China’s economy showed a faster-than-expected 4.2% growth in industrial output in August. Meanwhile, the country’s power generation totalled 825bn kWh in the same month, surging by 10% on the year. This also represents 5.4% points above July’s output.

In August, thermal power generation increased by 15% on the year, while wind and solar power generation climbed by 28% and 11%. On the other hand, hydropower dropped by 11% on the year and nuclear power fell by 0.6%.

This rise in thermal electricity generation was supported by an increase in the country’s coal production of 10.5% on the year. According to the National Bureau of Statistics, domestic coal production totalled 370Mt in August and 2.93bnt in the first eight months of 2022. This cumulative output was 13% higher than the corresponding period in 2021.

However, domestic coal production in August was lower than the output of 373Mt in July and 379Mt in June. Meanwhile, China’s coal and lignite imports increased by 5% on the year and 25% on the month to 29Mt in August.

China aims to produce an additional 300Mt coal in 2022, after a record-high output of 4.1bnt in 2021. China’s surging power demand has led to concerns that competition for coal from China’s main suppliers such as Indonesia will rise with recent sanctions on Russian coal.

Although the rise in wind and solar generation alone met 92% of China’s electricity demand rise in the first half of 2022, Beijing is set to add 270GW of coal-fired power generation capacity in the five years through 2025, according to China Energy Engineering Corp, rising from an estimate of 100GW to 200GW in 2020.  

China’s Energy Footprint

China has pledged to achieve carbon neutrality by 2060. This will be driven by the country’s aim to peak CO2 emissions before 2030 and reduce carbon intensity of GDP by over 65% from 2005 levels. Beijing plans to increase non-fossil fuel energy consumption to 25% by 2030, updating its previous target of 20%.

The energy and process sector in China emitted 12Gt of CO2 in 2021, up from 11.4Gt in 2020. AME forecasts that China will generate 11.8Gt CO2 emissions in 2022. China has not reneged on its plans, announced in 2021, to build an estimated 43 new coal-fired power stations and 18 new blast furnaces, despite President Xi Jinping’s pledge to limit coal consumption growth in the 14th five-year plan period, 2021-2025, and phase it down in the 15th.

China has launched its Emissions Trading Scheme, which covers 2,200 companies in the power sector, coal and gas plants. In 2021, China’s two global policy banks provided no new energy finance commitments to international governments for the first time since 2000.

China has accelerated its renewable energy capacity installation. Solar and wind energy capacity surpassed 300GW each, with hydropower still representing the largest single source of renewable capacity. China’s rate of renewable capacity installation aligns with the country’s 2060 net zero.

However, China’s surge in new coal-fired power capacity vastly offset the retired capacity in 2021, causing a net increase in the country’s coal fleet of 25GW. In the first half of 2022, China added 7.5GW, while only retired 240MW.

Although China’s annual capacity additions have been steadily declining since 2019, plant retirements have also slowed down. Since 2011, China has removed over 72GW from the market, but only has confirmed plans to retire about 7GW over the next ten years. Coal power plants account for 4.8Gt of China’s annual CO2 emissions. 

About 40% of China’s coal power capacity has been operating for less than nine years. New coal power plants have an average lifetime of 29 years, although some stations are designed to last between 40 and 50 years. This will see China locking the power sector further into coal dependency in the medium-term. Although ultra-supercritical plants account for almost half of this under-nine-year capacity, around 86GW capacity of subcritical power stations was also added.

Ultra-supercritical coal power stations can potentially reach an efficiency of 44%, while subcritical plants’ efficiency oscillates between 33% and 37%. China currently runs over 380GW capacity of subcritical power stations that are younger than 20 years, which will maintain the country’s emissions on the rise. Beijing’s ambitious plans to expand clean electricity generation imply that the utilisation of coal power plants will fall despite the increase in capacity.

Huaneng Power International is the largest power generator in China, with 54GW of operating capacity. The company has another 750MW under construction and 3.6GW of projects that have been announced or are already seeking environmental approvals. National Energy Investment Group follows with 52GW of operating capacity. The group has 2.6GW under construction and further 2GW that has already been permitted. However, the company has cancelled 30GW of coal-fired power capacity since 2010.

China Shenhua not only ranks as the third largest generator in China, but it is also the company with the largest capacity under construction with 4.7GW in the pipeline.

Datang Tuoketuo power station is the largest thermal coal power plant in China with 6.7GW capacity. The plant initially comprised eight 600MW units commissioned between 2003 and 2006. Two additional 300MW units were installed in 2011. The last addition was in 2017, with two units of 1,320MW of combined capacity. Coal is domestically sourced from the Junggar coalfield 50km from the station.

Securing Energy Needs

AME forecasts that China will import 62Mt of thermal coal in the December quarter of 2022, up by 7% on the quarter but down by 14% on the year. Despite increased power demand, China’s thermal coal imports are below the average volume registered in 2021, as the government continues expanding its domestic production.

This shift came amid China’s concerns over its power shortages in October 2021 and led to a 5.1% annual growth in coal output. Despite a growth in coal capacity, renewable energy remains a priority. Installed renewable energy capacity exceeded 1,000GW in 2021. China plans to bring additional 150GW in solar and wind capacity in 2022.

Over the medium term, AME forecasts that China’s thermal coal import demand will decrease at a CAGR of -0.6%, reaching 203Mt by 2027. This will be driven by the State Council plans to inject US$1.5bn to advanced domestic coal production capacity and support coal power generators.

Over the long term, AME forecasts that Chinese thermal coal import demand will shrink at a faster CAGR of -1.2% between 2027 and 2040, reaching 173Mt in 2040. Although China has not committed to phasing out coal, Beijing is expected to peak coal-fired electricity generation by 2030 with a target of a 50% non-fossil share of electricity generation in 2030.