plants in 29 provinces to reduce overcapacity in the sector, the official China Securities Journal reported on Friday.

The National Energy Administration (NEA) has put as many as 25 provinces on “red alert”, meaning that new projects would create severe overcapacity or environmental risks, while another four regions were put on “orange alert,” the newspaper said citing a NEA statement this week.

The NEA said that utilization rates at coal-fired power plants were falling as a result of slowing growth in power consumption, and it established the warning system to identify regions that need to curb overcapacity.

Overcapacity has eaten into the margins of major coal-fired power producers, especially as regions come under pressure to meet state requirements to raise the share of renewable energy sources.

China’s government said in a work report in March that it would aim to close down, cancel or slow the construction of more than 50 gigawatts (GW) of thermal power capacity this year to tackle the problem.

According to NEA data, average utilization rates at China’s predominantly coal-fired thermal power plants fell 4.6 percent to 4,165 hours last year. However, total thermal capacity, also including oil and gas-fired plants, still rose 5.3 percent to 1,054 GW over the period.

The China Electricity Council, an industry lobby group, said last month that utilization rates had dipped further in some regions in the first quarter of 2017, especially in the northeast and northwest, putting margins at power plants under further pressure.

The NEA’s new warning system also takes into account the resources and pollution levels of each region, with some coal-dependent provinces facing extreme water shortages or pressure to control smog, including the capital Beijing and the surrounding province of Hebei.

Of China’s 32 provinces and regions, only Tibet was not subject to a capacity warning while two were given “green” status.

The newspaper said China’s total coal-fired power generation capacity was likely to reach 1,300 GW by the end of 2020, much higher than the 1,100 GW target in China’s 2016-2020 five-year plan. Total coal-fired capacity stood at 940 GW at the end of 2016.

Environmental group Greenpeace warned last year that China was building another 200 GW of new coal-fired capacity despite the slowdown in demand growth and a pledge to raise the share of non-fossil fuels in the country’s total energy mix.