A report from Bloomberg New Energy Finance, titled The Future of China’s Power Sector: From centralised and coal powered to distributed and renewable?, predicts that by 2030 the nation’s current reliance on coal will be challenged by competitive renewables, growing awareness of environmental pollution and a potential carbon emissions price, while the size of the power market will almost double.

According to the report, China will add an additional 1583 GW to its total power generation capacity, to reach 2707 GW by 2030. The nation’s electricity consumption will grow by 5 percent or 88 GW per year, BNEF said, pointing out that this is equivalent to adding the UK’s total installed capacity each year.

Renewable power sources are projected to contribute over half of this new capacity growth, reaching the same capacity level as coal by 2030. Coal-fired power generation will decrease from 67 percent in 2012 to 44 percent in 2030, or 25 GW annually, while renewable generation will increase from 27 percent in 2012 to 44 percent in 2030, at 47 GW per year.

In order to support such large-scale growth in the power sector, investment on the order of US $159 billion per year, or 2 percent of China’s 2012 GDP, will be required, and half of that amount will be invested in renewables – around $77 billion annually,  with a shift toward investment in distributed projects also predicted.

In addition China will need to invest $57 billion annually in supporting infrastructure, the analysis showed, with $1024 billion required for long-distance transmission lines, smart grid, energy storage and demand response systems – around one-third of the total investment in generation capacity.

Continuous improvement in the economics of wind and solar photovoltaics (PV) due to falling technology costs and an expected commercial-sector uptake in distributed solar were identified as key reasons for renewable energy’s predicted rapid growth. The growing cost of coal-fired plants due to environmental controls will also play a part, the report said.

However, BNEF warned that certain events could significantly change its forecast. For example, there could be a Chinese shale gas boom at the end of this decade, resulting in very low gas prices (lower than $5/MMBtu). And if China implements an emissions trading scheme, the report said, emissions will peak as soon as 2023 at a low average carbon price of $16/tCO2e from 2017-2030, which could result in a decrease in new-build coal plants and their replacement by renewables and natural gas.

Milo Sjardin, BNEF’s head of Asia Pacific, said in a statement that China’s energy sector faces “extreme uncertainty” and that the nation’s future energy mix “depends on a number of big questions, questions on which one can still only speculate: the cost at which China may be able to extract its shale gas reserves, the potential impact on fracking and thermal generation of water constraints; and potential accelerations in climate and environmental policy, including a potential price on carbon.”

And Michael Liebreich, BNEF chief executive, added that "It is hard to underestimate the significance of China’s energy consumption growth and its evolving generation mix. The impacts will reach far beyond China and have major implications for the rest of the world, ranging from coal and gas prices to the cost and market size for renewable energy technologies – not to mention the health of the planet’s environment.”

Among the report’s recommendations for how China should manage its expected power sector growth was a call for Chinese grid operators to establish partnerships with grid operators worldwide, drawing on their experience in integrating and managing high levels of renewables. And the expected rapid growth of distributed PV will require increased focus on the distribution and end-user side, rather than on transmission, requiring more and faster investment in distribution automation, distributed storage and demand response, the report said.

 

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