China to Hit Peak Coal in 2026, Report

Amid rising renewable output and a weaker macro backdrop mainland China’s coal power generation is set to peak by 2026, a new report from BMI, a unit of Fitch Solutions claims.

In its commentary, BMI said it expects China’s power consumption will grow by more than 4,300TWh from the end-2022 to 2032, which is more than the US’ total electricity demand in 2022.

China has been tackling emissions from the power sector through policymaking as it has the largest coal segment in the world, which generated an estimated 5,200TWh in 2022, which is about 20% of global power consumption.

China’s coal power sector also contributes more than 10% of the global carbon dioxide emissions, using estimates of global emissions from the International Energy Agency (IEA) and coal power sector emissions from the Global Energy Monitor (GEM).

This power consumption growth will be mainly served by its growing renewables, despite the market’s historical reliance on coal to supply the majority of its electricity needs at an average of 70% of the power mix from 2000 to 2022, BMI says.

In the wake of the market’s strong economic growth in 2021, China experienced a ramping up of coal-fired power generation to sustain consumption growth.

However, as the retirement of old coal-fired power plants continues and the demand for coal-fired power generation falls BMI expects coal-fired power generation to experience shrinking growth rates and the sector’s generation peaking in 2026, followed by a decline at an annual average rate of 1.1% to 2032.

This is in line with the government’s ambitions to reduce coal consumption from 2026 onwards.

Diverging Away From Coal

In its commentary BMI says China has been stepping up commitments to reducing the growth of its coal-fired power sector, reducing the amount of coal-fired power capacity it brings online in the past decade.

Supporting the diverging focus away from coal is the country’s rapidly expanding renewables sector, driven by wind and solar.

China now dominates global renewable growth, accounting for more than 50% of global annual renewable additions. BMI says non-hydropower renewables’ share of total generation will rise from 15% as of end-2022 to 35% by 2032, while the coal-fired power sector’s share will decline from 61% to 44% over the same period.

Within the solar and wind power sectors, large-scale renewable power projects have experienced a surge in capacity, supported by the government’s push to reach its 1,200GW goal by 2030.

This is evidenced by the National Energy Administration of China (NEA) reporting in July 2023 that the market installed a total of 78.4GW of solar PV and 23.0GW of wind power capacity in the first half of 2023.

Aside from large-scale renewables, BMI highlights that distributed solar PV installations have experienced a surge over the Covid-19 pandemic years.

This theme coincides with the rolling out of solar rooftop mandates, starting in 2021, with the NEA aiming to have solar installations cover 20% of residential, 30% of commercial and industrial, 40% of social, and 50% of governmental buildings.

The Chinese government has also incentivised distributed solar, such as allowing the sale of rooftop solar electricity and increasing grid electricity prices, encouraging residents and corporates to source for methods to equip their houses and facilities with solar panels.

Potential For Resurgence of Coal Power

This has resulted in capacity additions from distributed solar overtaking large-scale solar in 2021, with a total of 29.3GW added, compared to large-scale solar’s 25.6GW.

BMI expects this trend to continue as long as policy support remains favourable to the distributed systems. This is compounded by factors of labour and supply chain disruptions hampering the progress of large-scale renewable projects.

The rapid growth of distributed solar reflects the central and provincial governments’ effectiveness at spurring the solar type’s expansion and we expect more solar capacity to come from distributed installations, BMI adds.

The commentary however quantifies its overall forecast for the sector, with current economic and demographic trends showing that power consumption will grow steadily for the coming 10 years.

BMI says in the event that the power demand surges beyond current trends, this will result in a resurgence of coal-fired power generation growth to sustain the sudden robust economic growth.