China’s state-owned enterprises (SOEs) are at the forefront of the country’s energy transition, marking a “critical turning point” where coal power is beginning to decline. A report by think tank Ember highlights the significant strides these SOEs have made in expanding low-carbon energy sources, particularly wind and solar power. Between 2010 and 2020, central government-controlled power companies, known as central SOEs, increased their wind and solar capacity nearly fivefold, exceeding 200 gigawatts (GW) by 2022. Central SOEs now account for around 40% of China’s installed solar capacity and 70% of its wind capacity.

This shift is crucial as China works to reduce coal’s dominance in its electricity mix, which has already dropped from over 70% in 2000 to less than 60% in 2023. The Ember report points out that coal’s contribution to meeting China’s rising electricity demand has also decreased, with only 47% of incremental electricity demand being met by coal from 2011-2020, compared to 85% from 1991-2000.

Despite these advances, SOEs remain deeply entrenched in China’s “coal-electricity ecosystem,” presenting challenges as the nation moves towards cleaner energy. The transition away from coal could create tensions, especially in regions reliant on coal industries, posing risks that need careful management to ensure a smooth energy transition.

The Role of SOEs in China’s Energy Transition

SOEs play a critical role in China’s economy, especially in key sectors like energy. They are tasked with carrying out the government’s commercial activities and closely follow the central government’s directives. The state-owned assets supervision and administration commission (SASAC) issued a mandate in 2021 directing SOEs to incorporate over 50% of renewable energy in their generation capacity by 2025 to support China’s “dual carbon” goals—peaking emissions before 2030 and achieving carbon neutrality by 2060.

Recent reports show that the leading SOEs, often referred to as the “five bigs,” have already made significant investments in renewable energy, aligning with SASAC’s targets. By 2023, these companies had already met the renewable energy benchmarks set for 2025, demonstrating their commitment to China’s energy diversification goals.

Coal’s Decline and Renewable Energy’s Rise

China’s electricity generation landscape is rapidly changing. Coal’s share of electricity generation has fallen from nearly 80% in 2000 to around 60% in 2023, with wind and solar energy growing from about 4% in 2015 to nearly 16% in 2023. This trend is expected to continue, with coal power likely to decline in absolute terms as renewable energy takes a larger share of the energy mix.

In 2023, China’s electricity demand grew by 6.7%, but renewable energy sources like wind and solar met 46% of this increased demand. This shift further diminishes coal’s role in China’s energy generation, signaling a move towards a cleaner, more sustainable energy future.

Challenges Ahead for China’s Energy Transition

While the progress is promising, challenges remain. The recent “coal power low-carbon retrofitting action plan” by China’s National Development and Reform Commission (NDRC) aims to test new technologies at selected SOE coal power units. However, without specific performance targets, the plan may not drive widespread transformation.

The ongoing energy transition will require careful navigation to balance the reduction of coal reliance with the economic and social impacts on coal-dependent regions. Nonetheless, the direction is clear: China’s state power firms are playing a pivotal role in steering the nation towards a greener, more sustainable future. As this transition unfolds, the lessons learned and strategies developed could serve as a blueprint for other countries facing similar challenges in their energy sectors.

Balancing Coal and Clean Energy

China’s state-owned enterprises (SOEs) are at the heart of the country’s energy transition, but the journey away from coal is fraught with challenges. Despite significant progress in diversifying China’s electricity supply, a new report by Ember highlights the complex dynamics and obstacles that lie ahead.

The Coal-Electricity Ecosystem

Many of China’s central SOEs have deep ties to the coal industry, making the shift to clean energy particularly complex. For example, China Shenhua, a central SOE, invested 8 billion yuan (about $1 billion) in coal mining and exploration in the first half of 2023, compared to just 824 million yuan (about $113 million) in hydropower. This reflects the broader “coal-electricity ecosystem,” a network of interconnected industries including coal production, logistics, and power generation.

The Ember report warns that a decline in coal generation will have far-reaching impacts across this ecosystem, particularly in regions heavily dependent on coal. For example, in Shanxi province, coal-related industries contribute 80% of tax revenues and provide 55% of local jobs. As such, reducing coal reliance in these areas will require substantial economic restructuring and support.

The Limits of Diversification

While SOEs have made strides in diversifying their energy portfolios, the report suggests that these efforts alone are insufficient to address the broader challenges of transitioning away from coal. Diversification weakens the commitment to coal but doesn’t fully resolve the socio-economic tensions that may arise from its decline. In coal-dependent regions, tailored diversification strategies are needed to create new economic opportunities and mitigate the adverse effects on local communities and workers.

The Role of Clean Energy

The report emphasizes that the benefits of clean energy—such as job creation and economic growth—may not be evenly distributed, particularly in regions historically reliant on coal. The challenge lies not in the magnitude of these benefits but in their distribution. To navigate this transition, China’s SOEs can leverage their resources to lead the development of renewable energy projects, ensuring grid stability and a reliable energy supply.

Gradualism and Experimentation

Ember suggests that China adopt a strategy of “gradualism and experimentation” to manage the transition. This approach, often described as “crossing the river by touching the stones,” has been key to China’s economic success in the past. It allows for careful testing and adjustment of strategies, enabling the adaptation of national policies to local conditions. By incorporating feedback and iterative improvements, this method can help build consensus among stakeholders and facilitate a smoother transition away from coal.

As China continues its energy transition, the delicate balance between reducing coal dependence and fostering clean energy growth will be crucial. The path forward will require innovative strategies, careful management, and a commitment to addressing the unique challenges faced by coal-dependent regions.