China is expected to exceed its target of having 1.2 TW of combined solar and wind energy capacity in place by 2030, with forecasts predicting a combined capacity of 3.3 TW by that time, according to a new report by Goldman Sachs Research.
China's investments in clean-energy technologies have given it a significant edge in the market, with the country controlling about 90% of the global market for upstream solar products and accounting for about 30% of the market for wind turbine components.
Its investments have also helped it become the top-producing country for midstream materials and cell assemblies in batteries.
The report predicts that China's progress on renewables should help reduce its energy imports by 10% by 2030, and a 50% cut in energy imports is possible by the early 2040s if renewable installations continue to accelerate. The Asian country could become energy self-sufficient by 2060.
Lower coal prices and renewable cost innovations are expected to ultimately lead to reduced energy costs for domestic consumers. However, achieving these goals will require a massive investment of $2.26 trillion by 2040.
“As China focuses on the challenges to reduce imported fossil fuels, we view an affordable renewable energy system, equipped with sufficient energy storage and smart grid transmission, as China’s long-term solution to achieving energy self-sufficiency,” write Goldman Sachs analysts Nikhil Bhandari, Amber Cai, Chao Ji and Chelsea Zhai in the report.
Renewable energy production's increased scale will help drive down manufacturing costs, making round-the-clock solar projects more economically viable. Currently, the internal rate of return (IRR) for a solar generation project with storage operating 24 hours a day is below zero, but innovations will improve efficiency and push returns to almost 10% by 2030, the report said.
Godman Sachs notes that renewable energy sources deliver power intermittently, necessitating stored energy during periods of low or no power. As such, China will require about 520 GW of storage by 2030, with more than three-quarters of this amount coming from batteries and which is 70 times higher than China’s storage capacity in 2021.
The remainder of the storage increases will come from pumped hydropower facilities.
China has already invested heavily in raw materials for batteries and is expected to be self-sufficient in lithium by 2024. The country is also leading the way in emerging technologies such as sodium-ion batteries, which are cheaper and more eco-friendly than lithium-ion batteries.
“We expect the average battery prices in China to decline substantially and to fall faster than [other parts of the world] due to the severe local surplus of battery manufacturing capacity,” Bhandari and his co-authors wrote.
However, the report cautions that several factors could hinder China's progress, such as slower-than-expected adoption of green electrification due to underinvestment or slow grid upgrades. Additionally, the country's dependence on copper ore, which is essential for capturing, storing and transporting green energy, leaves its green electrification efforts vulnerable to geopolitical disruptions. China’s domestic production accounts for less than 30% of its demand.
The report concludes that China’s strong coal demand will decline around 2030, and renewable cost innovations will contribute to more affordable power for consumers while reducing the share of fossil fuel in the energy mix. Growing renewables capacity is also anticipated to reduce carbon emissions into the 2030s, even as overall energy demand rises.
To upgrade the grid for the influx of green energy, transmission companies will need to build more cross-provincial ultra-high voltage lines and expand digitisation, enabling them to manage consumer and commercial demand through real-time forecasting.
The report predicts that a smart and well-connected grid will become a core component of China's 'Energy Internet.' It integrates different types of power resources and enables large-scale, interactive energy transmission and transaction, while more virtual power plants and big data analytics are expected to emerge, allowing an even higher share of green power in the generation mix.