China’s rapid growth in renewables conceals a subtle rise in coal-to-liquids development

China’s Evolving Power Sector: From Coal to Renewables and Beyond

China’s electricity landscape is experiencing significant change. Between 2024 and 2025, electricity consumption increased by 5% to reach 10,368 TWh. Despite this growth, coal-fired power generation dropped by 113 TWh to 6,294 TWh, reducing coal’s share in the energy mix. The entire rise in demand was met by nuclear and renewable energy, which together boosted their output by 617 TWh. While these figures suggest a strong move away from coal towards cleaner energy sources, coal remains a crucial part of China’s industrial framework—it’s simply being redirected to new uses.

Renewable Energy’s Economic Edge

The rapid expansion of renewables is largely driven by falling costs. Since 2015, the average cost of electricity from large-scale solar projects has plummeted by 80%, dropping from $115/MWh to $30/MWh. Wind power costs have also fallen sharply, from $90/MWh to $25/MWh. As a result, renewable energy production has grown more than tenfold since 2015. Nuclear power capacity has also steadily increased, rising from 27 GW in 2015 to 62 GW by early 2026. These developments have made non-fossil energy sources highly competitive with coal in the power market.

Infrastructure Investments Enable Renewable Growth

China’s investment in infrastructure has played a key role in this transition. Much of the country’s wind and solar resources are located in remote western provinces like Inner Mongolia, Xinjiang, and Gansu, far from the industrialized eastern coast. To connect these regions, China has built ultra-high-voltage transmission lines with a combined capacity of about 340 GW, allowing renewable electricity to reach major demand centers in the east. This has removed a major obstacle to the expansion of renewables.

The Changing Role of Coal Power

Although coal-fired electricity is declining as a share of the total, China is not shutting down its coal plants. Instead, these facilities are increasingly used as backup capacity to stabilize the grid during periods of drought, low wind output, or fuel shortages—circumstances that led to widespread blackouts in over 20 provinces during 2021–2022. For example, in Sichuan, where hydropower supplies about 80% of electricity, droughts in 2022 forced major factories, including those run by Toyota and Foxconn, to halt operations. To reinforce coal’s role as a strategic reserve, China approved or revived 161 GW of coal power projects in 2025, a record high, with another 291 GW under construction. As more capacity comes online, average utilization rates at coal plants—which have hovered around 51% over the past five years—are expected to drop further, possibly to 40%.

Coal Production and Trade Trends

China’s coal output remains strong, reaching about 440 million tonnes per month by December 2025. While coal imports fell from a record 427 million tonnes in 2024 to 373.5 million tonnes in 2025, they are still well above the pre-2022 annual average of 260 million tonnes. Coal exports dipped slightly to 13.9 million tonnes, and domestic stockpiles dropped sharply in the latter half of 2025, from 25 million tonnes to roughly 18 million tonnes. The decrease in coal-fired power generation, combined with lower inventories and exports, suggests that coal consumption is not declining as rapidly as power sector data might indicate. So, where is the surplus coal being used?

Coal’s New Role: Synthetic Fuels and Chemicals

Coal-to-liquids (CTL) and coal-to-chemicals (CTC) technologies are absorbing much of the redirected coal. Through processes like Fischer-Tropsch synthesis, coal is transformed into synthetic fuels such as diesel, gasoline, and naphtha, as well as petrochemical feedstocks like olefins for plastics. Only China and South Africa operate CTL and CTC plants at an industrial scale. China alone uses hundreds of millions of tonnes of coal annually (380 million tonnes, according to the IEA) for chemical and synthetic fuel production, with the majority going into the CTC sector. China has largely replaced natural gas with coal as the main feedstock for ammonia and methanol, so that about 80% of these chemicals are now produced from coal.

Economic and Strategic Advantages of Synthetic Fuels

The Shenhua Ningxia plant, China’s largest CTL facility, began operations in 2016 and produces around 100,000 barrels per day of synthetic fuels from about 44,000 tonnes of coal daily. In comparison, a traditional oil refinery would need only about 14,000 tonnes of crude oil per day to achieve similar output. With coal in Qinhuangdao priced at $105–110 per tonne and Brent crude at roughly $525 per tonne (at $71 per barrel), coal-based synthetic fuels can be economically attractive, especially when oil prices are volatile—even after accounting for conversion costs.

Energy Security and Geopolitical Considerations

Energy security is a major factor in China’s strategy. The country relies heavily on imported oil, much of it from geopolitically sensitive regions such as Iran, Venezuela, and Russia. Producing synthetic fuels from domestic coal helps insulate China from potential supply disruptions, sanctions, or shipping chokepoints. While CTL currently supplies only a small portion of China’s total fuel needs, it strengthens the country’s energy independence.

Regional and Political Implications

The location of CTL and CTC projects highlights their political significance. Most are situated in coal-rich inland provinces like Inner Mongolia, Ningxia, Shaanxi, and Xinjiang—areas that are less economically developed and rely heavily on mining jobs. China’s coal sector directly employs around 3 million people, with several million more in related industries. By shifting coal use toward chemicals and synthetic fuels, the government can sustain coal production and employment, while reducing coal’s visible role in electricity generation.

Environmental Impact and Climate Reporting

This reallocation of coal has important implications for climate metrics. Moving coal out of the power sector lowers its share in electricity generation, improving decarbonization statistics for public reporting. However, CTL and CTC processes are highly carbon-intensive, often emitting more CO₂ per unit of fuel than conventional oil refining. They also require large amounts of water and produce contaminated wastewater—a particular concern in northern China, where most plants are located. Yet, emissions from coal used in chemicals receive less public attention than those from coal-fired power plants.

Conclusion: Coal’s Transformation, Not Disappearance

China’s energy transition is less about eliminating coal and more about redirecting its use. Renewables are replacing coal in electricity generation due to their cost-effectiveness, scalability, and positive impact on climate reporting. However, coal is being channeled into synthetic fuels and petrochemicals, supporting industrial activity, jobs, and energy security. Coal remains a key part of China’s energy system—it’s simply taking on new forms.

By Natalia Katona for Oilprice.com

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