China to maintain renewables growth pace in 2023 despite uncertainty

China is expected to continue adding more renewable power generation capacity in 2023 rather than coal-fired generation capacity, with a focus on deeper integration of solar and wind power to the grid, according to government data and S&P Global Commodity Insights forecasts.

This means that China, for yet another calendar year, accounted for the world's most renewables growth, including a recovery in hydropower that was impacted by a severe drought in southwestern provinces in 2022.

China's thermal power generation, including coal and gas, capacity grew by around 35 GW or 2.7% in 2022, compared with around 145 GW or more than 14% growth, in renewables capacity (solar, wind and hydro), official data showed.

China will add approximately 45-50 GW of coal-fired generation capacity in 2023, and around 200 GW of renewable capacity, according to Caroline Zhu, senior analyst with S&P Global Commodity Insights. In recent years, China accounted for roughly 44% of additional global renewable capacity and more than 73% of Asia's renewables capacity addition, and this trend is expected to continue in 2023.

In terms of overall power generation, China's thermal power supply grew by less than 1% to 5,853 TWh, while solar, wind and hydro combined grew by around 6% in 2022, despite the impact of the drought.

Last year, renewables capacity (solar, wind and hydro) accounted for around 46% of China's total power generation capacity, while actual non-fossil generation touched 30%, official data showed. China is likely to further narrow the gap between fossil fuels and non-fossil fuels.

The China Electricity Council, a trade body of power producers, said installed solar and wind capacity will exceed hydropower for the first time in 2023. It expected China to add nearly 100 GW of solar capacity to reach 490 GW in 2023, which will be the largest solar capacity added in a single year and compares with around 85 GW of capacity added in 2022.

The CEC also expected China's wind capacity to reach around 430 GW in 2023, a growth of around 61 GW from 2022. In comparison, the capacity additions were 71 GW in 2020, 48 GW in 2021, and 40 GW in 2022.

China added a substantial amount of wind capacity in 2020 ahead of the subsidy for onshore wind projects being phased out by end-2020, which resulted in companies rushing to accelerate their projects, S&P Global's Zhu said.

The subsidy for offshore wind projects, which was phased out by end-2021, also resulted in an accelerated increase in offshore wind capacity; from an added 4 GW in 2020 to a 17 GW addition in 2021, she added.

Hydropower growth slowed from 5.8% in 2022 to around 2.9% in 2023, with both the CEC and National Energy Agency setting a lower target of 410-420 GW for 2023, which means the government re-evaluated the role of hydropower in the energy mix after last year's crisis.

In the 14th Five-Year Plan, China aimed to have 33% of its electricity consumption from renewables by 2025. S&P Global's Zhu said China is capable of meeting and exceeding this target.

Dilute disruption risks after hydropower crisis

The bulk of China's new renewables development in the coming years will be in remote northern and western provinces to build out large-scale solar and wind capacities, moving on from the hydropower expansion in Sichuan and Yunnan provinces in southwest China and necessitating cross-provincial power transmission.

China's state-owned power company State Grid said it planned to develop more cross-provincial power transmission in 2023 to export solar and wind power from Gansu, Ningxia, and Qinghai in mid-west China and dilute supply disruption risks.

State Grid established several transmission networks originating from Inner Mongolia and Xinjiang in northern and western China, although the share of renewables in transmission remained below 40%, S&P Global data showed. This still has room to grow.

In 2023, China will need to accelerate power market reforms and integrate power and environmental commodity markets to incentivize renewable investments.

Environmental commodities in focus included the domestic renewable energy certificate market called Green Electricity Certificates which are bought by companies unable to buy renewable electricity directly from grid companies and generation utilities.

Planned upgrades to the GEC market included expanding its scope from only onshore wind and solar power projects to all renewable projects, which will likely see it compete with the international renewable energy certificate, or I-REC, market. GEC market participants are awaiting a detailed set of trading rules to provide better clarity in 2023, S&P Global's Zhu said.

China's domestic voluntary carbon market, or China Certified Emission Reductions, could also be revived in 2023. Whether renewable energy projects can continue generating domestic carbon offsets under the rebooted system will be in focus. S&P Global projected a limited likelihood for CCER issuance from new renewable energy projects.

In 2023, efforts to decouple from China's renewable energy supply chains could accelerate, while competing policies like the US' Inflation Reduction Act enforced in August 2022 will trigger a policy response. China's market share for solar panels from polysilicon and ingots, to wafers, cells, and modules exceeded 80%, according to the International Energy Agency, which called for diversification from dependence on China.

S&P Global projected China's CO2 emissions to increase by 4% from 2022 and reach 11.13 billion mtCO2e in 2023, accounting for 32% of the world's total emissions.

TABLE: Cross-provincial power transmission lines in China

Source: National Energy Administration of China