China’s electrification endgame [Gas in Transition]
Electricity will be the mainstay of China’s fully decarbonised energy system four decades from now, as the world’s biggest energy consumer pursues a green and low-carbon path distinct from developed countries on the back of clean energy technological breakthroughs, according to a key outlook released on the sidelines of the just-concluded COP28 climate conference in Dubai.
China’s annual electricity consumption will reach 20,200 TWh by 2060, including 14,000 TWh for end-use sectors such as industry, building and transport, 4,500 TWh for green hydrogen production, and 1,100 TWh for power-to-X, according to the 2023 China Energy Transformation Outlook (CETO) released at the China Pavilion of COP28 on December 10. The demand forecast is more than double the 8,637 TWh of electricity that China consumed in 2022, according to the National Energy Administration (NEA).
The CETO was developed on the understanding that China is facing new challenges from energy development, as the “principal contradiction” has changed along with main aspects of the contradiction, according to Wang Zhongying, project leader of the China Energy Transformation Program and a researcher at the Energy Research Institute, one of the component research institutes of the Chinese Academy of Macroeconomic Research within the National Development and Reform Commission.
The principal contradiction used to be one between insufficient total energy supply and the urgent demand for energy from economic and social development, according to comments from Wang at a launch event for the CETO. The contradiction has now evolved into an issue of the high-carbon structure of China’s energy supply that restricts and may even set back economic and social development.
The main aspect of the contradiction was previously ensuring coal supply to meet the total supply shortage, but this has now turned into the vigorous use of wind, solar, hydro and other renewable energy sources to optimise the energy supply structure from low-carbon to zero-carbon.
The electrification of China’s fossil fuel-dependent energy structure will be profound given coal, oil and natural gas met a combined 82.5% of China’s primary energy consumption in 2022. “Achieving a high proportion of electrification in end-use energy is the basis for the green and low-carbon transformation. End-user electrification is a necessary condition for systemic changes in the economy and society,” said the CETO.
Electrification in industry will see the likes of the steelmaking sector pivot from carbon-intensive processes such as the use of blast furnaces to greener electric arc furnaces and industrial heat pumps.
For residential and commercial buildings, coal and gas stoves will be out while induction stoves, integrated solar photovoltaics (PV), smart metres and heat pumps will be in. Electrification in transport is already in motion as China is firmly on track this year to lead global passenger electric vehicle (EV) sales for the ninth consecutive year.
EV sales from January to October expanded by 37.8% year-on-year, although this was considerably slower than 95% for all of last year and 163% in 2021, according to figures from the China Association of Automobile Manufacturers.
The transport sector will have the fastest electrification growth, with the share of electricity in transport energy use growing from the current 3% to 51.4% in 2060. The building sector is projected to have the highest level of electrification, with the rate growing from the current 37% to 96.9%. The electrification rate of the industrial sector sees steady increases, growing from 25% currently to 52.2%.
Nothing but renewables
Underpinning China’s enormous electricity use will be the development of wind power and solar photovoltaic (PV) as the main source for a green power system. By 2035 China’s total installed power generation capacity will exceed 6,300 GW, with renewable energy accounting for 77% of the total. Capacity will rise to 9,800 GW by 2060, with renewable energy making up 98% of the total. By comparison total generation capacity at the end of 2022 reached 2,564 GW, of which renewable energy represented 29.6%, said the NEA.
The timeline up to 2040 will be pivotal for wind power development. Wind power installed capacity will stand at 4,270 GW by 2060, of which offshore wind power will make up more than 700 GW. Some 71% of onshore wind will be spread out across the north, northwest and northeast of China by then, while the eastern seaboard will be home to 58% of offshore capacity.
Utility-scale solar and distributed solar - also known as rooftop solar - will develop in tandem, although distributed installations will grow faster. Total solar capacity will be 4,800 GW by 2060, with 68% of utility-scale solar located in the three northern regions and 35% of distributed solar located in China’s central, eastern and southern provinces.
The CETO estimates made in the outlook are considerably more ambitious than those elsewhere. The China Electricity Council, the industry body for the power generation sector, has forecast domestic power demand to reach 15,701 TWh by 2060, of which only 72% will be met by solar and wind. The council anticipates solar capacity to stand at only 3,278 GW, while wind will reach 2,044 GW that comprises 1,885 GW and 159 GW for onshore and offshore installations respectively.
Backing up the fleet of renewable energy sources will be extensive flexible resources, including a new role for coal-fired power plants. Pumped storage, energy storage systems including those running on batteries, and demand-side response resources will be the primary regulator of the power system by 2060, with a total resource capacity of 2,870 GW.
And while China has continued to permit record levels of coal-fired power in 2023, the CETO envisages the capacity of coal power peaking in the next several years and then gradually declining. Some units will be put on reserve and will remain an important source of flexible supply even in 2040. By 2060 though China will have mostly moved past coal.
Green hydrogen will play an important role in the mid- to long-term future, as its production will consume 2,500 TWh or 15.2% of total electricity demand by 2035, rising to 4,500 TWh or 22.1% by 2060.
China will also use its massive power generation capacity to produce hydrogen-based synthetic fuels that will help wean the country off fossil fuel imports and decarbonise the hard-to-abate transportation sector. Biofuels and e-fuels will account for 28-30% of fuel demand from passenger and cargo aviation by 2060, while hydrogen will supply 17%. Conventional jet fuel will have a share smaller than 20%.
Fuel oil will still meet 57% of the Chinese shipping sector’s fuel consumption before 2040 but will then shrink to less than 5% by 2060, rapidly losing share to ammonia, hydrogen, e-methanol and e-fuel oil. Ammonia will be the main marine fuel source with a 45% share in 2060, followed by hydrogen at 24%.
By the time China’s carbon neutrality deadline of 2060 rolls around, the country’s population will stand at 1.35-1.4bn people with GDP per capita at $42,000-44,000 at 2020 prices.
The energy transition will facilitate the reduction of atmospheric pollutant emissions and achieve a ‘beautiful China’, a political slogan coined by Chinese President Xi Jinping that encapsulates the country’s green path towards modernisation. Emissions of SO2, NOx, dust and particulate matter in China are the highest in the world. The emission of SO2 in China is double that of the US and triple that of the EU, while NOx emissions are 1.5 times that in the EU.
Gas needed in the interim
While electrification is seen as China’s long-term future, there will be room for gas in the interim as a transition fuel. Chinese gas demand is expected to peak in 2040 at around 605.9bn m³ under a baseline scenario that assumes a stable international environment and moderate competition and cooperation between countries, according to the latest estimates from CNPC’s Economics and Technology Research Institute (ETRI) released on December 7.
It should be noted though that this year’s forecast is down from projections of 615.5bn m³ given last year and 650bn m³ in 2021. In addition the ETRI warned that gas demand could be as low as 558.5bn m³ if a worst-case scenario of restrained technology, global trade, investment and cooperation comes to pass.
The CNPC think tank still believes gas will become an important energy source to support China’s green transformation and replace highly polluting fuels while supporting large-scale renewables buildout.
Gas-fired power generation is expected to contribute 70% of China’s gas demand growth by 2040, according to the ETRI. This aligns with a belief elsewhere that China will need significantly more gas volumes to decarbonise its power mix while mitigating the intermittency of renewable energy sources.
China’s gas-fired power generation is expected to increase alongside renewable energy generation, from 300 TWh last year to 600 TWh in 2030 and 800 TWh in 2040, the International Gas Union said in October.