Despite its ambitions for a cleaner environment, the growing demand for electricity means that coal will remain an important source of fuel for many years to come.
The share of coal in electricity is expected to gradually decline as the government moves to increase gas. Rapid growth in gas prices and inadequate infrastructure limits the scope for how much gas can replace coal in the medium term.
Environmental policy is stricter and more expansive
China, the largest consumer of coal, must find the right balance between its traditional mantra of strong economic growth and its older quest for growth that is more environmentally and financially sustainable. It looks like China is willing to sacrifice domestic manufacturing and trade for cleaner air.
Strict targets are being met by shutting down heavy industry that cannot operate below a certain emission level in the winter - when heating demand in residential buildings naturally rises. These policies also encourage industry to use cleaner fuels to ensure they can stay open all year long.
How China's Pursuit of Blue Skies is Evolving
Electricity demand in China is growing rapidly. During the first five months of 2018, electricity demand grew by 8.5%, up from 6% in 2017. We attribute this growth to the growing demand for electricity from the residential sector, which has increased by 13% year-over-year since the beginning of 2017. Thus, we expect total power generation to continue to grow at a similar rate and coal-based power generation to also increase from current levels, but its share in the energy mix is expected to decline over time.
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