China Surpasses Renewable Energy Targets Ahead of Schedule, Faces Utilization Challenges

China is on track to achieve its 2030 wind and solar capacity goal of 1.2 terawatts (TW) six years ahead of schedule, with an already installed capacity of 1.1TW by the end of 2023, as reported by Fitch Ratings.

The China Electricity Council anticipates an additional 260 gigawatts (GW) of new installations in 2024. The substantial increase in newly installed capacity poses potential challenges to both utilization and the grid's ability to maintain a stable power supply.

Fitch Ratings projects a mid-single-digit growth in power consumption for 2024, a slight dip from the 6.7% growth observed in 2023. This shift is attributed to an anticipated 4.6% GDP growth and an increased electrification rate.

The ongoing transition from fossil fuels to green power aligns with the energy strategy of numerous energy-intensive sectors in China. To support this shift, the government has introduced several policies aimed at boosting the adoption of green power.

This transition, however, challenges the power system to accommodate a higher proportion of output from intermittent renewable sources. It necessitates substantial investments in grid infrastructure and power storage capacity.

Despite these efforts, the current pace of grid construction and the limited capacity of power storage in relation to renewable capacity present hurdles. Consequently, thermal power is expected to play a pivotal role in stabilizing the power system during this transitional phase.

Fitch Ratings forecasts a continued rise in thermal capacity to meet the growing peak power load, even as the utilization of thermal power is expected to decline to make way for increased reliance on renewable sources.

In response to this dynamic, the government has implemented a capacity tariff to facilitate the energy transition while ensuring a stable profit margin for thermal power.