How China’s renewables boom is fuelling its coal expansion

In China’s energy transition, it is the best of times and the worst of times.

When US climate envoy John Kerry visits Beijing this week, he will find himself in a country that’s light years ahead of the US in building clean power. Spending on renewable energy will average nearly $250 billion a year between 2021 and 2023, close on the levels of every rich nation put together, according to the International Energy Agency. BloombergNEF expects China to install 154 gigawatts of solar panels this year, nearly half the 344GW total worldwide; it will also account for more than half of the wind power connected between now and 2030. China’s solar panel supply chain is already approaching the scale needed for the world to hit net zero. The future is happening now.

At the same time, there’s also no other country that is spending as much on dirty energy. Investment in new coal power has all but ceased everywhere else in the world, but in China it’s booming. Almost every one of the 40GW of coal plants given the go-ahead last year was in China, where the pace of approval doubled to its highest level since 2016. The world’s coal consumption would have peaked in 2018 were it not for the additional 862 million tons of annual production China has added since — a pile of solid fuel equivalent to every ton burned in the US and European Union, put together.

These two trends are linked more closely than one might think. China’s hunger is not so much for clean or dirty energy, as energy full stop. The country’s futuristic renewables sector is shackled to antiquated market structures that mean green and fossil power often go hand in hand. As a result, when President Xi Jinping encourages an acceleration down the road to the energy transition — as he did in a speech last week that boosted share prices for renewables businesses — it’s worth looking at the cloud of black smoke billowing out in its wake.

A colossal renewable power complex under construction in the arid north provides a good example of the situation. Gigawatt-scale desert projects of this nature have been a central element of China’s clean-energy development since a program kicked off in 2021, with the first coming online in the Ningxia region in April.

The Kubuqi plant, under construction in neighboring Inner Mongolia, will be one of the largest, comprising 16GW of which half will be solar and another 4GW wind. The remaining 4GW is the problem, however. It will be provided by coal, according to the state-owned China Daily, accounting for about half the overall output from the site.

The geography of the region means that such projects are arguably being optimised for their coal potential. The north of Inner Mongolia has rich natural resources of wind and solar, but Kubuqi is further south, close to the coalfields stretching up from the border of Shanxi province. On the China Daily’s numbers, the productivity of the renewable generators will be mediocre when compared to what’s possible with current technology.

The variable nature of wind and solar means that transmission lines are best utilised if there is some other form of power to fill the wire when they’re not generating. Similar renewables bases in southwest China are using hydroelectricity, for instance. Even so, there’s no fundamental reason that such vast projects have to be paired with fossil power. BP Plc and TotalEnergies SE last week won bids for a $14 billion, 7GW wind farm off the coast of Germany.

The deeper issue lies in the structure of China’s grid. Rather than having consumers and producers trade power so the generation of entire regions is available to balance the market, it’s based on rigid relationships between the two groups. As a result, consumers count upon firm contracts rather than the laws of supply and demand to ensure they have sufficient electricity. The excessive reliability requirements that result make high levels of fossil fuels indispensable as back-up.

If Kerry wants to find productive common ground, that’s one area where real progress could be made. America’s deregulation of its power sector since the 1990s has been far from perfect in terms of both consumer prices and grid reliability, but the patchwork nature of the market provides ample lessons and test cases for the sort of reform that Beijing is edging toward.

The progress of China’s energy transition is dazzling — but it could be so much faster if its best-in-class supply chain and planning system wasn’t being held back by market structures built for a bygone era. If the country is to fulfil its potential as this century’s clean-energy powerhouse, it’s going to need to tackle that problem, too.

David Fickling is a Bloomberg Opinion columnist covering commodities, as well as industrial and consumer companies. Views are personal, and do not represent the stand of this publication. 

Credit: Bloomberg