Strong growth in renewables has reduced the share of coal in China’s power generation mix to less than 50% – for the first time. Fitch Ratings expects the contribution of coal will fall by a further 3% in 2021 as the government pushes for a coal-to-gas switch to reach carbon neutrality.
Traded volumes of wholesale power keep growing and reached 42% of China’s entire electricity consumed in 2020. Analysts noted “this has led to lower average tariffs for leading coal-fired power gencos. Though price pressure has been somewhat alleviated by narrowing discounts due to more rational market competition throughout the year, and the robust power demand rebound and coal price hike in the fourth quarter of 2020.“
State-owned power gencos with large amounts of natural gas-fired or renewables capacity in their fuel mix tend to have higher electricity prices, despite the expanded power trading. “This is because the price pressure from trading is offset by a higher share of generation from wind and solar power, which charges higher tariffs than coal-fired power,” analysts explained.
China has been one of the first countries to emerge from the Covid-19 crisis, and industrial energy demand rebounded strongly starting from the autumn of 2020. As a consequence, power consumption from industry soared by 7.6% year-on-year the fourth quarter, while commercial sector demand was up by 8.4%, pushing up full-year demand growth to 3.1%.
Growth accelerated throughout the winter 2021/21, supported by a robust economic recovery and the unusually cold conditions that boosted thermal coal and gas demand for heating.
China’s power mix tilts towards renewables
Projections from the U.S. Energy Information Administration's (EIA) indicate that in China electricity produced from natural gas will grow by 6.5% between 2015 and 2040, with an addition of 70 GW of natural gas capacity.
Renewables in China are currently dominated by hydropower, which is the country’s second-largest source of generation after coal. Wind and solar currently account for 2.7% and 0.5% of the energy mix, respectively. However, EIA analysts expect “substantial growth” over the coming decades, given that China pledged as part of the Paris Climate Agreement to increase the share of energy consumption from non-fossil sources to 20% by 2030.
Coal power, meanwhile, is in continuous decline. As part of China’s 13th Five-Year Plan, a total of 150 gigawatts (GW) of new coal capacity has been cancelled or postponed until at least 2020. Increasingly strict controls on total coal capacity and power plant emissions are expected to prompt the retirement of up to 20 GW of older plants and spur technological upgrades to China’s remaining 1,000 GW of coal power.