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Breadcrumbs
Thinking beyond diversification: Next step in China’s coal power transition
Current strategies employed by both central and local generation SOEs to diversify into renewable energy capacity has been facilitating a relative decline in coal power. It's now time for a ‘beyond-diversification’ strategy as China moves into a new phase of absolute coal power decline.
About
This report reviews China’s coal power transition, focusing on large generation state-owned enterprises (SOEs) that own the majority of the country’s coal power assets. It highlights the current strategies employed by both central and local generation SOEs to diversify into renewable energy capacity and the impact this has on facilitating a relative decline in coal power. Additionally, it stresses the need for a ‘beyond-diversification’ strategy as China moves into a new phase of absolute coal power decline, emphasising the importance of managing potential impacts on the coal-electricity ecosystem and broader consequences.
Executive summary
Time to consider a ‘beyond-diversification’ strategy
President, International Society for Energy Transition Studies; Professor of Energy Economics and Sustainability, University of Technology Sydney
In transitioning away from coal power, adopting a strategy that emphasises renewable energy and ensures a just transition for all affected groups is crucial. This approach should provide comprehensive support for coal-dependent regions, including mining cities, coal workers, and power generation companies. A holistic strategy must integrate energy transition with economic restructuring, worker reskilling, and other essential socio-economic changes to ensure the benefits are equitably distributed.
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Chapter 1 | Current approach
Diversification into renewable energy
In this chapter:
Chapter 2 | Emerging outcomes
The relative decline of coal
In this chapter:
If current trends continue, China is fast approaching a critical turning point where all incremental electricity demand will be met by non-fossil fuel generation, marking the onset of a new era with coal generation in absolute decline.
Back in 2021, President Xi Jinping stated: “We will strictly limit the increase in coal consumption over the 14th five-year plan period (2021-2025) and phase it down in the 15th five-year plan period (2026-2030)”. As the largest coal consumer in the country, coal generation is very likely to begin its absolute decline around the same time.
A recent IEA analysis predicts that non-fossil fuel generation in China, including renewables and nuclear, is expected to meet almost all of the incremental electricity demand over 2024-2026, assuming normal weather conditions and a recovery in hydropower output. Similarly, the IEA World Energy Outlook report suggests that coal generation in China would peak around 2025 and decline thereafter.
The coal industry in China appears to have acknowledged that the country’s coal consumption is likely to reach a plateau period.
Chapter 3 | Further reflections
The need to go beyond diversification
In this chapter:
The question is: what a ‘beyond-diversification’ approach may look like? Given the complexity of the task, there are likely no simple answers or one-size-fits-all solutions for different coal-dependent regions in China. In addition to highlighting the critical need for a beyond-diversification approach, this report seeks to facilitate thinking on how to devise such an approach by emphasising issues that decision-makers may like to consider.
- A beyond-diversification approach is much more than green industrialisation.
The burgeoning clean industry, including solar PV, wind and battery storage, will generate economic and job gains more than sufficient to offset the economic losses incurred from the transition, allowing for all to benefit. However, this offset effect may not always be realised, or even fungible, given that coal-dependent regions may not have a clear advantage over other regions in the clean energy economy. The struggling economic restructuring of coal-mining cities may lend some credence to this viewpoint. Managing the transition in such traditionally coal-dependent regions will become more important in the coming years as coal use starts absolute decline. - Ensuring a just transition is important, but it requires a broader focus than just workers directly engaged in coal-electricity-related businesses.
The coal-electricity ecosystem is deeply embedded in the local socio-economic systems. Therefore, the impact of an absolute decline in this ecosystem could ripple through to other interconnected economic activities, putting pressure on the broader socio-economic contexts in which it operates. This could exacerbate existing tensions and contradictions, such as slow improvements in living standards and a widening rural-urban divide. Addressing these issues requires comprehensive strategies that support economic restructuring and diversification, invest in new industries, provide retraining and reskilling, and promote inclusive development to mitigate potential social tensions and disparities. - Fostering effective coordination among relevant stakeholders is crucial.
There is a wide and diverse range of stakeholders, including central government agencies, SOEs, local authorities and private investors, deeply involved in the coal-electricity ecosystem. In such settings, policy decisions often arise from extensive bargaining and consultation, both horizontally between public agencies, SOEs and private sectors, as well as vertically across different levels of government. A strong central leadership is critical for building consensus, especially when the involved actors hold differing views. - Gradualism and experimentalism can be effective tools for sustaining progress while navigating complexities.
Often likened to ‘crossing the river by touching the stones’, these approaches are widely recognised as pivotal to China’s economic success. They allow for careful testing and adjustment of strategies and policies, facilitating the adaptation of broader policy directives into pragmatic, localised actions tailored to specific circumstances. Additionally, they help promote consensus-building among a diverse range of stakeholders by incorporating iterative improvements based on practical experience and feedback.
Supporting Material
Acknowledgements
Aditya Lolla, Nicolas Fulghum, Shiyao Zhang, Reynaldo Dizon, Rini Sucahyo, Ardhi Arsala Rahmani
Cover imageGrab bucket cranes along a quay load ships with coal to be used for generating electricity at Lianyungang Port in Lianyungang City, east China’s Jiang
Credit: Cynthia Lee / Alamy Stock Photo