By Zhao Bowen, Sublime China Information Co., Ltd.

Energy transition refers to utilizing more new energy resources to replace traditional fossil fuels – a global trend that China, the world’s largest energy producer and consumer, actively follows.

Explicit targets

As well as aiming to halt the rise of carbon emissions by 2030, China is striving for carbon neutrality by 2060. Energy consumption is the source of 85% of carbon emissions in China, where fossil fuels make up around 85% of the energy mix. Hence the need of optimizing current energy mix and establishing new energy system.

On April 22, 2021, the National Energy Administration issued Guiding Opinions on Energy Issues 2021, calling for decreasing proportion of coal to below 56% in energy consumption while increasing that of electric energy to around 28%, both in 2021, when non-fossil energy generating capacity would reach 1.1 billion kW or so, and energy consumption per unit of GDP would fall around 3%. Other goals set for 2021 mainly involved energy resource allocation, utilization of renewable energy sources, etc.

On October 26, 2021, the State Council issued Plan to Make Carbon Emissions Reach a Peak Before 2030. According to the plan, China would boost share of non-fossil energy consumption to around 20% by 2025 (around 25% by 2030), lower energy consumption per unit of GDP by 13.5% during 2020-2025, and decrease carbon emissions per unit of GDP by 18% during 2020-2025 (by over 65% during 2005-2030). Further, renewable energy replacement rate would reach 8% in the field of urban construction in 2025, and in the same year, rooftop PV coverage of new public institution buildings and new factories would be 50%. The plan also set forth targets on wind and solar energy generating capacity, which would exceed 1.2 billion kW by 2030.

As for fossil fuels in China, coal resources are abundant. However, the supply of crude oil and natural gas is far from meeting the domestic demand, with dependence on imports reaching 72% and 45%, respectively. This is obviously harmful to China’s energy security. Therefore, it is necessary to establish an energy system with new energy resources as focus. By 2030, non-fossil fuels would basically meet demand increment of energy and see a big process in replacing fossil fuels, as detailed in Opinions on Improving Energy Transition Mechanisms and Related Policies, the National Development and Reform Commission issued on February 11, 2022.

Diversified energy supply system

China would establish a diversified energy supply system, according to the white paper China's Energy Industry Development in the New Era, the State Council issued in December 2020. Wind and PV generating is the main source of new energy, and is vital to future energy supply. By kicking off a large number of related projects in the years ahead, China’s wind and solar energy generating capacity is expected to surpass 1.2 billion kW by 2030. Meanwhile, supporting facilities (e.g. energy storage units and cross-regional power transmission equipment) are necessary, given discontinuity and instability of wind and PV generating, and uneven distribution of wind and light energy.

Another leading actor in energy transition is hydrogen energy, enjoying three advantages of high energy density, high energy conversion efficiency and zero carbon emissions and forecast by some experts to account for 10% of China’s energy system in 2050, when hydrogen industry scale, experts said, would exceed RMB10 trillion. However, hydrogen enterprises also face some difficulties such as selection of raw materials, technologies, storage, transportation, etc. Energy transition is a long process, during which traditional energy is indispensable. Even after the energy transition, traditional energy will not withdraw from the market in China, but serve as raw materials instead of fuels.

Financial support

     On November 5, 2021, the Ministry of Industry and Information Technology, the People's Bank of China, the China Banking and Insurance Regulatory Commission and the China Securities Regulatory Commission jointly issued Guiding Opinions on Strengthening Cooperation Between Industry and Finance to Propel Green Industrial Development – an action to provide greater financial support for clean energy projects related to wind power, solar energy, biomass energy, hydrogen energy, geothermal energy, etc. In addition, energy enterprises will benefit from national carbon emission trading market, carbon emission futures/options, CCER trading, etc.