New developments in the recent low-carbon transition of electricity in China

To keep the energy transition on track, an action plan is needed to respond to the fast growth in electricity demand driven by the development of artificial intelligence. The low-carbon transition of the power industry has a bearing on the realization of China's “dual carbon” goals – to reach its carbon emissions peak before 2030 and become carbon neutral before 2060 – and the high-quality development of the Chinese economy.

Some new developments in the green transition of the power industry are noteworthy.

First, the demand for energy and electricity is growing rapidly. Since 2020, the demand for electricity has been growing faster than GDP growth. In 2023, China’s total electricity consumption grew by 6.7%, and the primary energy consumption increased by 5.7%, compared with a 5.2% GDP expansion, a phenomenon that only occurred once during the past more than four decades – in 2002-2005, when heavy industries and infrastructure were developing quickly.

Second, clean energy is taking up a larger share of energy consumption. In 2013, coal accounted for 67% of China’s primary energy consumption; that figure dropped to 55.3% in 2023. Over the same period, the shares of oil, hydro and nuclear power have changed little. The greening of the energy mix has been driven mainly by the increased use of wind and solar power as well as natural gas.

Third, power supply is under the dual pressure of rising electricity demand and the low-carbon transition of the power industry. As the Chinese economy has entered a period of slower growth, policies to curb energy consumption are proving hard to implement. At the same time, as the growth in clean energy production is unable to meet the rising demand for electricity, the gap will have to be filled by fossil fuel energy.

Fourth, the rapid development of solar and wind electricity has added volatility to the power grid, putting additional pressure on the power supply. Therefore, coal-fired power has to play a stabilizing role in the power supply. Despite China's remarkable growth in installed wind and solar power capacity, fossil fuels remained the largest contributor to the country's energy supply in 2023.

Fifth, AI’s demand for electricity is growing. It is estimated that the demand for AI technologies for electricity will see exponential growth within five years, which will impact the low-carbon transition of the power industry. Take China for example. Before 2030, solar and wind power, which account for around 20% of the total electricity supply, will not be able to meet the growing electricity demand. The rapid development of AI will have an impact on the realization of China’s “dual carbon” goals. Therefore, it is imperative to reassess the time frame for phasing out fossil fuel energy by taking into account the electricity demand from AI.

So, how should China respond to the new developments in the low-carbon transition of the power industry?

First, it is crucial to properly comprehend the nature of the rapid growth of energy demand in recent years, which means the decision-makers must determine whether it is a short-term phenomenon or a long-term trend, and identify the fundamental reason for the rapid growth, so that they can accordingly design development plans for the power industry and carbon neutral action plans.

Second, China should accelerate the development of renewable energy by rolling out supportive policies to funnel more funds into the renewable energy sector and continuing to curb fossil fuel energy, while increasing its investment in clean energy to spur technological innovation in clean energy, so as to make green electricity more competitive in the market by lowering production costs.

Third, multi-pronged policies should be taken to absorb green electricity. On the one hand, absorbing electricity generated by new energy poses a challenge to the grid system, so developing storage technology and upgrading the grid system are crucial to absorbing green electricity and ensuring a stable supply of power. High-quality development of the power storage industry could be achieved through expanding profit margins, building a standard system and encouraging innovation.

Meanwhile, efforts should be made to promote the upgrading and smart transformation of the grid system and to enable the flexible interaction of load and storage between the electricity source and the grid to increase the capacity of the grid system to absorb green electricity. On the other hand, the country needs to deepen the institutional reform of the power industry to let the price play the role of the market to fully reflect the value of green power.

Fourth, the role of coal as the most important energy source in the short term, given China's energy resource endowment and the need to ensure a stable power supply, will change gradually. To achieve the “dual carbon” goals, it is imperative to advance the clean and efficient use of coal, develop the carbon capture, utilization and storage (CCUS) industry, and explore the “coal power+CCUS” model. China has the world's largest and most advanced coal-fired power industry. Under the coal power+CCUS model, the newer coal-fired power generation units could still be used, which is more economically viable, and the carbon footprint could be reduced while ensuring stable power supply and absorbing green electricity into the grid. Due to the current high cost of CCUS, there is still a long way to go to achieve the scale efficiency of the coal power+CCUS model. So, it is necessary to speed up the development of the CCUS industry.

Fifth, as AI is a major driving force of the new round of technological and industrial revolution, and an important part of new quality productive forces, finding low-carbon solutions for the energy needs of AI is crucial to developing new quality production forces and achieving the “dual carbon” goals. China should accelerate the transition to new energy, promote the green development of data centres, and explore the integrated development of green electricity and the AI industry.

Efforts should be made to promote the smart use of power in industrial, commercial and residential scenarios to save energy and reduce the strain on the power grid brought by AI. It is imperative to scale up investment in technological innovation, improve the energy efficiency of digital infrastructure and encourage algorithm optimization to reduce the carbon footprint of AI. Meanwhile, demand-side efficiency should be increased to offset the growing energy needs of AI.