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China has made ambitious goals to cut its carbon emissions. But given its heavy investment in coal power, which fuels the country’s economic growth, a path to carbon neutrality or even carbon peaking has yet to emerge

By Xu Tian Updated Sept.1

In his speech at the United Nations General Assembly in September 2020, Chinese President Xi Jinping announced ambitious goals to peak the country’s carbon emissions by 2030, and to reach carbon neutrality by 2060.  

More recently in the US-initiated Leaders Summit on Climate held in April, Xi addressed China’s controversial level of coal consumption, pledging that China will hit peak coal consumption before 2025.  

According to data released by China’s National Energy Administration (NEA), the electric power sector accounts for 37 percent of China’s total CO2 emissions. As coal power accounted for 61 percent of all electricity generated in China in 2020, curbing and eventually reducing the coal power fleet is a key component in China’s efforts to deliver on its carbon emissions commitment.  

But given China’s dependence on coal for most of its energy consumption, many are pessimistic about the prospect of China substantially reducing consumption in the coming years.  

Coal Dependence 
Despite Xi’s pledges in 2020, there was a major expansion of China’s coal fleet in the last year, Yuan Jiahai, a professor of economics at the Beijing-based North China Electric Power University, told NewsChina. Yuan said that China approved plans to install an additional 46.1 gigawatts (GW) of coal-fired power capacity in 2020, over three times the amount approved in 2019.  

Moreover, Yuan estimated that total coal power capacity under development, including plants that are already under construction, announced but yet to be approved, approved but temporarily suspended, and those approved but yet to be constructed, amounts to 413 GW, accounting for 41 percent of China’s existing coal power capacity. Capacity, however, is not the same as actual generation, which is measured in kilowatt hours (kWh) or megawatt hours (MWh) and refers to how much electricity is generated over a specific period.  

“If all these projects were to be completed, they would pose a major problem for China if it wants to reach its carbon emission goals,” Yuan said.  

According to Li Xiang, a research fellow with Peking University’s Institute of Energy, the enthusiasm for coal power investment is largely driven by local governments. In the past, because coal prices can fluctuate dramatically, coal power plants were not always profitable, especially as electricity prices are fixed by the government.  

In 2018, rising coal prices meant many coal power plant operators saw major losses. According to energy portal in-en.com, which collects industrial data in the energy sector, in 2018, 257 out of 474 coal power plants under five major centrally administered State-owned electric power companies ran at a loss, with combined financial losses of 38 billion yuan (US$5.9b).  

“While the financial status of these plants became better in 2019 and 2020, centrally administrated State-owned enterprises are not eager to expand their operations,” Li said. 
Most coal power projects in 2020 were approved by provincial authorities. They see building new coal power plants as one of the most effective ways to boost their economies. Coal power plants require a lot of capital investment, and not only create jobs, but also provide a reliable energy supply that can attract more investment, Li told NewsChina.  

In order to curb the expansion of coal power capacity, the central government launched a pilot program in five northwestern provinces and autonomous regions. In Gansu, Shaanxi, Xinjiang, Ningxia and Qinghai, authorities are only allowed to run one major State-owned coal power company, while the management of all other companies was transferred to the central government. Smaller and less efficient coal power plants were ordered to close.  

Han Wenxuan, a deputy chief economist at the Energy Research Institute of Huaneng Group, one of the big five State-owned electric power generation companies, told NewsChina that by the end of this year, coal power capacity in these five provinces and regions will be cut by a third and the program could soon be rolled out across the country.  

But given the slow progress in phasing out coal power plants, Han estimated that China would not be able to reach peak carbon in its electricity sector by 2025, but 2030 could be more realistic.  

A solar panel array is under construction over Dali Reservoir, Hefei, Anhui Province, March 4

Energy Security 
A major concern among China’s experts and officials is energy security. Despite the consensus that China should curb and gradually reduce the consumption of coal, there is disagreement among experts about how aggressively and rapidly China should act.  

According to Jiang Kejun, a researcher at the Energy Research Institute under the National Development and Reform Commission (NDRC), China’s top economic planner, China has no need to add new coal power capacity. Jiang said that China only needs a total of 500 GW, or less than half of China’s existing coal power capacity, to meet the “peak shaving” need of China’s energy demand in the long term. By 2050, China can cut coal power capacity further to 200 GW, Jiang said. Peak shaving refers to smoothing out the peaks and troughs in consumer and industry electricity demand to avoid overloading the power grid.  

“My concern is that if coal power companies keep expanding against the trend, they won’t be able to recover their investment,” Jiang said. This means that new or future power stations will become stranded assets and loss-making entities.  

But many experts do not share Jiang’s view. “The key question remains how to ensure the security and stability of the power supply if we were to phase out coal-fired power,” said Bai Rongchun, former deputy chief of the NEA.  

In April, the NEA projected the proportion of non-fossil energy in China will increase from 34 percent in 2020 to 90 percent in 2060. “As China has exploited most of the available hydropower while environmental concerns with nuclear power remain high, the only power source that can replace coal-fired power on a massive scale is wind and solar power,” Professor Lin Boqiang, dean of the China Institute for Energy Policy Studies at Xiamen University, told NewsChina.  

People view four neutrino detectors at Daya Bay Nuclear Power Plant, Shenzhen, Guangdong Province, December 12, 2020

Wind and Solar 
In recent years, China has made huge investments in wind and solar. By the end of 2020, China’s coal power capacity reached 1,080 GW, accounting for 49.1 percent of total installed power capacity, the first time it fell below 50 percent. But as wind, solar and to a lesser degree hydropower tend to be intermittent and unstable, coal power plants remain the primary power source, generating 60.8 percent of all electricity nationwide.  

According to data released by China Electricity Council, a government industry organization, wind power and solar power farms supplied 466,500 gigawatt-hours (GWh) and 261,100 GWh to the national grid in 2020, only 10.1 percent and 5.6 percent of the 4,630,000 GWh generated by coal power plants.  

Under the 14th Five-Year Plan (2021-2025,) China aims to add 50 GW of wind power capacity and 70-90 GW of solar power capacity each year. But experts warned that as the share of wind and solar power gradually increases, it will create serious challenges for China’s grid systems. 
In some provinces, problems are already emerging. In Central China’s Hunan Province, where renewable power accounts for 55 percent of installed capacity, 35 percent of electricity generated by its wind power plants was wasted due to the mismatch between demand and supply in 2020. The province had to resort to power rationing in the peak summer season to cope with the shortage of coal power.  

Many are concerned the problems encountered by Hunan and other regions will become routine throughout China if coal power plants are phased out too soon and too abruptly.  

“Phasing out coal power plants must not happen at the expense of power security,” said Shan Baoguo, deputy chief economist with the State Grid Energy Research Institute. “It’s pointless conducting a power transformation that would undermine power security.”  

Other than the unstable nature of wind and solar, another challenge is that regions rich in wind and solar power are mostly inland, in China’s western region, far from the economic center in the coastal regions of the east and south.  

To transmit wind and solar power from the west to the east and south, China has invested hugely in ultra-high voltage (UHV) power lines for long-distance power transmission. But as wind and solar power plants and industrial centers fall under the administration of different provinces, governments in different provinces and regions which have different interests rarely share the same enthusiasm for cross-regional power transmission.  

While some governments opt to increase tariffs on power that leaves their jurisdictions, other impose administrative barriers on electricity transmission and trading. The result is that China’s UHV power lines are under-utilized.  

An inspection conducted by the NEA found that in the BeijingTianjin-Hebei metropolitan region and the Yangtze River Delta region, two of China’s major industrial centers, the proportion of power received from other regions only increased by 4.1 percent and 2.7 percent between 2017 and 2019.  

A fossil fuel power plant is demolished, Chentang, Tianjin, June 23, 2017

A coal silo in Huainan, Anhui Province, March 10

Roadmap Needed 
According to Zou Ji, CEO and president of Energy Foundation China and former deputy director general of China’s National Center for Climate Change Strategy and International Cooperation under the NDRC, as China is expected to install an additional 600 to 700 GW of wind and solar capacity power in the next 10 years, the government needs to establish a unified national market for wind and solar power to break down the administrative barriers between different regions.  

“Where will the power be sent? How will the price of electricity be set? How will the electricity be distributed? These are questions that need answering,” Zou said.  

According to Lin, China needs to substantially increase its relatively low energy prices. “Under the concept of the ‘impossible energy triangle,’ it’s impossible to ensure energy supply that is sufficient, clean and cheap at the same time,” Lin said. “When our power source becomes less stable, it means that it becomes more expensive, and that means China will have to reform its energy pricing mechanism in the long run.”  

On June 28, the NDRC signaled it might increase residential electricity prices in response to an online comment. Saying that China’s residential users pay relatively low prices for power due to cross-subsidies from commercial and industrial users, the agency said it will change the way it sets residential electricity prices to “better reflect power supply costs and restore the commodity nature of electricity.”  

According to Zou Ji, the NDRC and the NEA are working with the State Grid, China Southern Power Grid, and five major Stateowned electric power companies to outline a carbon peaking action plan for the power sector.  

“There could be a major policy announcement within the year,” Zou said.