Coal-powered wind-down

China's power supply shortage last year has triggered heated discussions about the role coal-fired electricity should play in the country's drive to peak carbon emissions and achieve carbon neutrality. Chinese authorities have talked of strictly controlling the growth in coal consumption in the 14th Five-Year Plan period (2021-25) and gradually cutting down its use in the 15th Five-Year Plan period (2026-30).

Being rich in coal resources, China owes its economic rise over the past decades to the steady supply of coal-fired power, which has met the country's ever-increasing demand for electricity. However, with the threat of climate change looming large, there is now a global consensus on reining in coal consumption.

As China hastens its switch to renewable energy, coal power will be phased down. Despite the rapid growth of photovoltaic power and wind power, coal remained the country's largest source of electricity in 2021, accounting for more than 60 percent of its total power generation. The function of coal-fired electricity has mutated in recent years: it now plays a greater role in ensuring the stable supply of power and shouldering peak load. In the short run, coal-fired electricity will be able to meet the growing demand for power, while in the middle and long run, it can serve as backup for wind and solar power, which are not stable and even unavailable during extreme weather events. Therefore, with the help of carbon capture, utilization and storage technology, coal-fired electricity could remain an important component of the country's energy mix in the future, even as it transforms to a clean energy system.

In the short run, the speed of coal-fired electricity's exit will depend on both the development of clean energy resources and the growth in demand for power. Among all clean energy resources, only wind and solar power hold the large potential for growth and their use has increased rapidly in recent years. However, currently wind and solar power only account for about 9 percent of the total power generation, making them unable to meet the country's incremental demand for power. Moreover, as the generation of solar and wind power is reliant on the weather and unstable, energy storage is required as a solution, but its costs will increase substantially as the share of solar and wind power goes up.

Therefore, coal will remain the primary source of energy for a considerable period of time, and efforts should be made to make coal power cleaner.

While building a carbon-neutral society requires a power system mainly fueled by clean energy, particularly wind and solar power, coal-fired electricity will still play a key role in ensuring the stable operation of the power system, for example, in case of extreme weather and violent fluctuations in demand. In the future, with the massive integration of wind and solar power into the grid system, and gradual introduction of capacity-based electricity pricing, coal's function will shift from being a major supplier of power to being a backup to renewable energy. Therefore, coal-fired electricity's exit will need to be carefully planned.

How to absorb the costs incurred in the energy transition is a key issue. The lower usage rate of coal-fired power generation units will not only reduce the incomes of power plants, but also lead to higher operation costs, which should be borne by all stakeholders－the government, the electricity sector, coal-fired power plants and consumers.

Enterprises need to make coal-fired electricity cleaner and more flexible in supply to reduce the operation costs. On the government's part, it should reform the electricity pricing mechanism by replacing the fixed pricing model with one that combines capacity-based pricing and consumption-based pricing, and allow power plants to enjoy the benefits from providing supporting services, as well as incomes from carbon transactions. The electricity sector and the government should improve the reimbursement arrangements for the provision of supporting services, and ameliorate the national carbon trading market to help coal-fired power plants diversify their income channels.

In 2021, China's total installed capacity of coal-fired power generation units reached 1.1 billion kilowatts, among which those with a capacity of over 300,000 kW accounted for 90 percent with an average working life of 12 years, and those with a capacity of over 600,000 kW had an even shorter working life. In the process of reaching carbon neutrality, the country needs to improve the distribution of coal-fired power generation units to maximize their efficiency. It also needs to further the development of clean coal and reduce the use of low-quality coal to decrease carbon emissions to the greatest extent possible.

On the path to reaching carbon neutrality, carbon capture, utilization and storage technology can create new opportunity for coal-fired electricity. Despite the decreasing costs of the technology, it is not yet used on a large scale in China in the absence of a complete industrial chain and policy support.

Coal power has made remarkable contributions to China's rapid economic growth. Now it has to be phased down to serve the goal of building a power system mainly driven by clean energy. But due to its advantage in providing a stable power supply, coal in the short to medium term will provide electricity to meet the demand, and in future to ensure the system stability and sufficient power supply. In the process of carbon neutralization, coal power will need to exit to make rooms for clean energy and "exit "will take the form of continuous decline in utilization hours, "transformation and upgrading", and functional transformation. Therefore, a relevant technology and pricing mechanism should be put in place to make preparations for the transition. The breakthrough in the carbon capture, utilization and storage technology will to a large extent determine the role of the coal-fired electricity in the future electricity system.

The author is a researcher at the Tan Kah Kee Innovation Laboratory and head of the China Institute for Studies in Energy Policy at Xiamen University. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn