Setting the Scene - Coal flexibility in China: context, drivers, and policy evolution

Compared with China’s rapid expansion in renewable energy manufacturing and deployment, its transition away from coal is proceeding at a slower pace. Coal has fueled China’s economic growth, embedded in its socioeconomic system, with layered dynamics at national and regional levels. This report seeks to picture one important dimension of this landscape: coal’s evolving function.

China’s coal policy has been evolving through the 13th and 14th Five-Year Plan (FYP) periods (2016-2025), reflected in government strategies, targets, and policy language. Clean energy growth and the “dual carbon” commitment have changed coal’s strategic position in China. It is no longer primarily framed as the dominant baseload power. Coal’s role is increasingly defined by system flexibility as wind and solar become central pillars of the electricity mix.

The upcoming 15th FYP, the planning cycle that ends with China’s carbon peaking target year of 2030, is poised to extend this trajectory, embedding coal as a supporting asset in an increasingly renewable-led system. The government’s official recommendations for the 15th FYP highlight the promotion of existing coal fleet retrofits and the scale-up of clean flexibility options.

China’s electricity demand continues rising rapidly. In 2025, total electricity consumption reached a record high of 10,368.2 TWh, nearly doubling the level a decade earlier (5,550.0 TWh in 2015).

China’s rapid expansion of wind and solar is reshaping its power system and  pushing coal power generation towards a structural plateau. In 2024, China’s wind and solar installed capacity surpassed that of coal. Looking into the 15th Five-Year Plan (FYP) period (2026-2030), renewables are expected to make up over 50% of the total installed power capacity by 2030.

However, the scale and speed of this growth intensifies system challenges. The variability and non-dispatchability of wind and solar are placing increasing pressure on power system stability.

The International Energy Agency (IEA) estimates that China’s short-term flexibility needs will be around three times higher in 2030 than in 2022.

Extreme weather events driven by the impact of climate change will further increase this need. In particular, rising summer cooling demand is leading to larger intraday load fluctuations.

Coal power remains China’s largest source of electricity, and is likely to retain a significant role in the medium term.

Notably, China’s thermal fleet is substantially coal-dominant, with limited gas capacity. Unlike many major economies where gas power plants provide flexible balancing, gas only represents a minor share in China due to high import dependency and high marginal costs.

While battery energy storage is expanding rapidly, the sheer scale of existing coal capacity makes coal-based balancing and flexibility the most immediate and practical option.

Currently, coal power provides around 70% of China’s load regulation capacity, no other resource can yet deliver comparable levels at scale. As a result, China is increasingly leveraging its existing coal fleet to deliver system support.

Meanwhile, shifting coal’s role towards flexibility support and away from the responsibility of baseload generation, also provides a transitional and partial solution for longer-term reduction of coal use.

Many countries, both developed and emerging economies, have implemented or actively pursued retrofits to improve coal power flexibility, including for example, Germany, the US, Denmark and India.

China’s energy transition follows an approach that prioritises system stability and managed progression. The idea emphasises ensuring that sufficient clean and flexible capacity is in place before reducing the reliance on conventional energy sources. This reflects a broader set of objectives, including safeguarding energy adequacy and protecting local economies.

Over the past decade, China has gradually established a medium-term direction for coal power, repositioning it as a supporting and regulatory source. The shift has been reinforced through detailed policies on coal power flexibility retrofits, and supportive measures linked to ongoing power market reforms.

At the strategic level, China’s carbon peaking and carbon neutrality goals, announced in 2020, boosted the expansion of clean technology industries and reframed the long-term role of fossil fuels.

These goals are embedded within the government’s top level “1+N” framework, under which both its overarching guidance and the supporting plans, including the Action Plan for Carbon Peaking Before 2030, explicitly mentioned positioning coal power as a regulatory and security resource.

This repositioning has been translated into concrete measures since 2016. Coal flexibility retrofits first appeared in the 13th FYP (2016-2020) for energy development and were further specified in the 13th FYP for power, which endorsed a target of retrofitting 86 GW of coal power for flexibility by 2020. In parallel, China’s National Energy Administration (NEA) has also been piloting thermal power plant flexibility retrofit technologies.

Policy momentum strengthened during the last five years under the 14th FYP (2021-2025), as rising renewable penetration made system flexibility an increasingly urgent priority.

A major milestone came in November 2021, when China’s National Development and Reform Commission (NDRC) and the NEA issued a dedicated policy outlining the “three integrated retrofits” approach  for coal power – improving energy efficiency, enabling heating application, and enhancing flexibility – and setting implementation targets.

Under this framework, the government set a goal to retrofit 200 GW of existing coal power capacity for flexibility between 2021 and 2025. The policy requires new and retrofitted condensing units to be able to operate at a minimum load (ML) of 35% of the rated capacity, while combined heat and power (CHP) units are expected to reach 40% ML for at least 6 hours per day during heating seasons.

China’s 14th FYP for the energy sector carried these goals forward, raising the retrofit target to “above 200 GW” and calling for expanding the share of flexible regulatory power sources to 24% by 2025.

More recently, in February 2024, China’s NDRC and NEA released a guiding policy to enhance the country’s load regulation capacity and smart dispatch. The policy also raised the ambition for flexibility retrofit of existing coal power units, calling for the entire coal fleet to upgrade “as much as possible” by 2027.

National targets have been translated into provincial implementations. For example, Inner Mongolia plans to retrofit 30 GW of coal power capacity for flexibility by 2025, Hubei requires all 53 of its coal units over 300 MW to complete flexibility upgrades by 2025, Henan has proposed to retrofit its entire existing coal fleet by 2025.

Together, these policies indicate that coal’s transition toward a flexibility support role is becoming structurally embedded in China’s energy transition strategy.

Building on government strategies, a set of supporting mechanisms has been in place to enable more flexible coal operation. During the 14th FYP period (2021-2025), a number of developments have provided stronger economic signals and more tangible financial support for this shift.

1.3.1 Coal capacity pricing mechanism

As a part of its ongoing power market reforms, China has been exploring the establishment of a market-based capacity remuneration. A coal power capacity pricing mechanism was introduced at the beginning of 2024 as an initial step.

The capacity pricing mechanism is widely used in power systems that are more advanced to safeguard electricity supply security. Under such mechanisms, power generators receive payments for maintaining available capacity, while demand response providers are compensated for their ability to reduce electricity consumption when needed. These payments help cover the capital, operational, and maintenance costs associated with maintaining reliable capacity and operating more flexibly.

Under the 2024 policy, the mechanism provides guaranteed payments to coal power producers, reflecting the expectation that coal plants will increasingly operate as back up resources while safeguarding their financial viability.

The policy marks the first formal separation of the energy value and the system value of coal power, by remunerating coal power plants not only for the electricity they generate but also for the capacity they make available. At the same time, a fixed and uniform payment is more straightforward to implement and allows for a more predictable impact on end-user electricity prices.

The current design requires power units to declare their maximum available capacity and imposes penalties if units are not able to deliver the declared amount when needed. Local energy regulatory authorities subsequently develop more detailed requirements.

However, because payments are not linked to flexibility metrics, the mechanism creates limited incentives for plants to lower minimum output or operate more flexibly. This design risks slowing coal retirements, incentivising new capacity buildout, and delaying the broader system transition.

In addition, the two-tier provincial framework does not reflect regional differences in demand and supply profiles and system conditions.

In January 2026, the NDRC and NEA launched an important upgrade to the capacity pricing mechanism. The latest policy opens up capacity remuneration to a wider range of resources (including coal, natural gas, pumped hydro, and battery energy storage), and promotes market-based price formation, requiring provinces to link capacity remuneration with electricity and ancillary service markets, after their spot markets enter continuous operations.

1.3.2 Fiscal and financial support for flexibility retrofits 

Alongside capacity pricing, the Chinese government has advanced fiscal and financial support for coal power flexibility retrofitting.

In 2024 and 2025, this support has been channelled through the “Two New” policy, which provides financial support for large equipment upgrades and consumer goods trade-ins.

Under this framework, the NDRC and the NEA released an implementation plan for large equipment upgrades in the energy sector in 2024. Within the plan, the upgrade of thermal power – including flexibility retrofitting – is listed as the top priority, aiming to mobilise capital and create a more enabling environment for technological upgrading.

Coal flexibility retrofit is also included within the scope of infrastructure real estate investment trust (REITs), a tool that the Chinese government has been promoting to mobilise capital towards infrastructure development.

In the latest version of the eligible sector list, released in December 2025, coal plants meeting the following criteria can apply for REITs: those with a minimum load of under 30% of rated capacity in condensing mode, those co-firing with low-carbon fuels, or those with carbon capture, utilisation and storage (CCUS).

1.4.1 The principles of coal flexibility retrofit

As discussed previously, China’s energy policies increasingly require coal units to operate at higher ramping depth and operate closer to their minimum load (ML).

Coal power plants are not inherently well suited to delivering the rapid regulation and fast ramping capabilities required in power systems with high shares of variable renewable energy (VRE). Compared with gas power units, for example, coal plants are much less flexible due to their higher thermal inertia, which limits their ability to change output at the high rates performed in gas turbines.

Flexibility retrofits therefore focus on improving three core capabilities:

• larger load regulation capacity: maintaining stable operation at lower minimum loads to accommodate higher shares of VRE,
• faster load following: adjusting output smoothly as demand or VRE generation fluctuates,
• shorter start-up and shutdown times: the ability to come online or offline quickly in response to system needs.

Achieving these objectives requires comprehensive modifications across boiler, turbine, and control systems to enhance responsiveness, maintain efficiency and ensure operational safety under variable load conditions.

1.4.2 The technical requirements of coal flexibility retrofit in China

Before retrofitting, flexibility in China’s existing coal fleet varies by unit age and different configuration.

On average, China’s coal power units that require flexibility retrofit have the capacity of operating with a ML of around 50-60% before retrofitting for condensing units, and 75-85% for combined heat and power (CHP) units. Units more than 30 years old had ML of around 70% at condensing work conditions.

In terms of policy requirements for retrofitting, the most recent action plan on coal power, issued in 2025, requires coal power units in service to be able to operate with a ML of 25-40% of their rated capacity, depending on unit type, coal quality, and heating configuration.

CHP units represent more than 40% of China’s thermal power capacity in 2022 and nearly 80% in northern provinces. They are central to district heating in regions with extensive district heating networks. As heat demand continues to rise in China with rapid urbanisation, CHP units will continue to play an important role in the country’s heat supply.

However, compared with pure condensing units, CHP units must simultaneously meet heat and electricity demand, which constrains operational flexibility. Under China’s current “heat-led” operating model, in which high heating output corresponds to high electricity output, the capacity for down regulation is limited.

During the heating season, CHP units often retain a load regulation capacity of only around 10% of rated capacity. Decoupling heat and electricity generation is therefore essential to unlocking the flexibility of CHP units.