China Energy Overview
In 2022, China experienced a slowdown in electricity demand growth due to the impact of the zero-Covid policy on economic activity. Industrial electricity consumption remained subdued, resulting in a modest increase in electricity demand driven mainly by the residential sector. However, with the easing of severe pandemic restrictions in December 2022, China's economy began to recover, leading to a rebound in electricity growth from its lows in 2022. The forecast indicates that electricity demand will grow by an average of 5.2% per year between 2023 and 2025, primarily fueled by continued electrification in buildings and transportation.
China faced a historic heatwave in 2022, which resulted in high demand for air conditioning and power outages in Sichuan province. The power outages were caused by reduced hydroelectricity generation due to drought conditions and unusually low rainfall during the rainy season. Inflexible long-term contracts exacerbated the situation as exports continued despite local shortages. Consequently, China's power supply is expected to remain tight during the winter of 2022/23 due to lower reservoir levels in Sichuan.
While China has set ambitious goals for carbon peaking and neutrality, coal continues to dominate its electricity system, accounting for over 62% of power generation in 2022. The share of renewables has increased to 30%, with hydropower being the largest contributor, followed by wind and solar PV. Although coal-fired supply increased during the summer to compensate for weak hydro output, the growth rate remained modest, and renewables covered a significant portion of the rise in electricity demand. The share of gas in the generation mix remained under 3% and is expected to stagnate due to limited domestic production and high global prices.
China aims for low-carbon energy to account for 41% of electricity generation by 2025, surpassing the target set in its 14th Five-Year Plan. The rapid development of wind and solar PV will contribute to this achievement, with cumulative capacity projected to exceed 1250 GW by 2025. Distributed solar is experiencing significant growth in eastern and central provinces, while utility-scale wind and solar PV projects are being constructed in northern and western desert areas.
Despite the expansion of renewable energy, new coal-fired plants continue to be added to the grid, driven by energy security concerns, the need for dispatchable power sources, and local economic interests. However, these additions raise concerns about under-utilization of assets, considering the lack of profitability and declining utilization rates of existing coal-fired plants. High coal prices in 2022 posed challenges to coal power companies, potentially reducing their operations and investments.
China is pushing forward with power market reforms to support its transition to a modern energy system and achieve its carbon goals. The establishment of a unified national electricity market system by 2030 is underway, aiming to harmonize trading rules and standards across provinces. While interprovincial and short-term trading remain limited, spot power markets are progressing, and the regulator of the national carbon market is proposing tighter emissions benchmarks for coal power plants. However, challenges such as market liquidity and the timeline for the inclusion of non-compliance entities remain.
China faced a historic heatwave in 2022, which resulted in high demand for air conditioning and power outages in Sichuan province. The power outages were caused by reduced hydroelectricity generation due to drought conditions and unusually low rainfall during the rainy season. Inflexible long-term contracts exacerbated the situation as exports continued despite local shortages. Consequently, China's power supply is expected to remain tight during the winter of 2022/23 due to lower reservoir levels in Sichuan.
While China has set ambitious goals for carbon peaking and neutrality, coal continues to dominate its electricity system, accounting for over 62% of power generation in 2022. The share of renewables has increased to 30%, with hydropower being the largest contributor, followed by wind and solar PV. Although coal-fired supply increased during the summer to compensate for weak hydro output, the growth rate remained modest, and renewables covered a significant portion of the rise in electricity demand. The share of gas in the generation mix remained under 3% and is expected to stagnate due to limited domestic production and high global prices.
China aims for low-carbon energy to account for 41% of electricity generation by 2025, surpassing the target set in its 14th Five-Year Plan. The rapid development of wind and solar PV will contribute to this achievement, with cumulative capacity projected to exceed 1250 GW by 2025. Distributed solar is experiencing significant growth in eastern and central provinces, while utility-scale wind and solar PV projects are being constructed in northern and western desert areas.
Despite the expansion of renewable energy, new coal-fired plants continue to be added to the grid, driven by energy security concerns, the need for dispatchable power sources, and local economic interests. However, these additions raise concerns about under-utilization of assets, considering the lack of profitability and declining utilization rates of existing coal-fired plants. High coal prices in 2022 posed challenges to coal power companies, potentially reducing their operations and investments.
China is pushing forward with power market reforms to support its transition to a modern energy system and achieve its carbon goals. The establishment of a unified national electricity market system by 2030 is underway, aiming to harmonize trading rules and standards across provinces. While interprovincial and short-term trading remain limited, spot power markets are progressing, and the regulator of the national carbon market is proposing tighter emissions benchmarks for coal power plants. However, challenges such as market liquidity and the timeline for the inclusion of non-compliance entities remain.