- The central pillar of China’s electrification plans is its decades-long plan to upgrade and expand China’s electricity grid.
- According to corporate announcements and financial statements compiled by Climate Energy Finance, Chinese companies have committed $156bn in outbound foreign direct investment across more than 200 clean technology transactions since the start of 2023.
The central pillar of China’s electrification plans is its decades-long plan to upgrade and expand China’s electricity grid. The country is forecast to spend as much as $800bn by 2030 upgrading the system’s hardware and software.
Electricity infrastructure spending in many countries tracks economic growth. However, Ken Liu, head of China renewables, utilities and energy research at UBS, forecasts that the overall grid capex in China will be as high as 10 per cent this year.
He says grid spending will continue at a compound annual growth rate of about 5 per cent through 2030, significantly faster than forecast economic growth “due to the electrification trend.”
According to UBS, a big chunk of that planned grid spending, around Rmb100bn ($13.8bn) this year and Rmb110bn in the years following, is expected for ultra-high-voltage lines. China has more than 40 such lines, which means solar and wind electricity generated in the western deserts of Xinjiang and Gansu can be delivered to the factory hubs in southern and eastern China where it is needed.
Supported by these long-term state investments in the power grid, China is on course to source 50 per cent of its power from low-carbon energy including hydro, solar, wind, nuclear and battery storage systems by 2028. About 10 years later combined solar and wind capacity are on track to reach a historic inflection point, exceeding coal-fired power generation for the first time.
A handful of leading Chinese solar groups are pouring billions of dollars each year into research and development spending. This includes a pivot away from the polysilicon needed for solar panels — where China already dominates 80 per cent of the market — into potentially groundbreaking new materials, such as perovskite cells, which are up to 20 times thinner.
Similarly, in wind, a clutch of rival Chinese companies is vying to produce ever bigger turbines at a lower cost. Last September, Guangdong-based Ming Yang Wind Power Group announced what it claimed will be the world’s largest offshore wind turbine, at 20MW, near the resort island of Hainan, marking a more than doubling in size from then world-beating projects developed by European and American engineers just 10 years ago.
A month later, Chengdu’s Dongfang Electric said it had built an even bigger turbine, at a factory in Fujian, in the country’s south-east. This competition has driven down the cost of offshore wind projects, on a dollar per megawatt-hour basis, from $95 in 2020 to $55 last year, implying a lower cost of production than conventional coal, data from Wood Mackenzie, a consultancy, shows.
It is a similar story with energy storage. China’s two biggest battery groups, CATL and BYD, each channel about 5 per cent of their annual revenues — $50bn and $100bn last year, respectively — towards efforts targeted at incremental gains in cutting-edge materials, chemistry and manufacturing processes, as well as longer-term foundational research.
Their tech gains, coupled with expansive economies of scale benefits, have led to steep reductions in the cost of lithium batteries for both EVs and battery storage for supporting wind and solar use in China.
According to corporate announcements and financial statements compiled by Climate Energy Finance, a Sydney-based research group, Chinese companies have committed $156bn in outbound foreign direct investment across more than 200 clean technology transactions since the start of 2023.
This effort is expanding Beijing’s political and economic influence globally, just as the Trump administration pursues a hard decoupling from Chinese supply chains and roils global trade.
“This trade war has really emphasised the whole point of energy security and electrification because one of the most-traded commodities in the world is fossil fuels,” says Tim Buckley, director of CEF. “Countries around the world are going to be thinking very much the same way [as China],” Buckley adds. “Obviously China is very well positioned to aid them in that, and come out of this geopolitical shitshow with a strategic trade weapon: collaborating with anyone that wants to work on energy security and decarbonisation.”
In a landmark move, Beijing has decided that from June this year, new renewable projects will be subject to market pricing. The policy is expected to cause a short-term hit to some large-scale wind, solar, and battery developments as new prices are factored into investment plans.
However, the introduction of competitive electricity markets—putting fossil fuels and renewables in direct price competition—is viewed as a necessary step in the gradual reduction of electricity fuelled by coal and gas over the coming decades.
China’s commitment to fossil fuels is a mixed picture. On the one hand, there are signs that the country is on the cusp of hitting peak oil after imports last year swung into decline for the first time in decades, excluding the pandemic.
While China’s industrial policy is boosting energy and resource security, it has also led to overcapacity, hammered countless foreign rivals and contributed to an overwhelming trade imbalance. The country’s cleantech manufacturing capacity massively outstrips domestic demand, according to data from Wood Mackenzie. This has led to stunning price falls but also sparked allegations from Washington and Brussels that Beijing has violated international trade rules through years of unfair state support.
Ultimately, experts say that China’s success in electrification leaves Xi and his administration far more able to handle the sort of supply chain and trade shocks that now loom large in Trump’s second term. Ironically, the tariffs may provide an “unintentional incentive” to strengthen China’s energy transition, says Yao Yi, Beijing-based project lead at Greenpeace.