Graphics: Ember
In 2023, China’s electricity demand will increase by 6.7 percent year-on-year – more than the average annual demand growth of about 6 percent between 2013 and 2022.
According to Ember, while hydropower will decline by about 59 terawatt hours (TWh) in 2023, wind and solar power will meet 46 percent of the increased demand, followed by bioenergy and nuclear power.
“If hydropower had remained at 2022 levels, non-fossil fuel generation could have met more than half of the increase in demand in 2023, further displacing coal power from the electricity generation mix,” the report continues.
(Carbon Brief’s previous analysis shows that the decline in hydropower is due to a series of droughts in 2022/23.)
Muyi Yang, author of the Ember report, tells Carbon Brief that the boom in low-carbon energy means an “absolute decline” in coal power is “very likely to begin soon”.
Yang also believes that “the recent announcement of the action plan to convert coal-fired power to low-carbon technologies is a sign that China has begun to prepare for the new era of coal-fired power generation.”
The action plan, published by China’s top planning authority, the National Development and Reform Commission (NDRC), is aimed at a number of state-owned enterprises, including the “big five”.
However, the Shuang Tan newsletter states that the action plan is designed to “test the selected technologies in a few carefully selected (state-owned) coal-fired power plants.” Moreover, because the action plan does not set a “performance target,” it is “unlikely to drive industry-wide transformation,” the newsletter adds.
“Cross the river by touching the stones”
Despite the progress made so far in diversifying China’s electricity supply – and the business models of the country’s state-owned energy companies – the country still faces major challenges, according to Ember.
A number of key state-owned enterprises also have major interests in other areas of the coal ecosystem.
For example, central Chinese state-owned enterprise China Shenhua spent 8 billion yuan (about $1 billion) on coal mining development and exploration in the first half of 2023, but only 824 million yuan (about $113 million) on hydropower, according to a CEF report.
Nevertheless, the overall portfolio of Shenhua’s parent company CHN Energy still meets SASAC’s overall energy diversification objective, according to CEF. This is mainly because another subsidiary – Longyuan Power – is one of China’s largest wind power companies.
The Ember report explains:
“This (coal-power) ecosystem is characterized by extensive cross-sector and cross-ownership interlinkages spanning coal production and supply, logistics, coal chemistry, power generation, and the manufacturing of associated equipment and facilities. Consequently, an absolute decline in coal generation will inevitably impact other interconnected and interdependent segments of this system, with far-reaching consequences, particularly within the broader socio-economic contexts that have developed around this system.”
“Reducing coal-fired power generation brings with it significant challenges,” says Yang, “and economic restructuring, including the transition to a ‘green industry’, requires comprehensive support.”
In key coal-producing provinces such as Shanxi, the challenges are even greater. According to Chinese financial media Caixin, coal and its related industries contributed 80 percent of tax revenues and provided 55 percent of local jobs in the province in 2022.
According to Ember, this shows why diversification of state-owned energy companies alone is not enough. The institute explains:
“The diversification strategy of large state-owned power generation companies is useful because it weakens the incumbent utilities’ ties to the existing coal-dominated power system and enables a deeper transition. However, its effectiveness begins to wane when one considers its inability to adequately manage the tensions and conflicts that may arise from the absolute decline of coal power and the far-reaching impacts that this will entail.”
The report further suggests that coal-dependent regions must also develop tailored diversification strategies to address the “unique challenges” they face. It states:
“Diversifying the economic base of these areas can facilitate a smoother transition and mitigate the negative impacts on local communities and workers who have long relied on the coal-fired power sector.”
Still, challenges remain, Ember says, because the clean energy industry may not benefit the same regions that have long relied on coal.
Yang says: “The key issue here is not the magnitude of the benefits (of renewable energy), but their distribution.” He adds:
“Numerous model studies have confirmed that the energy transition brings benefits and can create growth and jobs – more than enough to offset the reduced economic activity in conventional fossil fuel supply chains.”
“By leveraging their considerable resources and infrastructure, state-owned enterprises can drive the development and integration of renewable energy projects, improve grid stability and ensure reliable energy supplies.”
Finally, the report suggests that China should take a “gradual approach and experimentation” to overcome the challenges associated with the transition away from coal. It states:
“These approaches are often compared to ‘crossing the river by touching the stones’ and are widely considered to be critical to China’s economic success. They enable careful review and adjustment of strategies and policies and facilitate the translation of broader policy prescriptions into pragmatic, localized actions tailored to specific circumstances. In addition, they promote consensus building among a wide range of stakeholders by incorporating iterative improvements based on practical experience and feedback.”
This story has been republished with permission from Carbon Brief.
