China’s highly anticipated electricity sector five-year plan was released earlier this month but was criticised by the environmental community because it targets increased coal power capacity and slower growth for renewables. But as China’s economy adjusts to the “new normal” of lower economic growth, it is efficiency that should be the focus because this matters more than capacity as an indicator of China’s clean energy transition.
The electricity sector plan, released by China’s National Energy Administration (NEA), is a subsidiary of the 13th Five-Year Plan for Economic and Social Development (2016-2020) and delivers specific guidelines and targets to inform policy making, government spending and project planning in the power sector.
The development of China’s five-year plans is a bargaining and bureaucratic process within the political system that includes local interest groups such as the coal industry. Although the targets set an approximate trajectory for the power sector, China has adjusted energy targets between five-year plans in the past, and will have the opportunity to revisit these targets over the coming years to increase ambition by 2020.
Increasing coal capacity
One major criticism of the plan is its call for new coal plants, in spite of existing coal overcapacity and flat power demand. China’s 2020 target for coal capacity (1,100 gigawatts, an increase from 920 gigawatts) implies that as much as 45 gigawatts per year of additional coal power will come online over the next four years, though some old capacity will be retired.
The new target appears to contradict policies calling for many provinces to cap coal consumption and for large areas of China to set regional “red line” limits on new coal plants.
However, it is not surprising that China may still add some coal capacity given the importance of the coal industry to provincial revenue. Although China is making great strides in coal capacity reduction, government revenue is still the top priority. Completely eliminating approval of new coal plants, although ideal, may not be a realistic option for policymakers. Meanwhile, with some 200 gigawatts of coal capacity already given approval or under construction, the NEA has said that staying under the new, higher 2020 coal power target will still be a challenge.
The higher capacity target for coal won’t necessarily determine how much of it China actually burns. What matters more is the efficiency of the power system as a whole, and ensuring that the most efficient power plants are given priority while the less efficient ones are phased out.
A second criticism of the plan is it sets a slower growth rate for clean energy such as new wind and solar. Originally, 150 gigawatts of solar PV was planned for 2020 (up from around 65-70 gigawatts today), but the new plan lowers the 2020 target to 110 gigawatts. Similarly, the original plan called for an increase from today’s 150 gigawatts of wind capacity to 250 gigawatts by 2020. This has been revised down to 210 gigawatts.
As disappointing as the lower capacity targets may seem, it’s important to note that China’s economic slowdown, along with structural changes to the economy towards a more consumer- and services-focused model, will have a profound impact on future demand and actual energy use, regardless of forecast capacity requirements.
Focusing on capacity made sense during the country’s period of rapid industrialisation, when electricity shortages could emerge quickly and China’s state-owned power sector needed to be pushed forward aggressively to meet the economy’s enormous need for power. The rush for capacity in renewable energy also helped scale up wind and solar quickly, helping these technologies mature and costs to fall.
But today, as China’s economy adjusts to the new normal, what matters more than capacity is efficiency, often at a provincial or regulatory level. Because of poorly coordinated development and distribution, as well as misaligned incentives, China wastes as much as 20% of the clean energy it produces.
The good news in China’s latest Five-Year Plan is that it sets a clear quantitative target for reducing such wastage, called curtailment, below 5% by 2020.
Installed wind capacity and production in China and US
To meet this goal, China needs clear plans and better coordination between agencies to integrate the country’s diverse energy sources into an efficient market. Recent months have seen a rapid roll-out of bilateral power trading pilots, new regional power trading centres (including in the Beijing-Tianjin-Hebei region), and efforts to develop spot markets for renewable energy. Next year, China is expected to launch a nationwide carbon trading market, and environmental taxes for smaller emitters.
Looking ahead, capacity numbers and targets may be the least important indicator of how smoothly China’s clean energy transition is taking place. Instead, China can do more to clarify how its various energy-related agencies, targets, and policies will work together to create a more efficient power system and speed up its clean energy transition.