China’s energy landscape is undergoing a significant transformation, with projections indicating a potential decline in coal-based thermal power generation in 2025—the first in a decade. This anticipated shift is attributed to the rapid expansion of renewable energy capacity and aligns with China’s ambitious decarbonization objectives. However, this transition is fraught with complexities, including fluctuating power demand, infrastructural challenges, and economic uncertainties.

Context of Thermal Power Decline

Analysts forecast that China’s coal-based thermal power generation may decrease in 2025, marking the first decline since 2015. The previous reduction was primarily due to an economic slowdown and a stock market downturn. In contrast, the current anticipated decline is driven by a substantial increase in renewable energy capacity, suggesting a structural shift in China’s energy production.

Decarbonization Goals

China has set ambitious targets to address climate change, aiming to peak carbon emissions before 2030 and achieve net-zero emissions by 2060. The power sector is central to these goals, accounting for approximately 60% of the nation’s total emissions. A decline in thermal power generation would be a significant milestone in reducing the carbon footprint of China’s energy sector.

The 14th Five-Year Plan has been instrumental in accelerating the deployment of renewable energy. In 2024, China’s installed solar power capacity surged by 45.2%, while wind power capacity increased by 18%. This rapid build-out is expected to continue, with projections indicating that renewables could meet all new power demand in 2025. Such developments create favorable conditions for a reduction in reliance on coal-based power generation.

Overall Power Demand Trends

Despite the growth in renewable energy, China’s electricity demand is projected to increase by 6% to 7.5% in 2025, following a 6.8% rise in 2024. This sustained demand is driven by factors such as industrial activities, urbanization, and the proliferation of electric vehicles. The challenge lies in ensuring that the growth in renewable energy capacity keeps pace with the rising demand to facilitate a decline in thermal power generation.

Several factors could impede the anticipated decline in coal-based power generation. Extreme weather events, such as heatwaves, can lead to increased electricity consumption for cooling, potentially necessitating higher coal use. Additionally, limitations in transmission infrastructure may restrict the efficient distribution of renewable energy, leading to continued reliance on thermal power sources.

Divergent Forecasts

Analysts present varying projections regarding China’s thermal power output. While some anticipate a plateau or decline, others forecast modest growth ranging from 1% to 4.5%. This divergence underscores the uncertainties inherent in balancing renewable energy integration, infrastructure development, and policy implementation.

Industrial Power Demand

Since 2020, China’s power demand has been growing faster than its economy, which is forecasted to expand by 4.5% in 2025. This trend is attributed to the prominence of energy-intensive manufacturing sectors, which have compensated for weaker growth in services and consumer sectors. The increasing adoption of electric vehicles, artificial intelligence, and industrial electrification further contributes to the widening gap between power demand and GDP growth.

The services and advanced manufacturing sectors, including renewable energy equipment and semiconductors, are expected to become primary drivers of power demand growth. The expansion of electric vehicles and advancements in artificial intelligence also play significant roles in this dynamic. These developments necessitate a robust and flexible energy infrastructure to accommodate the evolving demand patterns.

Government stimulus efforts aimed at reviving property investment could lead to a resurgence in heavy industry activities, potentially increasing power demand. This scenario introduces uncertainty regarding energy consumption patterns and underscores the need for adaptive energy planning to align with economic policies.

Uncertainties

The trajectory of China’s energy transition is characterized by a dual narrative: progress in decarbonization efforts juxtaposed with the risk of a coal resurgence. Infrastructure improvements, consistent policy implementation, and effective management of demand volatility are critical factors that will influence the success of reducing coal dependency. While China’s potential decline in coal-based thermal power generation in 2025 represents a pivotal moment in its energy transition, the path forward is complex. Balancing renewable energy expansion with infrastructural development, economic growth, and policy enforcement will be essential to achieving the nation’s decarbonization goals.

(Adapted from Fedia.io)

Categories: Economy & Finance, Regulations & Legal, Strategy