China’s climate and energy policies have presented a paradoxical scenario, marked by a rapid expansion of clean energy initiatives alongside the construction of new coal power plants.
In 2023 alone, China saw the addition of 70 gigawatts (GW) of new coal-fired power capacity, marking a four-fold increase since 2019. This surge accounted for a staggering 95% of the world’s new coal power construction activity in that year.
The proliferation of coal capacity raises significant concerns regarding China’s carbon dioxide (CO2) emissions, climate goals, and the potential for stranded assets in the future.
The Chinese government has positioned coal as vital for ensuring energy security and meeting surging peaks in electricity demand, particularly since solar and wind energy outputs are variable.
However, China’s electricity sector is undergoing substantial transformations in terms of costs, demand patterns, regulations, and market operations. A recent study suggests that the traditional economic rationale used to justify new coal capacity may now be outdated.
The study introduces an alternative metric, termed “net capacity cost,” to assess the cost-optimal investments required to address rising peak electricity demand. This metric calculates the annualized fixed costs of infrastructure investment needed to meet peak demand minus the electricity market revenues generated by this infrastructure, known as its “system value.”
Utilizing this metric within a Chinese context, the study examines various strategies for meeting peak and annual energy demands, ranging from heavy reliance on coal to a combination of solar and battery storage.
The findings indicate that a combination of solar and battery storage may offer a more cost-effective solution than new coal investments, given the declining costs of renewables and battery storage, the rise in peak-time demand, and China’s “dual carbon” goals.
These transformations underscore the necessity of aligning China’s energy strategies with its long-term climate commitments and transitioning towards a cleaner power system, while also ensuring efficient utilization of capital resources.