China’s clean energy transition solves several problems at once
Source：South China Morning Post
China has been increasing investment in renewable energy to give its economy a boost. In the first half of 2025, China’s solar power generation capacity jumped 54.2 per cent year on year, while wind power’s generation capacity increased by 22.7 per cent in the same time period. The country is also constructing what is set to be the world’s largest hydropower project, expected to cost less than 1 per cent of China’s gross domestic product (GDP).
Reduced consumption of crude oil coupled with lower prices could cut China’s energy import bill by half a per cent of GDP. The clean energy push will increase investment and lower supply-side costs, killing two birds with one stone. Cheap and abundant renewable energy is the most important pillar of China’s long-term prosperity.
China’s initial industrialisation was dependent on imported energy. But renewables are giving the country the means to turn its own industrial power into energy; China will no longer need to rely on imports to power its economy.
In 2024, China’s primary energy resource consumption was equivalent to 5.96 billion tonnes of standard coal. Its electricity consumption was 9.8 trillion kilowatt hours (kWh), of which solar reportedly generated 834 billion kWh – up 44 per cent from the year before – and wind generated 992 billion kWh, up 16 per cent.
Solar and wind made up 18.5 per cent of total electricity consumption last year, and nearly 60 per cent of the increase. Together, solar and wind could account for 80 per cent of this year’s increased electricity consumption, which would be a significant turning point in China’s green transition.
Electricity accounted for roughly 27 per cent of China’s energy consumption last year. China’s coal power generation averages 300 grams of standard coal per kWh, about twice as efficient as in the US. Electric vehicles (EVs) are highly energy efficient. They convert about 80 per cent of energy into motion, substantially more efficient than cars with internal combustion engines. If China can shift all its energy use to electricity, I estimate that it would require around 25 trillion kWh.
Renewable energy development depends on electrification. China just completed a 750,000-volt transmission loop in the Taklamakan desert. Within the desert, there is more than enough solar power to fuel China’s energy needs. Future solar farms in the region could become much easier and cheaper to connect to the grid. China’s current solar yield is still relatively low.
Since solar is the cheapest and most widely available form of energy, it could easily account for two-thirds of China’s energy use. Assuming that solar power equipment lasts for 25 to 30 years and each solar panel can generate hundreds of kilowatt hours per year, China needs to sustain the installation of 500GW per year, about double its current level.
By 2030, China is likely to maintain a solar installation rate of 500 gigawatts per year. China will likely achieve carbon neutrality 25 years after that. Therefore, the country’s climate goals stand on firm ground.
Wholesale solar panels now cost less than 10 US cents per watt installed. By spending only a fraction of its GDP on solar, China could easily power two-thirds of its energy needs. Solar prices are rapidly declining and could drop another 30 per cent by 2030.
Meanwhile, China’s current average cost for wind power is less than a yuan (10 US cents). If wind power can generate hundreds of billions of kilowatt hours every year, it will be comparable to solar in cost efficiency. Wind power could account for 20 per cent of China’s energy needs.
China is projected to invest 1.2 trillion yuan in the Yarlung Tsangpo hydro dam. It will generate 300 billion kWh of electricity. The project’s expected cost of 4 yuan for one kWh per year is relatively low by global standards, but considerably higher than solar or wind. However, hydro power isn’t as severely affected by weather disruption, making it a good complement to solar or wind power.
China’s hydro power generated 1.4 trillion kWh in 2024, much more than solar or wind. That’s probably not even half of China’s hydro power potential.
Renewable energy fundamentally changes China’s development path. Coal has fuelled China’s rapid industrialisation over the past four decades. However, its usage emits one of the most potent greenhouse gases contributing to climate change. China accounts for one-third of the world’s energy consumption. Coal simply isn’t sustainable in the long run.
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Of course, China still imports massive amounts of oil and gas to fuel its transport and petrochemical sectors. But rapid electrification, including through increased EV sales, could reduce demand for oil imports and thus put downward pressure on prices.
In the first six months of 2024, crude imports were down by 2.4 percentage points compared to the previous year. China’s decarbonisation efforts give the country surprise benefits – better terms of trade and a reduction of oil imports.
The Chinese economy has slowed compared to previous growth rates. It’s not improbable that the country’s energy consumption growth could decrease. The only way out is through productivity growth, especially in renewable energy and electrification.
When a car with an internal combustion engine is replaced by an EV, energy costs are cut by 80 per cent. The money saved can be spent somewhere else. China doesn’t need to splurge on a massive monetary or fiscal stimulus. Higher growth rates will come with time.