China may reach energy self-sufficiency by 2060

China is on track to produce almost three times more power from wind turbines and solar panels than the government has targeted to have in place by the end of the decade – and it could become energy self-sufficient by 2060.

Those forecasts come from Goldman Sachs Research, which predicts China’s combined capacity of solar and wind energy will reach 3.3 terawatts by 2030, far exceeding the government’s current target of 1.2 terawatts.

The report credits China’s massive investments in clean-energy technologies over the past decade. China now controls about 90% of the market for upstream solar products, and its wind turbine manufacturers account for about 30% of that market. In batteries, China is the top-producing country for midstream materials and cell assemblies, and its access to lithium and other raw materials has increased due to investments the country has made around the world.

Combined with advances in clean hydrogen, China’s progress on renewables should help cut its energy imports by 10% by 2030, GS researchers estimate. That would be just the start: Our analysts believe a 50% cut in energy imports is possible by the early 2040s if renewable installations accelerate like they forecast. Together with lower coal prices, GS Research expects that renewable cost innovations will ultimately lead to lower energy costs for consumers. But it’s also going to take a lot more spending – the projected increase in renewables and grid storage will require investment of $2.26 trillion by 2040, according to the report.

“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,” GS analysts Nikhil Bhandari, Amber Cai, Chao Ji, and Chelsea Zhai write in the report.

As renewable energy production accelerates, its increased scale helps drive down manufacturing costs. The authors believe lower solar and wind costs, combined with technological innovation and manufacturing surpluses, will make round-the-clock solar projects more economically viable. Currently, the internal rate of return 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.

The power/storage connection

Renewable energy sources deliver power intermittently, requiring stored energy during the periods when they are little or no power (when it’s dark in solar’s case, or calm when it comes to wind power). GS Research predicts China will require about 520 gigawatts of storage, more than three-fourths of which will come from batteries— 70 times higher than 2021. The remainder of the storage increases will come from pumped hydropower facilities.

China has already invested heavily in raw materials for batteries, which GS Research forecasts will make the country self-sufficient in lithium by 2024. It also leads in emerging technologies such as solar cells and sodium ion batteries (SIBs). The country’s expanded battery capabilities are translating into better economics, the authors write. “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 write.

Battery savings could be even greater if China and other countries adopt emerging technology such as SIBs. SIBs have a cost advantage over lithium-ion batteries, the current standard, because sodium is readily available in many parts of the world. SIBs also are safer and more eco-friendly than lithium, and they are highly adaptable for off-grid and load-leveling applications.

Caveats

The report notes that several factors could cause the GS Research team’s predictions to fall short. For one, adoption of green electrification could be slower than expected due to underinvestment or grid upgrades that aren’t made quickly enough to manage a growing influx of intermittent renewable energy. In addition, an increase in coal-fired generating capacity could help reduce peak power usage, lessening the demand for energy storage.

Another challenge is dependence on copper ore, which is essential for capturing, storing, and transporting green energy. China’s domestic production accounts for less than 30% of its demand, and its reliance in imports leaves its green electrification efforts vulnerable to geopolitical disruptions.

Broad implications

The GS Research team identified several key implications of China’s green electrification:

• Renewables and renewable-based hydrogen will gradually displace coal for power generation, gasoline and diesel for vehicles, and natural gas for industrial use.
• Coal demand will start declining around 2030. Coal will remain China’s primary energy source in the near term because of the country’s growing overall energy demand and potential declines in average renewable utilization as new installations surge.
• Renewable cost innovations will contribute to more affordable power for consumers. Together with lower coal prices, renewable innovations will lower power costs, reduce volatility, and shrink the share of fossil fuel in the energy mix by 2030.
• Growing renewables capacity will reduce carbon emissions into the 2030s, even as overall energy demand rises.

To upgrade the grid for the influx of green energy, GS Research predicts transmission companies will build more cross-provincial ultrahigh voltage lines and expand digitization, which will help them manage consumer and commercial demand through real-time forecasting. They also will have to build more cross-regional transition channels and enable more energy storage applications.

“We expect a smart and well-connected grid to become a core component of China’s ‘Energy Internet’ — a modernized power system that integrates different types of power resources and enables large-scale, interactive energy transmission and transaction,” the authors write. “As the Energy Internet expands, we expect it to enable more innovative power and transmission solutions such as virtual power plants, big data analytics, and in-time power dispatching, which in turn allow an even higher share of green power in the generation mix.”
 

This article is being provided for educational purposes only. The information contained in this article does not constitute a recommendation from any Goldman Sachs entity to the recipient, and Goldman Sachs is not providing any financial, economic, legal, investment, accounting, or tax advice through this video or to its recipient. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this article and any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed.

In a previously published version of this article, an investment estimate related to an increase in renewables and grid storage was incorrect. The investment required is $2.26 trillion by 2040, not $2.26 billion.