Time to consider a ‘beyond-diversification’ strategy
Large generation state-owned enterprises (SOEs), both central and local, play a critical role in China’s coal power transition, given their ownership and operational control over the majority of the country’s coal power fleet.
Recent years have witnessed a growing trend among these entities to diversify into renewable energy. By 2022, central generation SOEs accounted for roughly 40% of the country’s solar capacity and 70% of the wind capacity. Major local generation SOEs, such as Guangdong Energy Group and Zhejiang Provincial Energy Group, have also emerged as key investors in renewable energy projects.
This strategy has made a significant contribution to China’s inexorable march towards renewable energy, resulting in a relative decline in coal power. The share of coal generation has decreased from over 70% in the mid-2000s, to around 60% in 2023.
This decline is also accelerating. From 1991 to 2000, only 15% of the increase in electricity demand was met by clean electricity. This share increased to 22% over the period 2001-2010, and further to 47% over the period 2011-2020. If hydro had remained at 2022 levels, non-fossil fuel generation would have met more than half of the demand increase in 2023, further pushing coal power out of the generation mix.
An absolute decline in coal power is in sight. If current trends continue, recent IEA forecasts indicate that clean electricity will soon meet all incremental demand for electricity in China, marking the beginning of a new era of absolute coal power decline.
Coal power in China, like in many other coal-producing countries, is an integral aspect of the coal-electricity ecosystem. This ecosystem is characterised by extensive cross-industry and cross-ownership linkages encompassing coal production and supply, logistics, the coal chemical industry, power generation and relevant equipment manufacturing.
Consequently, an absolute decline in coal generation will inevitably impact other interconnected entities. While diversification strategies by large generation SOEs weaken their commitment to the existing coal-dominated power system, they fall short in addressing potential tensions and conflicts arising from the absolute decline in coal power and its broader impacts.
