March 03, 2026 [Oil Price]- China’s power sector is undergoing a visible transformation. Electricity demand rose by 5% between 2024 and 2025, reaching 10,368 TWh, yet coal-fired generation declined by 113 TWh to 6,294 TWh in a year, reducing its share in the power mix. The entire increment in electricity demand was absorbed by nuclear and renewable sources, whose combined output rose by 617 TWh. On paper, this reflects a decisive shift away from coal and toward low-carbon energy. In practice, however, coal is not disappearing from China’s industry – it is being redirected.

The economics of renewable energy explain much of the shift in power generation. Since 2015, the levelized cost of electricity from utility-scale solar has fallen by 80%, from $115/MWh to $30/MWh, while wind power costs declined by three quarters, from $90/MWh to $25/MWh. Renewable generation expanded dramatically as a result, increasing more than tenfold since 2015. Nuclear capacity has also grown steadily, rising from 27 GW in 2015 to 62 GW by early 2026. These trends have made non-fossil generation structurally competitive with coal in electricity markets.

Infrastructure investment reinforced this transition. Much of China’s solar and wind potential is concentrated in sparsely populated western regions such as Inner Mongolia, Xinjiang, and Gansu, far from coastal industrial centres. To bridge that gap, China constructed ultra-high-voltage transmission corridors totalling approximately 340 GW in capacity, enabling large-scale delivery of renewable electricity to coastal demand centres in the East of the country. This eliminated one of the main structural barriers to renewable expansion.

Although coal-fired generation is declining in relative terms, China is not dismantling its coal-fired plants fleet. Coal plants are increasingly serving as strategic reserve capacity, designed to stabilize the grid during droughts, low wind output, or fuel supply disruptions—conditions that triggered widespread blackouts across more than 20 provinces in 2021–2022. In Sichuan, where hydropower accounts for roughly 80% of electricity supply, drought-induced shortages in 2022 forced major industrial shutdowns, including facilities operated by Toyota and Foxconn. Boosting coal’s standing as Beijing’s default reserve fuel, China approved or revived 161 GW of coal power projects in 2025 alone, a record level. Another 291 GW is currently under construction. Once completed, this will further reduce current utilization rates at coal plants, which have averaged just 51% over the past five years and could fall toward 40%.

Overall, China’s coal production remains robust, reaching roughly 440 million tonnes per month in December 2025. Imports, although down from the record 427 million tonnes in 2024 to 373.5 million tonnes in 2025, remain far above the pre-2022 average of about 260 million tonnes annually. At the same time, coal exports declined slightly to 13.9 million tonnes, and domestic inventories fell sharply in the second half of 2025, from 25 million tonnes to around 18 million tonnes. The decline in coal-fired electricity generation, combined with falling inventories and exports, implies that coal consumption is not falling as quickly as power sector data suggests. The question, then, is where the displaced coal is going?

Coal-to-liquids (CTL) and coal-to-chemicals (CTC) technologies provide the missing link. Using Fischer-Tropsch synthesis, coal can be converted into synthetic liquid fuels such as diesel, gasoline, and naphtha, as well as petrochemical feedstocks including olefins for plastics production. China and South Africa are the only countries operating CTL and CTC at an industrial scale. China alone consumes hundreds of millions of tonnes of coal annually (380 million tonnes as reported by the IEA) for chemical and synthetic fuel production. It is important to note that the largest part of this demand goes into the CTC industry. China has effectively replaced gas as its main feedstock for ammonia and methanol production with raw coal, to the extent that roughly 80% of these chemicals’ output is now fed by coal.

China’s largest CTL facility, the Shenhua Ningxia plant, commissioned in 2016, produces roughly 100,000 b/d of synthetic fuels from approximately 44,000 t/d of coal. By comparison, a conventional refinery would require a third of this amount, equivalent of 14,000 t/d of crude oil to produce a similar volume of refined products. At current prices, coal in Qinhuangdao trades at roughly $105–110 per tonne, while Brent crude equivalent costs about $525 per tonne (at $71/bbl). Even accounting for conversion costs, coal-based synthetic fuels can offer economic advantages, particularly in a volatile oil market.

Energy security considerations are equally important. China relies heavily on imported crude oil, much of it sourced from geopolitically exposed suppliers such as Iran, Venezuela and Russia. Synthetic fuels derived from domestic coal provide a buffer against supply disruptions, sanctions, or maritime chokepoint risks. Although CTL remains a minority contributor to total fuel supply, it enhances strategic autonomy.

The geography of CTL and CTC development also reveals its political function. Most CTL/CTC projects are located in coal-rich inland provinces such as Inner Mongolia, Ningxia, Shaanxi, and Xinjiang – regions that lag economically behind coastal China and depend heavily on mining employment. China’s coal industry directly employs roughly 3 million workers, with several million more depending indirectly. Redirecting coal into chemical and fuel production allows Beijing to maintain coal output and employment while simultaneously reducing coal’s visible role in electricity generation.

From a climate accounting perspective, this shift is significant. Moving coal out of the power sector lowers coal’s share in electricity generation, improving decarbonization metrics that would be publicly presented in environmental reports. However, CTL/CTC processes remain highly carbon-intensive, often emitting more CO₂ per unit of fuel produced than conventional oil refining. They also consume large quantities of water and generate contaminated wastewater, particularly problematic in northern regions where most CTL/CTC plants are located. Yet, emissions from coal used in petrochemical production receive less public scrutiny than emissions from coal-fired power plants.

China’s energy transition is therefore less a story of coal’s decline than of its reallocation. Renewables are displacing coal in electricity generation because they are currently cheaper, scalable, and politically advantageous in climate reporting. But rather than abandoning coal, China is redirecting it into synthetic fuels and petrochemicals – sectors that preserve industrial activity, employment, and energy security.

And yes, coal is not disappearing from China’s energy system. It is simply changing form.