Why the momentum holds

China’s energy transition has entered a more demanding phase. New and more complex challenges are emerging, but as this chapter shows, China’s policy toolkit is already adapting to meet them. At the same time, the transition is delivering greater gains for energy security, industrial competitiveness and economic growth. Those gains, in turn, are broadening support and strengthening confidence, creating the conditions for it to go further.

As China approaches the phase of “building while breaking”, sustaining momentum will require progress on three interconnected fronts: expanding clean electricity rapidly to keep pace with demand, integrating it more deeply and sustainably into the power system and wider economy, and managing the growing pressure on the legacy fossil-fuel system.

Sustaining expansion

China’s electricity demand has almost doubled over the past decade, passing 10,000 TWh in 2025. Growth should stay strong, primarily driven by rising electrification, an expanding digital economy and advanced manufacturing. While slower than in earlier years, the IEA predicts an average annual growth rate of 4.9% through 2030, adding around 2,600 TWh of demand over the period — roughly equivalent to the total electricity consumption of the European Union today. If China is to peak coal and oil consumption as stipulated in the latest Five-Year Energy Plan (2026-2030), clean electricity must expand fast enough to meet all additional demand.

This is now harder than it was. The immediate task is to manage the sector’s adjustment to more market-oriented pricing. Document No. 136 phases out quasi feed-in tariffs (FiTs) for renewable projects, project revenues depend more directly on market prices, curtailment risks, and when and where electricity is generated. Developers need time to reassess project economics and adapt their business models, while policymakers refine market rules that can provide sufficient certainty to support continued investment.

The power system, meanwhile, must absorb the large volume of variable renewable capacity commissioned ahead of Document No.136’s 1 June 2025 cut-off while creating room for further expansion. Grid connections, system flexibility and demand-side response all have to keep pace with renewable deployment. Doing so will be critical to limiting curtailment and reducing revenue uncertainty, both of which could weaken project economics, undermine investor confidence and slow the next wave of investment.

Extending integration

Expanding clean electricity is only half of the job. Integrating it more deeply into the power system and wider economy, taking on functions still performed by fossil fuels is also important. Both tasks become more demanding as China’s transition moves beyond its easier stages.

In the power system, clean balancing capacity, including battery storage, pumped hydro, demand-side response and more flexible grid operation, must keep scaling to take over more of the functions coal still performs.

Across industry, many sectors, especially in manufacturing, are already highly electrified. What remains is residual fossil-fuel use, which is often concentrated in the hardest corners: specialised heat applications, long-lived legacy assets, or sites facing grid constraints. Fossil-intensive heavy industries such as iron and steel, cement and chemicals are harder: their transition requires not only clean electricity but also changes to production processes, engineering practices, technical standards and business models — and, in some cases, new technologies that are not yet commercially mature.

In transport, the easy wins in passenger vehicles now give way to trucks, shipping and aviation, where payload, range and cost make electrification far harder. In some applications, the transition may even rely on electricity-derived fuels such as hydrogen, ammonia and synthetic fuels, whose technologies and supply chains are still developing.

Managing the legacy system

As coal generation stalls in more provinces, coal-fired power plants will increasingly face lower operating hours, changing revenue models and a shift from supplying bulk electricity towards providing capacity and flexibility. The effects will flow through the wider coal-electricity supply chain, affecting mines, railways, ports, equipment suppliers and service industries. This is not only a technical challenge for the power system, but also a political-economy challenge for provinces and local economies where coal-related industries still support fiscal revenues, employment and industrial activity.

Many coal-dependent regions have already been experimenting with responses, including flexibility retrofits, asset repurposing and broader economic diversification. The task is to accelerate and scale these efforts as lower coal utilisation becomes more widespread and the pressure on coal-dependent regions intensifies.

The emergence of new and more complex challenges is a natural feature of any major economic or industrial transformation, particularly as change reaches its harder stages. The scale of these challenges does not, by itself, signal that momentum is weakening. What matters more is whether policy is adapting in ways that allow the transition to move through this harder phase. That evolution is already taking shape, as the selected developments below illustrate.

From scale-first expansion to value-focused deployment

China’s success in scaling renewable energy provides the backdrop for this shift. Earlier policy support, including quasi-fixed tariffs, was critical in creating demand, lowering investor risk and accelerating capacity growth. But once renewable energy reaches scale, support mechanisms also need to evolve. Continuing to reward capacity growth and generation volume without sufficient regard for system value can worsen curtailment and place pressure on project returns.

China now appears to be shifting renewable support from a predominantly scale-first model towards more market-oriented and value-focused deployment. Document No. 136, introduced in February 2025, is the clearest step: newly commissioned projects have to trade far more fully in power markets rather than sell at guaranteed benchmark tariffs. Under this approach, future projects are exposed to clearer market signals about when and where electricity is valuable, taking into account local demand, grid conditions, curtailment risks and storage availability. Over time, this should make new projects more commercially sustainable, though short-term adjustments are likely, as rules take time to settle and investors need time to reassess project economics and adapt their business models.

To ease this adjustment and support continued investment, several initiatives have been introduced to stabilise revenues and strengthen the system’s ability to absorb rising renewable output. These include a CfD-type mechanism to stabilise revenues, and sustained support for grid augmentation and energy storage.

From efficiency gains to deeper structural integration

Pushing clean electricity deeper into the real economy requires changing the energy industry uses. China’s policy framework is evolving in that direction — at the top, through a shift in how climate goals are governed, and beneath it, through more targeted measures that carry the shift into the sectors where fossil fuels remain entrenched.

For years, the main macro-level lever was the “dual control” of total energy consumption and energy intensity, which pushed firms to reduce the amount of energy used per unit of economic output. Electrification was part of this story, especially where more automated, equipment-intensive production improved efficiency and reduced direct fossil-fuel use.

Deeper decarbonisation, however, requires more than efficiency gains. It means reconfiguring industrial ecosystems built up over decades around fossil inputs, including heat supply, production processes, engineering practices, material flows and technical standards. China’s shift towards dual control of carbon emissions – controlling both the total volume of carbon emissions and their intensity – supports this change by focusing more directly on emissions outcomes and strengthening incentives to replace fossil fuels with clean electricity instead of treating all energy use alike.

Beneath this macro shift, a demand-side renewable consumption mechanism creates enforceable demand for renewable energy. Provincial governments and selected energy-intensive industries including steel, cement, aluminium and polysilicon are assigned renewable electricity consumption responsibilities, backed by green certificate accounting, monitoring and assessment. The obligations on major users have tightened from 2026.

Additional measures include developing pilot low-carbon industrial parks, supporting breakthrough technologies (e.g., green hydrogen), and translating national carbon targets into more detailed policies for hard-to-abate sectors such as steel, cement, chemicals and non-ferrous metals.

Preparing coal-dependent regions for a broader, more systemic transition

China’s policy approach to coal-region transition has historically focused on resource-depleted cities and overcapacity management. This created an important foundation, but also a relatively patchy and reactive policy landscape. Support was often triggered by localised pressures only after they had already emerged, such as resource exhaustion, layoffs, public-service funding gaps and mining-related land damage.

Earlier efforts were also aimed at a different problem. The supply-side capacity cuts of 2016-17, for instance, sought to rebalance the coal market rather than to manage a systemic transition. Once demand recovered, capacity and production rose again. The challenge now is different in kind. As China enters a phase in which coal consumption is expected to peak and gradually decline, the pressure on coal-dependent regions is likely to be structural rather than cyclical.

Policy needs to evolve accordingly. This means extending support beyond places where coal resources are being depleted or inefficient capacity is being consolidated, towards a wider group of coal-dependent regions whose fiscal revenues, employment, industrial structures and public services remain closely tied to coal.

Recent policy developments suggest a stronger emphasis on this broader regional transition agenda. The 2024 opinion on accelerating the comprehensive green transformation of economic and social development calls for stronger support for the green transition of resource-based regions. Building on this, the 2026 opinion on higher-level and higher-quality energy saving and carbon reduction emphasises policy support for the green transition of traditional industries and resource-based regions, including studying the establishment of a national low-carbon transition fund.

The slowdown in solar capacity additions in the first half of 2026 is not simply evidence that China’s transition is losing momentum. It is better explained by the adjustment to Document No. 136 than by any weakening of the transition: new rules take time to bed in and short-term variation in commissioning is the expected cost of that adjustment. The more important question is whether China’s strategic commitment remains firm.

So far, it shows no sign of weakening. Released in March 2026, the 15th Five-Year Plan, the overarching framework guiding China’s socio-economic development through 2030, aims to “actively and prudently advance and achieve carbon peaking”. Later in June, the Five-Year Energy Plan operationalises this objective, setting out to “initially establish a clean, low-carbon, secure and efficient new energy system” by 2030 and listing, among its main targets, that coal and oil consumption should peak.

These commitments rest on a strategic weighting. Greater weight falls on returns to the wider economy over the long run instead of at the project or sector level.

There is growing recognition that the fossil-intensive model that once powered China’s economic rise is becoming harder to sustain. It delivered extraordinary growth, but left the country heavily dependent on imported oil and gas, exposed to volatile global commodity markets, and saddled with mounting environmental costs. Global climate action and, more recently, fossil-fuel supply disruptions have also created demand for clean-energy technologies, providing opportunities for China to cultivate the industries of the future.

This strategic case provides the initial impetus. Its durability rests on something more concrete: having reached scale, the transition delivers greater energy security, stronger industrial competitiveness and new sources of economic growth. The sections below trace how these tangible gains are taking hold.

An expanding EV fleet as a demand-side strategic reserve. China’s oil-import dependence is often seen as a core vulnerability, with imports accounting for more than 70% of its total oil consumption. Beneath this headline dependence, however, rapid transport electrification is already displacing oil demand at scale. Multiple estimates suggest that EVs are displacing gasoline at around 0.4–0.5 million barrels per day (mb/d). Broader estimates put China’s avoided oil demand at around or above 1 mb/d, translating into an annualised displacement of roughly 365–400 million barrels. To put this in perspective, this avoided demand over a single year is roughly twice OECD Europe’s government-held strategic oil inventories, which stood at 179 million barrels at the end of 2025.

Clean technology accounts for 6.6% of China’s exports, up from 2.7% in 2020. Exports have driven the Chinese economy for decades, and clean-technology sectors now form a substantial part of them. China’s clean-technology exports, including batteries, EVs, solar PV, wind equipment and grid infrastructure, exceeded USD 140 billion in the first half of 2026 alone, more than double the total recorded for the whole of 2020. This accounted for 6.6% of total exports in the first half of 2026, up from just 2.7% in 2020.

In 2025, China’s clean-technology exports surpassed USD 220 billion, bringing them closer in scale to the country’s traditional export “old three”: garments, furniture and household appliances.

Clean energy generates economic value on a scale comparable to real estate and construction. China’s clean-energy sectors are estimated to have generated around CNY 15.4 trillion (USD 2.1 trillion) in economic value in 2025, exceeding the combined value added of the three largest coal-producing provinces (Shanxi, Shaanxi and Inner Mongolia). This comparison requires qualification. The clean-energy figure is a reconstructed estimate of economic activity linked to investment, manufacturing and related supply chains, rather than an official national accounts sector. Even so, it conveys the scale the clean economy has reached. Sectors once seen as marginal or policy-supported now stand comparable to some of China’s old growth engines.

Reduced reliance on fossil-fuel imports, new export strengths and investment flowing through industrial supply chains are signs that the clean economy is becoming a key source of economic growth. As this takes hold, continued economic expansion becomes increasingly tied to deepening the transition and to the growth opportunities that unlock in emerging sectors.

These developments suggest a feedback mechanism: growth in new sectors spurs further investment and creates jobs, those gains broaden support and deepen the material interest in pushing the transition further, and each round of progress strengthens both the capability and the incentive to pursue the next. If this pattern holds, it would help explain why China’s transition has so far shown no sign of weakening, even as the harder phase ahead brings new costs and complications.