Is China's coal power increasing or decreasing?

This is a confusing question. We know that China's energy industry is undergoing a green transformation. However, surprisingly, the installed capacity of coal power is increasing rather than decreasing. How can this be explained?

Perhaps we can briefly put it in one sentence - it is increasing in absolute terms, but decreasing in relative terms.

At the end of November, the International Energy Security Research Center of the University of Chinese Academy of Social Sciences released the "Blue Paper of World Energy: World Energy Development Report (2024)". The report shows that as of 2023, China's cumulative installed power capacity has continued to grow, reaching 2.92 billion kilowatts, a year-on-year increase of 13.7%. Compared with 2022, China's newly installed renewable energy capacity was 370 million kilowatts, accounting for 82.7% of the country's newly installed power generation capacity. In contrast, the newly installed coal power capacity was only 40 million kilowatts. The growth in China's renewable energy is clearly much faster than that of coal.

Why doesn't China drastically reduce coal power or even stop using coal for power generation? The reason is that China's renewable energy power generation technology and capacity have not yet reached a level of being sufficient and stable.

China produces a large number of products for the whole world, and people's living standards are constantly improving, all of which have led to a significant increase in electricity consumption. According to the "Economic Operation Report of the Electric Power Industry in 2023" released by the China Electricity Council, in 2023, China's total electricity consumption was 9,220 Terrawatt-hours, an increase of 6.7% over the previous year.

The newly installed capacity of China's renewable energy generation cannot meet the demand for the growth in electricity consumption. Renewable energy also faces the severe challenge of unstable power supply. Yunnan is a typical example.

The installed hydropower capacity in Yunnan has reached 81.43 gigawatts, while the installed coal power capacity is only 14.16 gigawatts, accounting for less than 11% of the total. Due to the fact that hydropower is easily affected by extreme weather, Yunnan has fallen into a "power shortage" crisis many times since 2020. For example, the drought in May 2021 led to a sharp decline in the province's hydropower generation, resulting in a serious power shortage that affected production and people's lives. Similar situations occurred again and again in 2022 and 2023.

In order to ensure the stability of power supply, the Chinese government has decided to simultaneously equip a proportionate amount of coal-fired power while vigorously developing renewable energy. So we see the installed capacity of coal power is increasing, but it doesn't mean the coal generated electricity is increasing as well, as coal power plants does not need to run all the time. Renewable energy is used for power generation as much as possible, and the role of coal power has shifted from being the main power supply source to a means of achieving overall power supply stability.

Since 2023, China has re-planned the construction of coal power facility according to the new role of coal-fired power as the means of adjustment and supplement. This has brought about a new problem. When the power generated by renewable energy is sufficient, coal-fired power plants will be idle. Will coal-fired power plants suffer losses and go bankrupt as a result?

Starting from January 1, 2024, China has implemented a new policy to solve this problem. This new policy is called the "two-part electricity price". In the past, coal-power plants could only recover costs by generating electricity. The newly introduced two-part electricity price includes capacity electricity price and energy consumption electricity price. Coal power plants can obtain basic income based on their capacity even when they are not generating electricity, and they can also obtain power generation income according to the amount of electricity generated.

China is relatively rich in coal resources. Coal power generation is controllable and can serve as a supplementary power supply during peak electricity consumption periods or when there is a shortage of renewable energy generation. Only with such a reliable supplement can local governments develop renewable energy without worry. Therefore, the newly-built coal power capacity is regarded as an important part of the development of renewable energy.

Although the growth of China's coal power installed capacity is far slower than that of renewable energy, it still brings concerns about emissions. However, in fact, China has solved this problem quite well.

Firstly, the increase in coal power installed capacity does not contribute to large amount of power generation. China's installed power generation capacity has far exceeded the total electricity consumption of the whole society. While the installed capacities of both coal-fired power and renewable energy are rising simultaneously, the utilization hours of coal power generation are decreasing. After the implementation of the "two-part electricity price", the utilization hours of coal power generation are declining. Coal power mainly serves as a supplement during peak electricity consumption and when renewable energy power generation is insufficient, rather than being the main power supply source. In 2023, the installed capacity of non-fossil energy power generation exceeded that of fossil energy power generation for the first time, accounting for more than 50% of the total installed capacity, and the proportion of coal power installed capacity dropped below 40% for the first time. The proportion of newly connected solar power generation installed capacity in the total newly installed power generation capacity reached 58.5%.

Secondly, China has implemented the "Three Improvings" for coal power, including improving the energy-saving and carbon-reduction, improving heating efficiency, and improving flexibility to enhance power supply stability. In a previous newsletter, I talked about the "Action Plan for the Low-Carbon Transformation and Construction of Coal Power (2024—2027)". This plan has designed the specific details of the low-carbon transformation of coal power.

Therefore, the fact is that as China's electricity consumption rises, although the installed capacity of renewable energy power generation is increasing significantly and the installed capacity of coal power, which serves as a support to ensure the stability of power supply, is also increasing, the increase in coal power installed capacity does not mean an increase in coal power generation, let alone an increase in carbon emissions. China's commitment of reaching carbon peak and carbon neutrality remain unchanged and are very likely to be achieved ahead of schedule.

I'm not sure if I've explained it clearly. Your comments are welcome.