China Readies ‘All Kinds’ of Fuels for Worst-Case Scenarios

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As the curtain falls this week on China’s annual National People's Congress (NPC) parliamentary sessions, the strongest priority has been placed on reviving the economy and containing costs of living during 2023 — while preparing for unexpected events involving geopolitics or weather. “This year, it is essential to prioritize economic stability and pursue progress while ensuring stability,” said outgoing Premier Li Keqiang in his Mar. 5 government work report to the NPC. The strong emphasis on economic growth is raising concerns that the energy transition might take a backseat amid the need to ensure adequate energy supplies from all fuel sources for supporting industrial and manufacturing activities. This year, Beijing’s target for a 5% growth, up from the 3% posted last year, would mean an even bigger appetite for energy and greater urgency to avoid power crunches. Coal has a strong role to play, with Li hailing the dirty fossil fuel “as a major source of energy” that “kept overall [energy] prices at a comparatively low level” in 2022 despite high global inflation.

At the same time, Beijing also made clear its intention to press ahead with meeting long-term decarbonization goals. “We will move the manufacturing sector toward higher-end, smarter and greener production,” said Li, promising that the country will “pay close attention to the transformation and upgrading of traditional industries.” China “will transition gradually” through “better control over energy consumption, especially of fossil fuels,” he added. Beijing has set a goal of cutting energy consumption per unit of GDP, or energy intensity, by 2% over 2021-25.

Li’s report also includes roles for electric vehicles (EVs), fuel-cell vehicles, hydrogen, wind and solar, energy storage and other decarbonizing tools, as China aims to “consolidate our leading position in industries where we excel.” Reaffirming China’s commitment to its Paris pledges, Li stated the country will take "active and prudent steps" toward reaching peak carbon emissions by around 2030 and carbon neutrality by 2060.

Preparing for the Worst

China’s apparent reluctance to accelerate the phaseout of coal is likely a result of wanting to be prepared for the worst in the aftermath of the Russia-Ukraine war that sent energy prices soaring. The ensuing energy scarcity was further exacerbated by increasingly frequent extreme weather events, such as widespread droughts and heatwaves last year in many parts of China that curtailed hydro supply and led to blackouts and power rationing. “We must be prepared to deal with worst-case scenarios,” said China’s economic planner, the National Development and Reform Commission (NDRC), in its Mar. 5 work report.

The immediate solution, according to the NDRC, lies in strengthening development of “all kinds of power sources, particularly the more reliable ones like coal-fired power.” But the commission also wants to “advance joint operations between coal-fired power and renewable energy.” This refers to Beijing’s vision for a future new role for coal power plants as a backup for the country’s fast-growing fleet of intermittent renewable sources, which would need to be incorporated with energy storage or other forms of firm generation to ensure grid stability. 


In the tug-of-war between coal and renewables for market share, the outcome would likely be influenced strongly by factors such as pricing, hydro availability and the intensity of extreme weather events such as droughts, heatwaves and cold snaps that could cause volatility in demand and supply. Fitch Ratings is of the opinion that “China’s fuel mix should continue to turn greener in 2023," noting that the country had been investing far more in non-fossil fuels than in traditional energy sources. The green trend in power generation investments is set to persist “in light of favorable policies for developing large clean-energy production bases and a recent price drop along the solar value chain,” Fitch argues.

In 2022, for example, Chinese investments in non-fossil fuels accounted for the lion’s share of 87.7% of the total capex in power generation. Although the country did consume 4.3% more coal in 2022, coal's ratio in the total energy mix only advanced by 0.3 percentage points, according to latest data from the National Bureau of Statistics. Non-fossil fuels such as renewables and nuclear, on the other hand, grew their combined market share by 0.8 percentage points, or nearly three times the gains made by coal.

But Finland-based independent Centre for Research on Energy and Clean Air (CREA) has raised the alarm that China’s coal power development accelerated dramatically in 2022, with new permits reaching the highest level since 2015: “The coal power capacity starting construction in China was six times as large as that in all of the rest of the world combined.” In the worst-case scenario, “the pressure to make use of the newly-built coal power plants ... leads to a moderation in China’s clean energy buildout” and could also result in “the promotion of energy-intensive industries to consume the electricity.” This could mean a major increase in China’s CO2 emissions over this decade, warns CREA.

From EVs to Hydrogen

In the clean energy space, China will “optimize the layout of the new-energy vehicle (NEV) industry” encompassing pure-battery electric, hybrid plug-in and fuel-cell models, according to Li’s report. It will also “advance the application of battery swapping in electric vehicles, promote demonstrations of fuel-cell vehicles, and drive the sustained and healthy development of the NEV battery industry.”

“We will consolidate our leading position in industries where we excel, such as NEVs, 5G, and [solar] photovoltaics, make forward-looking plans for future industries, and develop the bioeconomy, the hydrogen power industry,” he elaborated.

China has already started construction of its first batch of giant wind and solar farms totaling some 100 gigawatts (GW) in the Gobi desert and other remote regions. Last year, China added a record 86 GW of new solar generation capacity, or equivalent to 86 nuclear reactors, dwarfing the increases in all other fuel types.

Going forward, “we will actively work for the start of construction on the second batch of large wind and [solar] photovoltaic bases, and facilitate construction approvals for the third batch,” said Li. In addition, the country will groom “energy storage industries” as well as “speed up the development of pumped-storage hydro facilities.”

China's Energy Mix
 2022 Ratio Y-o-Y Chg.2021 Ratio2020 Ratio2019 Ratio2018 Ratio
By Fuel Type(%)Percentage Points (%)(%)(%)(%)
Non-Fossil Sources*17.4+0.816.615.915.314.5
Total 100.0%--100.0%100.0%100.0%100.0%

Renewable Electricity , Hydrogen, Electric Vehicles, Energy Storage, Low-Carbon Policy, Policy and Regulation
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