China Can Meet Energy and Climate Goals Capping Coal Power
This blog was authored by Michael Giovanniello and Yang Wang.
At the Leader’s Climate Summit in April, Xi Jinping pledged that China will “strictly control coal-fired power generation projects” and strictly limit the increase in coal consumption during the current 14th Five-Year-Plan period (2021-2025) and phase it down during the 15th-Five-Year period. President Xi’s comments highlight a growing recognition that controlling coal power capacity is key to capping China’s overall coal consumption and delivering on its climate commitments. Following Xi’s announcement, intense discussion has been sparked among Chinese policymakers and industry members over how to interpret “strictly controlling coal power,” China’s dominant electricity source.
According to some experts, effectively controlling coal power means restricting coal power generation, not limiting the construction of new projects. Proponents of this view argue that it is better to have underutilized capacity that guarantees a stable energy supply than to jeopardize China’s energy security. Others worry that the unrestricted development of coal power projects will inevitably result in inefficient investments and increased emissions. But does China really have to choose between providing cheap, reliable electricity and accomplishing its climate targets?
New research by NRDC and the North China Electric Power University finds that by capping installed coal power capacity at 1,100 GW over the coming 14th Five-Year-Plan period, China can both guarantee its energy security and remain on track to accomplish its dual “30-60” carbon emissions targets. The report (English executive summary) forecasts that electricity demand, driven by electrification and new infrastructure development, will grow at an average annual rate of 4-5% over the next five years and reach 9,200 – 9,600 terawatt hours by 2025. Unlike in the past, this new demand can be primarily met by expanding renewable and new energy resources like wind and solar, which have achieved cost parity with coal in many situations. Depending on whether coal or renewables provide for the bulk of new demand, wind and solar power are expected to reach 430-530 GW and 450-600 GW of power capacity, respectively.
Not only can China meet this growth in electricity demand without exceeding 1,100 GW of coal power, doing so will also help China peak its carbon emissions and transition to a modern power system more quickly. Under a renewable energy-driven pathway, the average utilization of coal power plants is projected to fall to 4,000-4,200 hours a year. In the case of low electricity demand, an additional 50 GW of coal capacity can be mothballed so that it only provides ancillary services, such as meeting peak load, instead of baseload energy supply. This underscores how capping coal capacity can promote gradual adjustments to coal’s role in the power sector and enable renewables to assume a greater share of final energy consumption without jeopardizing grid stability. From an emissions perspective, a cap of 1,100 GW puts China on course to peak power sector emissions well before 2030, which is critical for realizing its overall emissions goals.
It is important to note that although capping coal power capacity at 1100 gigawatts basically means keeping capacity at 2020 levels, it does not mean that new projects will not be built. Instead, the natural retirement, decommissioning and mothballing of existing units should be more or less balanced with the capacity of new units being built so that overall capacity does not increase. Considering regional differences in development, no new coal power projects should be approved in Eastern China, and older, less efficient units in its fleet should be decommissioned, allowing new coal projects to be built in Central China where it may be necessary to meet electricity demand.
Another key finding of the report is that renewable resources have already proven to be the most effective means for curbing coal power. According to the report’s review of power sector development during the 13th Five-Year-Plan period, substituting coal with renewables reduced coal consumption in the power sector by 260 million tons of coal equivalent (tce) between 2015 and 2020. In 2020 alone, substitution by renewable energy and economic dispatch—i.e., giving priority to low-cost, often renewable resources—accounted for 94% of coal consumption savings in the power sector (82 million tce and 80 million tce, respectively), compared to a scenario with no policies or regulations.
But the declining price of renewables alone will not be sufficient for China to achieve peak coal on a timeframe consistent with its climate objectives—additional policy measures and market reforms need to be adopted during the 14th Five-Year-Plan period.
First, policymakers should treat emissions targets as hard constraints and determine early on what pathways and timeframes they will follow to reach peak emissions. This will discourage the construction of new coal projects just to meet short-term demand increases, which would make it more difficult to achieve deeper energy transition in the medium-term. Instead of relying on additional coal power, short-term supply shortages can be met by deploying existing coal capacity more efficiently, unlocking demand response resources, and optimizing electricity dispatch.
Second, China should accelerate market reforms that promote adjustments in the role of coal power. In particular, systems managers should 1) improve spot bidding markets to reward high-efficiency units, 2) establish ancillary markets to encourage participation in flexibility services, and 3) leverage capacity markets to attract investments in peak shaving resources. By optimizing the existing coal stock, these market reforms will reduce the need for increased capacity. Furthermore, providing incentives for coal plants to provide new services can help firm the grid and enable renewables to provide a greater share of final energy consumption. Market reforms are critical for China to realize the diversified and interconnected electricity system of the future.
The 14th Five-Year-Plan period represents a critical window for China to achieve its 2030 and 2060 climate goals, and the expansion of coal power during these years will profoundly impact the long-term development of China’s power system. Fortunately, policymakers do not have to choose between climate commitments and energy security. By capping coal power capacity at 1100 GW, China will lay a solid foundation for coal and renewable power to work together and provide the nation with a more stable and sustainable energy supply.