How China’s Power Grid Really Works

Summary

Podcast Summary: "How China’s Power Grid Really Works"

Shift Key with Robinson Meyer & Jesse Jenkins
Host: Heatmap News
Date: October 8, 2025
Guest: Michael Davidson, UC San Diego professor and expert on the Chinese power grid

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Episode Overview

In this episode, Robinson Meyer and Jesse Jenkins dissect the significance and real-world impacts of China’s new climate pledge, focusing on how it plays out in the country’s complex power grid. They’re joined by Michael Davidson, a leading U.S. authority on Chinese energy transitions, for an in-depth look at the promises, contradictions, and systemic challenges that characterize China’s push to decarbonize, particularly in its power sector.

The conversation covers:

• The true meaning behind China’s latest climate commitments
• The mechanics of its vast and unique power grid
• The roles of coal, renewables, and energy policy
• Lessons for the U.S. and other nations navigating the energy transition

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Key Discussion Points and Insights

1. China’s New Climate Pledge: What’s Actually Promised?

[04:36–07:59]

• Top Three Targets (Michael Davidson, 04:36):

  1. Reduce net greenhouse gas emissions by 7–10% from peak by 2035.
  2. Increase the non-fossil fuel share in the primary energy mix to 30%.
  3. Expand wind and solar capacity to 3,600 GW (3.6 TW).

• First-Ever Absolute Emissions Cut

  • “This is the first time that China is committing to reduce emissions from some level. Previously, targets were all about intensity, not absolute emissions.” (Davidson, 05:27)

• Under-Promise, Over-Deliver?

  • Domestic experts see the pledge as a conservative floor; global observers find it underwhelming. Many expect China will over-deliver on the numbers.
  • “China is kind of under promise, over deliver. And that has been largely the case...” (Davidson, 09:53)

• Significance of the Peaking Year

  • China still hasn't specified which year emissions will peak, preserving flexibility.
  • “I think there’s a good amount of evidence that China has peaked or is about to peak… They’re leaving themselves that flexibility.” (Davidson, 07:00)

2. Pragmatism Versus Ambition: China and U.S. Approaches

[08:35–11:23]

• China prefers realistic, achievable targets, unlike the U.S. tendency to “shoot for the moon” and potentially fall short.

  • “The U.S. approach maybe was to set a high bar and then strive towards it. If we fall short, oh well.” (Jenkins, 09:38)

• International pressure for China to lead is tempered by internal caution about economic growth tradeoffs.

• Recent studies suggest China’s targets may be marginally sufficient for a 2°C world, but not for 1.5°C.

  • “Suffice to say, 1.5 is very hard to reach regardless of what any country does at this point.” (Davidson, 12:46)

3. Inside China’s Power Sector Pledge

[13:46–17:32]

• Wind and Solar Buildout

  • New target: 3,600 GW of wind/solar by 2035 requires north of 200 GW/year in new installations.
  • “That 3,600 strikes me as being on the upper range of what China would need in order to stay in line with its climate targets.” (Davidson, 15:38)

• Actual Generation Shares

  • Projections: Wind and solar could provide 40% of generation by 2030, 50% by 2035—if utilization improves.

• Utilization Challenges

  • “China is lagging in terms of utilization of clean energy… so that’s a big question mark.” (Davidson, 15:21)

4. Why the Recent Rush—and Slowdown—in Renewables?

[17:36–20:27]

• Massive early-2025 installations preceded a sharp drop after a change in the tariff regime (“document 136”).

  • “After May, it’s almost fallen off a cliff…big rush, then a stall for uncertainty.” (Davidson, 19:07)

• Curtailment (wasted renewable output) now sometimes as high as 30%, driven by:

  • Mismatched grid incentives
  • Inadequate local market reforms
  • Ineffective price signals for peak renewable use

5. Grid Flexibility, Market Reform, and Coal’s Evolving Role

[21:17–43:11]

• China’s grid struggles with spot price signals, provincial rigidities, and administrative obstacles to full variable energy integration.

• Coal’s Resurgence as “Reliability Insurance”

  • Despite the boom in renewables, power shortages in 2021 triggered a resurgence in coal plant construction for “backup capacity,” not necessarily for more energy production.
  • “Capacity does not equal emissions… we're building all this capacity, but it's backup capacity. We only use it when we need it.” (Davidson, 30:16)

• Payment and Reform Complexities

  • Capacity payments (intended to keep coal online as backup) have been paid only to coal, not to batteries, hydro, or other storage, due to both market design history and political economy. Implementation is uneven and not always linked to actual reliability needs.

• Comparison to U.S. and Europe

  • Davidson argues that China’s 2021 power crisis was mainly about coal mismanagement and post-Covid demand, not a renewables/grid adequacy issue—unlike the U.S. or European context.
    • “The U.S. or the EU are never going to make that mistake because our grid doesn't operate under any similar constraints.” (Davidson, 34:35)

6. Meeting Surging Demand: Data Centers, Electrification, and Growth

[44:31–47:58]

• Load Growth is Rapid

  • China is managing 6% annual power demand growth—driven by new industries (solar, batteries, EVs), electrification, and industrial activity.
  • Data center boom is not yet a strain, thanks to China’s large reserve margins and willingness to build more capacity.

• Peak Demand vs Supply

  • Peak demand (esp. for heat/cooling during extreme weather) grows even faster than energy totals, shaping coal use and grid planning more directly than total energy volumes.

7. Signs of Progress or Trouble Ahead

[58:06–60:27]

Three signposts for China’s trajectory:

1. Five-Year Plan Progression: The next (15th) Five-Year Plan (expected in the coming year) will set near-term targets and signal political will.
2. SOE (State-Owned Enterprise) Mandates: Big five SOEs dominate build-out; their adherence to clean targets is key.
3. Renewables Utilization: Actual generation from wind and solar (as opposed to just installed capacity) and improved grid connections/markets are crucial.

• “If you don’t have SOEs in your mental model of China’s emissions pathways, you won’t get the country right.” (Davidson, 59:09)

8. What Can the U.S. Learn from China?

[61:05–64:20]

• The vastly different political-economic contexts limit direct lessons—but the U.S. can learn from China’s low-cost technology scale, distributed solar growth, and pragmatic industrial policy supporting clean energy manufacturing at home.

• “[Distributed] solar in China is almost at parity with utility solar.” (Davidson, 62:37)

• For both countries, managing high renewables penetrations (>15–20% today) will be the next shared challenge.

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Notable Quotes and Timestamps

• “This is the first time that China is committing to reduce emissions from some level.” – Michael Davidson, [05:27]
• “China is kind of under promise, over deliver. And that has been largely the case.” – Michael Davidson, [09:53]
• “Capacity does not equal emissions… we're building all this capacity, but it's backup capacity.” – Michael Davidson, [30:16]
• “If you don’t have SOEs in your mental model of China’s emissions pathways, you won’t get the country right.” – Michael Davidson, [59:09]
• “Distributed solar in China is almost at parity with utility solar.” – Michael Davidson, [62:37]
• “Peak demand is even more challenging... that's what's driving a lot of changes. That's what's driving coal capacity and gas capacity.” – Michael Davidson, [48:05]

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Memorable Moments

• Technical Deep Dives: Davidson’s clear breakdown of market reforms, tariff schemes, and the operational intricacies of China’s grid and coal plants give unique insider clarity.
• Comparisons to U.S. Policy: The crew discusses at length the risks of over-promising (U.S.) vs. under-promising (China), with Davidson providing grounding in peer-reviewed science and acknowledging the challenges of aligning economic and climate priorities.
• Export Race: The episode closes with Bloomberg data showing that China’s exports of solar, batteries, and EVs now exceed U.S. fossil fuel exports—a symbol of the changing dimensions of “energy dominance.” (Meyer, 70:06–71:17)

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Timeline of Key Segments

• Main Pledge & Climate Diplomacy: 02:06–13:22
• Power Sector Targets: 13:46–17:32
• Renewables Growth/Curtailment: 17:36–21:17
• Grid & Coal Policy Complexity: 21:17–43:11
• Reliability, Peak Demand, & Lessons: 43:11–49:23
• Future Outlook, Lessons for the U.S.: 58:06–64:34
• News shift (Upshift & Downshift): 64:48–72:36

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Conclusion

This episode is a masterclass in understanding the nuances, contradictions, and strategic calculations behind China’s climate and energy policy. Davidson emphasizes that while China’s climate pledges may appear modest, its systemic approach—rooted in pragmatic state-led policy, industrial policy, and massive low-cost solar deployment—has positioned it as a global leader in renewable energy. Yet, rapid demand growth and structural hurdles in grid and coal management remain formidable.

For listeners seeking a real grasp of how China’s pledge could shape both global climate outcomes and the future of industrial competitiveness, this episode is essential.

Transcript

[Robinson Meyer]

You are listening to Shift Key Heat Maps weekly podcast about decarbonization and the shift away from fossil fuels. On this week's show, we are talking about China's new climate pledge and what it means for the Chinese power grid. With one of the top experts on that power grid in the United States. We're to talk about what this pledge might mean for the world, what it means for China, and how China is now making decisions and working out the many, many conflicts over its power grid at the energy level, the environmental level, at the security level. We're talking about coal, we're talking about renewables. It's an episode full of new information and it's all coming up on Shipkeep after this. America's future depends on reliable power provided where and when it's needed. It depends, in other words, on long duration energy storage. Hydrostor's advanced compressed air energy storage technology is helping build the grid of tomorrow. With secure, reliable power and thousands of American jobs. With bipartisan support and a flexible supply chain, long duration energy storage is the missing puzzle piece to scale energy independence. Learn more about Hydrostor's Willow Rock project and the future of energy storage@hydrostore CA this episode of Shift Key is brought to you by Shocked. So I want to tell you about a new podcast called Shocked from my friends at the University of Chicago's Institute for Climate and Sustainable Growth. Each episode you'll hear journalist Amy Harder and economist Michael Greenstone share new ways of thinking about climate change and cutting edge solutions to do things like win the battery race, reduce the risks of greenhouse gases that have already been released, and use artificial intelligence to predict polluters and the weather. To listen to Shocked. Search for Shocked in your podcast app that's Shocked. Hi, I'm Robinson Meyer, the founding executive.

[Obi Tson Meyer]

Editor of Heat Map News.

[Jesse Jenkins]

And I'm Jesse Jenkins, a professor of energy systems engineering at Princeton University.

[Robinson Meyer]

And you are listening to Shift Key, heatmap's weekly podcast about decarbonization and the shift away from fossil fuels. On this week's show, we are talking about China and specifically China's new Big Climate Pledge and what that means for China's power grid. So late last month, as you may have heard, President Xi Jinping of China gave a video address to the United Nations General assembly where he announced that China was going to make a new.

[Obi Tson Meyer]

Pledge under the Paris Agreement.

[Robinson Meyer]

That pledge, I think to many kind of non expert observers sounded pretty good. Xi said that China was going to cut its emissions by 7 to 10% by the middle of next decade and that it was going to, of course, hold to all the commitments it's made already under Paris, which include a pledge to peak its emissions at some point this decade and to reach carbon neutrality and in fact, neutrality across all greenhouse gas pollutants by the year 2060. But many experts found this pledge underwhelming. Today we're going to talk about why and what Xi's pledge, what this new Chinese pledge means not only for China's emissions but for its power grid, which works quite differently from power grids do.

[Obi Tson Meyer]

Let'S say in North America or in the European Union.

[Robinson Meyer]

We're talking about it with one of.

[Obi Tson Meyer]

The top American experts on the Chinese power grid.

[Robinson Meyer]

And I have to say I learned.

[Obi Tson Meyer]

So, so much from this conversation and I'm so excited to have this person on Shift Key.

[Robinson Meyer]

Today we are talking to Michael Davidson. He's a professor at UC San Diego, but he actually holds two appointments there. He's both a professor at the Jacobs School of Engineering and at the School of Global Policy and Strategy, which points, I think, to the nature of his expertise. He studies the engineering implications and the institutional conflicts inherent in deploying renewables at scale on the Chinese grid. He's also a Senior Associate Fellow with the Trustee Chair in Chinese Business and Economics at the center for Strategic and.

[Obi Tson Meyer]

International Studies at Think tank in Washington.

[Robinson Meyer]

D.C. he's a former Fulbright Fellow to Tsinghua University in China. And he was the US China Climate Policy Coordinator for the Natural Resources Defense Council. In short, his career has been all over Chinese climate, environmental and energy policy. As you'll hear, he has an incredible, incredible understanding of the Chinese power grid. And I'm so excited to welcome him to the show. Michael, welcome to Shift Key.

[Michael Davidson]

It's great to be here.

[Jesse Jenkins]

Let's start here. Why don't you just give us your summary of China's recently announced emissions and climate goals in the context of these nationally determined contributions under the UN Climate framework.

[Michael Davidson]

Yeah, China just announced its nationally determined contributions. As you alluded to, there were three big targets. The first is to reduce economy wide.

Net greenhouse gas emissions but by 7 to 10% from peak levels all by 2035, increase non fossil fuel share in the primary energy mix to 30% and then expand wind and solar capacity up to 3,600 gigawatts.

And there were a couple of other.

More qualitative goals as well on EVs and the emissions trading system, but those are the three top line targets.

[Jesse Jenkins]

And that first one I think is the one that's caught most of the Attention. The first pledge, I think, from China to reduce emissions in absolute terms rather than in terms of the emissions intensity of the economy. What do you make of the significance of that target, first of all?

[Michael Davidson]

Yeah, so I mean, first off, it's the first emissions reductions pledge, right? In the first commitment to the Paris.

Agreement out to 2030, China committed to peak emissions. It did not specify level, but it said it would peak emissions. This is the first time that it's committing to reduce emissions from some level. And previously China also had carbon intensity targets which are now gone and replaced by these.

I would say that when I read the commentary on this within China, most of the experts note that this is.

Sort of a bottom line that China can over deliver on this pledge, but this sets a floor of what those emissions reductions are. I will say there is pretty universal sense outside of China that it was underwhelming that China could have committed to a higher level than 7 to 10%. And so we can certainly get into what that levels might look like and what does that imply for climate trajectories.

But top line, it is notable that.

China has committed now to reduce emissions from the peak.

[Robinson Meyer]

Do we have any sense of when.

[Obi Tson Meyer]

That peak may be?

[Robinson Meyer]

Because I think in the last, you know.

[Jesse Jenkins]

Yeah, that's the question mark it leaves.

[Michael Davidson]

Right.

[Robinson Meyer]

The theatrics of this were meant to evoke. You know, five years ago, Xi Jinping.

[Obi Tson Meyer]

Spoke to the un, gave this video address and committed to peaking China's emissions by 2030. He didn't say when. This announcement mirrored some of the, some of the similar features of that announcement. It was another video addressed to the UN during the General assembly or during your climate Week, depending on which one you observe more.

[Robinson Meyer]

And he said, okay, we're going to.

[Obi Tson Meyer]

Cut emissions by 2035 from our peak.

[Robinson Meyer]

But he's never actually said what year.

[Obi Tson Meyer]

The peak may be.

[Robinson Meyer]

Does that seem significant to you and.

[Obi Tson Meyer]

Is that a worrying sign? In some ways, because it suggests that China could kind of kick out the peak another few years or peak later in this decade and not have to worry about it as much.

[Michael Davidson]

I would say that the peaking year and the significance of that for Xi.

Jinping's pledge is less worrisome to me.

China's committed to peak by 2030, if not earlier. There are some that were calling for.

China to, for example, revise its 2030 pledge to account for wind and solar capacity already exceeding its original target, et cetera. I think it's quite clear China did not want to revise its 2030. It just wanted to focus on 2035.

So if it specified what year the.

Peak was going to occur and before 2030, that would be de facto revising that pledge.

I think there's a good amount of evidence that China has peaked or is about to peak. And so you can also allow for.

Some plateau and oscillation increasing out to 2030 before they start to see significant declines. I think China's leaving in that flexibility.

[Jesse Jenkins]

That's a notable point. Even if the emissions do go up, they're probably not going to go up by 10% or something like that and fully negate these reductions. There was a lot of commentary that this is sort of disappointing results, as he said, for a lot of the international community was maybe hoping for China to step into the void left by the United States withdrawal from the climate stage under President Trump and take on the mantle of leadership and keep pushing the international community towards greater ambition. How do you read that? Is that Xi's style? Is that China's style or is aim more modestly and then potentially exceed the targets? Is that more in keeping with their approach to these international goals?

[Michael Davidson]

I think China does want to be seen as a climate leader.

I don't think that is made up.

I think that there is certainly reduced.

Pressure on China because the US has abdicated from this space.

But I think there's also a lot of caution in within China because absolute.

Emissions reduction targets can easily translate into absolute GDP growth limits without full structural changes. And given that there are really important economic goals that Xi Jinping is trying to reach, I think they've been very cautious. It's not an excuse. I just think we have to read where the pragmatism is in this space.

In our work, we tend to focus.

A lot on the power sector, which is the one that can transition the fastest. And we see a lot of really.

Promising and I would say ambitious efforts.

Within the power sector in China to really go above and beyond, I think the economy wide. You're looking at a lot of other sectors which certainly face a lot of uncertainties. Industry, transportation, et cetera.

[Jesse Jenkins]

I think what I'm hearing though there is that they take these goals very seriously and they want to make sure that they hit them. Whereas I think the US Approach maybe was to set a high bar and then strive towards it. And if we fall short, well. Oh well, at least we've set the bar high and we've gotten ourselves moving that direction.

[Michael Davidson]

Yeah, I mean, the under promise over deliver is sort of the classic description of China's targets. And that has Been largely the case, though there are some indications that it's.

2030 Paris target carbon intensity may be hard to achieve, but largely China is kind of under promise over deliver. And then you mentioned the U.S. i.

Think it might have been even the.

Biden administration that was pushing for China to reduce by 30%. So not only are we trying to over promise for ourselves, we're trying to over promise for other countries too.

[Jesse Jenkins]

Yeah. And we should be clear for our listeners that the US Was not on track even before the Trump administration to meet its 2030 NDC, which is to cut emissions to half of our peak emissions levels, which occurred around 2005. Latest estimates from repeat project are that we're going to fall, we were going to fall quite a bit short of that goal even under the full kind of sweep of Biden era policies. And then of course now those are being actively dismantled by the Trump administration.

[Robinson Meyer]

Can I kind of drill into something here though, which is that it does feel like we talk about China in this sense. I mean, obviously it's a middle income.

[Obi Tson Meyer]

Country and it's still trying to develop. And we've always, I think climate policy has always specifically made allowances for China and for China's developmental pathway. Laurie Mioverta of the center for Clean Air Research we've had on the show before, who's another big China observer, I.

[Robinson Meyer]

Think he said something basically like anything.

[Obi Tson Meyer]

That wasn't a 20% cut by 2035 means that 2C is out of reach.

[Robinson Meyer]

The 2 degrees Celsius goal. And anything that isn't a 30% goal.

[Obi Tson Meyer]

By 2035 means that 1.5C is out of reach.

[Robinson Meyer]

And it feels to me when we.

[Obi Tson Meyer]

Talk about China, we kind of recognize they tend to under promise and over deliver.

[Robinson Meyer]

But the reason the US sets a.

[Obi Tson Meyer]

Big target is because if the Biden administration hadn't set a big target, the news cycle, at least in the Anglophone press, would have been 1.5C out of reach. The Biden administration kills 1.5C.

[Robinson Meyer]

And yet when China makes an announcement that seems likely to really suggest that unless it absolutely doubles this goal, the.

[Obi Tson Meyer]

World isn't going to make a 1.5 or 2c goal, then we're going to miss the goal.

[Robinson Meyer]

We kind of are like, well, China is very pragmatic in its energy policy.

[Obi Tson Meyer]

It has very different ways of thinking about it.

[Robinson Meyer]

Should we be like more ruthless about China here? I realize the US is not really.

[Obi Tson Meyer]

In a position to judge or should.

[Robinson Meyer]

We be changing how we think about.

[Obi Tson Meyer]

The US engagement in this process?

[Robinson Meyer]

Because I think The Biden administration was.

[Obi Tson Meyer]

Pushed to announce very big cuts to keep the Paris process alive. As they saw it, we're not going to make the cuts and it didn't.

[Jesse Jenkins]

Do a lot of good.

[Michael Davidson]

So I, I think that there are a number of peer reviewed studies that.

Peg 10 to 15% reduction by 2035 to be in line with the Paris Agreement. 2C target. Those are predominantly Chinese institutions, but include some international.

There are some other peer reviewed studies.

That talk about 1.5 or 2 that peg this reduction from the peak at 20% or greater.

Suffice to say, 1.5 is very hard.

To reach regardless of what any country does at this point.

And the exact percentage also depends on.

Your peak year and your level.

And then if you look at beyond 2035, which is, I think where some.

Of these other analyses are coming from.

Is to say, well, if the 30 to 35 reduction is only 10% then how are you going to get to.

Carbon neutrality in only 25 years if you keep that pace?

And I think China's pledge is probably.

More consistent with their assumption that you.

Have a peak, a plateau and then.

An accelerated decline as opposed to a straight line decline from the peak down to carbon neutrality.

And then I think the final point.

[Jesse Jenkins]

And that that carbon neutrality target is 2060.

[Michael Davidson]

Oh, sorry, 2060. China has already committed to achieve carbon.

Neutrality by 2060, which.

[Jesse Jenkins]

Yeah, so that leaves them 90 percentage points to go from 2035 to 2060, which sounds like a lot.

[Michael Davidson]

Exactly.

And then the 10 to 15% economy wide emissions reduction could translate to roughly.

40% reductions in the power sector.

[Robinson Meyer]

Can you walk us through what China.

[Obi Tson Meyer]

Pledged in this new set of commitments about what it would do in the power sector?

[Michael Davidson]

Yeah, so the top three we mentioned emissions reductions, non fossil primary energy share.

And then the wind and solar capacity pledge.

So the non fossil primary energy share, this is in line with China's previous pledges.

2030 was 25%, 2035 is 30% so 1 percentage point per year that also.

Aligns with 5 year planning and other.

Goals around energy security. Certainly again, some outside China were underwhelmed by this, but 1 percentage point steady, increasing sort of sets of floor here.

The wind and solar capacity pledge obviously.

Gets a lot of attention because it's the biggest number in the target.

I think that the, the domestic voices.

On this, so this was 3,600 gigawatts or 3.6 terawatts of wind and solar capacity by 2035.

I think domestic voices were, are quite confident about this. It would require north of 200 gigawatts.

A year annual installations of wind and solar.

And it's a big acceleration over the.

Previous 1200 gigawatts by 2030 target, which China already met six years early. As we were talking about China over delivering.

It's in line with deployment trends over the last five years, though growth has.

Been remarkably fast in the last two years.

So depending on if you take the last two years and say that's the.

Trend we want to extrapolate, then you're going to be very underwhelmed.

If you take the last five years.

And recognize that just the last few.

Years have been a very aberrant, potentially.

Aberrant period because of the changes in the subsidy regime in China, then it's more in line with those previous trends. There is of course a translation from capacity to generation and emissions which we need to get into because China is lagging in terms of utilization of clean energy.

But overall, the 3600 strikes me as.

Being on the upper range of what China would need in order to stay in line with its climate targets. And so earlier this year we published with Tsinghua University where we looked at how much wind and solar China would need to build to align with climate scenarios. Those were again around a 40% emissions reduction in the power sector from about 5000 gigatons today to around 3300 to 3800 depending on different scenarios.

This translates to a range about 3,000.

To 3,800 gigawatts of wind and solar by 2035. So we pegged this number at the upper range of those scenarios that we ran.

And so that's a promising sign.

[Jesse Jenkins]

Now we again Michael, that's consistent with economy wide 10 to 15% reduction from peak or what's the.

[Michael Davidson]

So the assumption in that, so that's the 40% is around, that's around a 10 to I think 12% reduction in.

Emissions from the peak economy wide.

This was a power sector focus study. So we're using other economy wide models.

That think about what's happening in the rest of the economy and then we use that to set power sector emissions inventories.

And then the last point is just.

Translating that 3,600 gigawatts or that range that we had into generation shares. We had a generation share of around.

40% wind and solar by 2030 and.

Around 50% wind and solar by 2035.

Based on this, if China doesn't improve its utilization, it would of course have.

To build more, a lot more capacity. So that's a big question mark.

And that also is the other really.

Important metric to think about is the non fossil generation share, because China is really looking carefully at that. So under those scenarios, non fossil generation share would be half by 2030 in terms of power generation and would be 70 to 80% by 2035, with the.

[Jesse Jenkins]

Remainder being hydro and nuclear on top.

[Michael Davidson]

Of the wind and solar besides wind and solar.

[Jesse Jenkins]

Yeah. And so you mentioned this is a sort of a slowdown from the last year or two. I think this first half of this year was remarkably fast, or something like 290 gigawatts of wind and solar deployed. Just in the first six months of 2025, there was a couple hundred gigawatts of solar and I think maybe 70 gigawatts or so of wind last year as well. So the kind of couple hundred gigawatts a year pace that you're talking about is a slowdown relative to recent trends. For those who are not observing these markets closely, what accounts for that tremendous acceleration that we've seen in the recent, particularly the last six months, but in the last couple of years here? And why would we not want to, or why would we not expect that to continue through 2035?

[Michael Davidson]

Yeah, so I would say within China, most, most experts think that the 300.

Gigawatts a year is not sustainable.

And there's a couple of reasons for that. One is curtailment rates are rising.

It's widely acknowledged that the official curtailment rates are incorrect because there have been numerical curtailment targets that have been set. And so that of course creates incentives for false reporting.

So this informally, in some of these.

Regions, curtailment rates could reach 30%.

The second big one is that tariffs.

For clean energy are falling.

You noted the first half of this year. Actually the appropriate cutoff for that would be May, because at the end of May, the tariff scheme for renewables completely changed.

So all clean energy is now forced into the market. And so there was a big rush to build a bunch in those first five months.

And you add on top of that, over the last few years there's been.

A couple of trends that have been pushing it up.

So there have been these good tariff.

Schemes, particularly for distributed solar, but also for utility.

And there have been some pressure on.

State owned enterprises to build out wind and solar to meet their targets.

And then basically after May, it's almost.

Fallen off a cliff. So you had 200 gigawatts of solar installed in the first five months of the year, and then the new Numbers from August is that China just installed 7 gigawatts of solar that month.

[Jesse Jenkins]

Do you think that's just reflecting that the market is recalibrating and it rushed to build a full year's worth basically in five months. It doesn't need much in the near term. Or do you think that is reflective of the kind of current economics of the new compensation schemes that it's not really cost effective anymore to continue deploying solar?

[Michael Davidson]

So there's some uncertainty. Right, because the new document 136, which.

Is what changed the tariff scheme for.

Renewables, basically said that provinces can put.

Together a tariff scheme which could include long term contracts like CFDs, but they did not specify the price. And so now provinces are going to go out and come up with some individual schemes. Those are slowly being rolled out. They're not going to be as good as what they were before. There's a rush to get in the good tariff before. You'd have this uncertainty with the later scheme.

But I don't think we're going back to those era. China has in the previous periods kind of cut off or dramatically reduced subsidies.

For a variety of sectors including wind and solar, when it got rid of its previous really generous feed in tariff plus subsidy.

And it's also done this with EV.

Subsidies too, where the subsidies just basically end overnight. It causes a huge tumult in the market and then it kind of recalibrates depending on where the economics are.

[Jesse Jenkins]

Okay, so mostly it's just people just waiting to see what the new contract agreements look like in each province and then trying to develop the next set of projects accordingly. Yeah, I know your dissertation at MIT when we were classmates was in large part about wind curtailment. So it's certainly been an issue for a while. What is the sort of current strategy and thinking in China on how to make better use of the wind and solar resources they are connecting and not waste as much to curtail output?

[Michael Davidson]

That's a great question.

Yes, we've been tracking this problem for some time that I think the recent.

Explosion in clean energy growth has created huge pinch points.

So the first is China seeing massive solar value deflation. So in the provinces where we do.

Have spot markets in China, which are not many, but where we do have those, we're seeing low and negative prices consistently throughout the day. Solar boom is putting a real string the grid midday.

In our cost optimal modeling we see.

A lot of reorientation towards wind precisely because of that.

And so to continue to deal with.

These really high levels of continued Solar development. We expect China will need to fix its markets, need to fix its incentives for coal dispatch to rethink resource adequacy away from a reliance on coal and more towards renewable storage demand response and.

Importantly dramatically expand the flexibility of inter.

Provincial transmission which is heavily rigid right now and creates huge bottlenecks for the integration of variable renewable energy. And on the storage point, I'll just note that last month the National Energy Administration established a huge grid storage target of 180 gigawatts by 2027, which would be something like 130% year on year increase.

And extrapolating that out to 2035, you.

Could get a lot of storage on.

The system and that is very complementary with solar. So that could kind of bias our.

Model results to see more solar in the system with those kind of government push into storage.

Not necessarily economic driven because again the.

Markets are not fully fleshed out. So the economic case for a lot.

Of these storage in the previous years China had a mandatory requirement of building.

A certain amount of storage when you install solar and renewables.

So that drove a lot of pretty.

Inefficient storage into the market because it was co located with the supply as opposed, as opposed to the demand where it's most needed. But China is since rescinded that policy. But we're seeing this new push in the grid storage that could push a lot more again solar into the system and help alleviate some of these problems, but not all of them.

[Jesse Jenkins]

Yeah, this is the long and slow journey, but maybe incrementally towards better and more accurate market pricing in China's power sector, which becomes increasingly important when you're trying to figure out how to guide the deployment of all these resources. Right. Where does it actually make sense to put more solar? Where does it make sense to build complementary resources like batteries or wind? Or do you want to put them on the supply side, the demand side Prices aren't everything, but they are quite valuable for coordinating those sorts of activities. And there are some limitations to these sort of more simple mandates that we've seen in the past. So I know there's. This is a very active area of conversation in China and lots of smart people proposing ways to move in that direction. But they still have a long way to go to kind of provide the more granular market price signals in terms of time and location that we see in markets in the West.

[Robinson Meyer]

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[Obi Tson Meyer]

I.

[Robinson Meyer]

Realize that China is characterized by provincial governments having their own plan and the central government not even always being clear.

[Obi Tson Meyer]

On a policy pathway.

[Robinson Meyer]

Can you give us a sense of just like the China central government's outlook.

[Obi Tson Meyer]

On renewables in the power sector is right now?

[Robinson Meyer]

Because on the one hand, it does seem like the Chinese government has embraced.

[Obi Tson Meyer]

Renewables, and particularly solar and batteries as a very important source of economic growth at a relatively economically sensitive period for the country.

[Robinson Meyer]

On the other hand, you're describing a lot of policies that reflect like a end to support or a change and how maybe once more generous regimes are.

[Obi Tson Meyer]

Now becoming less generous.

[Robinson Meyer]

And this is happening at the same time that the government is also continuing.

[Obi Tson Meyer]

To build tens, dozens of gigawatts of coal plants.

[Robinson Meyer]

Can you just give us a sense.

[Obi Tson Meyer]

Of what the central government's thinking about renewables as a whole is right now?

[Michael Davidson]

I would be hesitant to describe the.

Whole of Chinese government and to represent.

Its positions, but I think that 3,600 gigawatts shows that the Chinese central leadership.

Sees a huge advantage to continue to build out renewables.

[Jesse Jenkins]

Right.

[Michael Davidson]

They set that baseline floor and that's wind and solar. But of course in China you have.

The three new industries which are solar, batteries and EVs. Those are getting a lot of press attention. But certainly wind is very important for China's climate goals because of its higher capacity factors, et cetera.

China is placing a lot of policy.

Support around those three new energy industries. And I think for a very good reason it has enormous benefits for energy security. China is heavily relying on imported oil and gas and it represents an opportunity to reduce that reliance.

There is also a huge economic development component to these three new energy industries.

In terms of how fast they're growing.

Certainly there are export markets, but the vast majority of the equipment that China.

Makes is deployed within China. So it is reliant on China's demand to do so.

So I think all of the incentives.

Are lined up with the clean energy.

But I think probably underneath your question, Rob, is they're supporting all this clean energy, then why aren't emissions dramatically falling? Well, because they're supporting all the clean.

Energy but they're also supporting coal.

Right. And there is enormous support for these clean energy. At the same time that China is.

Very concerned about its own power reliability, resource adequacy. And so that really crystallized after the 2021 power outages when over 20 provinces faced some level of demand reduction, load shedding and that crystallized a very central role for coal. I think many observers had kind of thought, well coal is just going to go away because we have all these other options at the center. That was not the case. And so there has been a somewhat resurgence of coal capacity deployment since that time.

And so you have these kind of.

Twin challenges that central government is trying to reach.

I would say I don't think there's any doubt that, that the central government.

Is going to turn away from these clean energy industries anytime soon because there's so much invested around it. And then the long term trajectory in terms of carbon neutrality is quite fixed in the Chinese ecosystem.

[Obi Tson Meyer]

That's really interesting and I think it characterizes this like ambiguous role that coal plays in what has become a popular press discussion that we've participated in. But I feel like there's a lot of discussion now of China as a kind of new electro state and a country that is electrifying much faster than other countries are. And it does rely on its power grid for economic growth in a way that is unusual in comparison. At the same time it seems what you're describing is this extreme reliance and in fact increasing reliance on coal as a key reliability feature of its power grid. There's a lot of discussion of like the Chinese three, the three new industries, which I think is a phrase in translation of Solar, batteries and EVs. Should we understand coal and potentially steel as the fourth and fifth industries in that like there's a lot of discussion of these big three industries, but also coal is like just as much a part of the Chinese policy mix and how they approach their power grid as say solar and batteries are.

[Michael Davidson]

Well you're going to trouble creating a nice moniker in Chinese with that because those maybe like the three new and the two old or something But I don't think they're going to come up with that. So the whole situation is very challenging. Right before 2021, I would say the vast majority of the decarbonization climate change.

Discussions I was in around power sector, we didn't think and discuss power reliability and resource adequacy.

We just thought, okay, we're going to build all this energy and we're going.

To run some models and it will.

Show that, it will show that we.

Can meet that demand reliably.

The 2021 power outages were a huge.

Wake up call and it has completely reoriented the down to the provincial government level. And that's why we're seeing this coal capacity resurgence.

[Obi Tson Meyer]

Now.

[Michael Davidson]

It's important to note that capacity does not equal emissions. And this is the point that Chinese experts will say is that we're building all this capacity, but it's backup capacity.

We only use it when we need it.

And then I think other observers are saying, well that's not a very convincing.

Reason, you should just reduce that capacity build.

And we've done power reliability analyses both.

Retrospectively around the fall 2021 power outages as well as forward looking in a variety of regions. And what we found through, through our.

Platform, the electricity market tracker is the shortages are exacerbated or even outright caused.

By institutional market frictions such as low price caps and inflexible trading. And there's sufficient capacity to meet peak demand in the northern regions in particular if it's operated efficiently.

If we go to high demand coastal.

Provinces in the east and the we.

Need to start assuming that we have.

Some pretty flexible demand response on top of that in order to meet it without dramatically expanding firm resource capacities and then making some assumptions around what's happening inter regional and how much of that, how much of those resources can be reliably called upon. And there's a great op ed in the Wire China by my student Zhenghua Zhang on this topic who is a lead on our NDC modeling study that gets into some of these contradictions.

[Obi Tson Meyer]

I think last year though that China saw huge. I think it was 500 terawatt hours of renewable or clean growth from renewables, hydro and nuclear.

[Robinson Meyer]

But then overall electricity growth was 600 terawatt hours. In other words, the power grid, despite.

[Obi Tson Meyer]

These huge boom years of renewable capacity additions, is still kind of losing ground as far as decarbonization goes, at least on a hour by hour demand basis.

[Robinson Meyer]

Basically my question is, is the fact that China added a bunch of renewables.

[Obi Tson Meyer]

And then Realized it had reliability problems and had to kind of re embrace coal. A warning sign for us in North.

[Robinson Meyer]

America or Europe or is it just.

[Obi Tson Meyer]

Like more emergent out of the particular ecosystem of policies that exist and fight over the power grid in China?

[Michael Davidson]

That's such a great question, Rob. So we've written a few things on this and first off, I would say no because power shortages in 2021 were.

Not caused by renewables.

Power shortages in 2021 were caused by, I would say, essentially three things.

One is you had a resurgence of power demand following the COVID reopening.

China reopened the quickest and a huge.

Increase in demand as a result of that.

Two, China was actually trying to control its coal production 2020 and then through the beginning of 2021, China was actually aggressively putting in place production quotas on.

All major coal mining facilities which drove up the price of coal.

And any observer in the middle of the summer.

So the power outages started August, September.

That by summertime many observers were saying.

Hey wait, these prices are way too high and the inventories are going to start to plummet. We're going to run into issues.

This was caused by, by a supply.

Side policy by the Chinese government.

And then three, you had these very.

Inefficient market mechanisms that did not allow power generators to pass through the cost of the increased fuel prices. So that led to a lot of unscheduled outages.

That three constellation of factors is going to be very difficult for those to.

Repeat in China because you would need another Covid. You would need China to completely forget about the coal supply, which they have not. Right. They've seared that into their brains. And there is excess coal production capacity, oodles of it waiting. And the market also right following that, China started to relax some of its upper price gaps. Not completely.

And those things are really unlikely to.

Repeat in other countries.

There were some very isolated areas where.

I think grid companies were blaming some of their power outages on renewables.

So like say, oh, our wind capacity.

Sort of fell off during this month.

But that's really a red herring because wind was, is already really low in.

That month and it was completely predictable.

And there are a lot of other distractions.

And the fundamental point where those three things that I just mentioned, China's not going to make that mistake again and.

[Obi Tson Meyer]

The US or the European Union are never going to make that mistake because our market doesn't, our electricity markets and our electricity system doesn't operate under any similar constraints.

[Michael Davidson]

And I would say if you were to if you're trying to imagine some.

Kind of similar situation occurring in the.

United States, it would be if the US Decided to put in place very severe production quotas on natural gas and say, hey, we're going to really control that rather than saying we have all these wells and we can tap them.

If we need them. Right.

The US could meet any fall in energy demand by just building on existing gas resources.

Very, very simply, the resource adequacy, as long as you can permit and site all the plants, would not be a huge problem.

But then I think you were also.

Talking about the growth story.

So this basically pre2021, if you look at power sector modeling studies, they look.

Completely different than post2021 power sector modeling studies.

So you grab a power modeling study. Pre2021, they forecasted electricity demand growth, electricity demand by 2030.

We've already met that in 2024, 2025.

Post 2021, we're seeing demand growths of.

Around 6% or higher.

That kind of level puts huge, dramatically changes what you're modeling. It increases your 30 and your 35.

Which we need to include when we're calculating the NDC.

But also it's not going to be 6% forever.

Right?

Of course, China has a very complex ecosystem. There are players that really want to push up.

We're going to have huge demand growth because there's a lot of business involved in meeting that demand in the building and the designing and everything.

But I think there's probably more of a center of around 3 to 4%.

Future growth out to 2035 and then beyond that start to taper off.

There is some uncertainty around this.

Right?

Demand growth everywhere is facing a lot of volatility. Data centers, of course, is a big uncertainty In China, the data center is.

Not the biggest story right now. Currently it's probably 3, 4 or 5% of total load.

These new energy industries and the manufacturing.

Those are growing pretty dramatically. Those are actually a pretty significant part of incremental demand. And then transportation and industry electrification also representing of incremental demand.

But we would certainly not expect 6% to continue forever. And so as we plan, as we think out what those different scenarios look.

Like for demand growth, then we can start to get into what kind of resource adequacy measures would be needed.

And I think there's a lot of.

Lessons to be learned from the rest of the world. For example, California or other places that renewable storage and demand response can provide a significant amount of resource adequacy and substitute away from fossil capacity, whether it's gas in California or coal in China or others.

And I think there's a lot more.

That we can do in that area to articulate what that resource adequacy mix.

Looks like and to make that legible and trusted by the folks officials whose jobs are on the line if the power goes out?

[Jesse Jenkins]

Yeah, I mean, I think that's an excellent point, Michael. The basic equation is well, we'll add coal for capacity or in the U.S. natural gas and we'll add renewables for cheap energy and we'll add those two together and we'll have a reliable system. I think what you're noting is that there are a lot of other options there to meet the reliability needs as well with storage and demand flexibility and the right combination of renewables that are complementary to one another in different regions. But there's also a lot of complexity to that. Coal is just capacity story too, because that would actually imply that these coal plants are operating far more flexibly and in a far more integrated and well orchestrated manner with than they currently are. Could you sketch a couple of the key reforms that you think are important to transition the coal fleet into more of this sort of flexible, capacity oriented role, which is critical because that means then they're not actually driving emissions. It would be the sort of thing that would be required to make this story that oh, it's fine, we're adding coal capacity, it's not going to drive up emissions. That's only true if they're actually operating very flexibly and at low utilization rates.

[Robinson Meyer]

Can I actually ask, even before that, before you sketch reforms, can you just give us a sense, how did these.

[Obi Tson Meyer]

Coal plants work, work in the Chinese grid and how is that different from the how they work in the American grid?

[Michael Davidson]

Yeah, so China has a huge coal fleet, about 1200 gigawatts and they are predominantly state owned, but by a variety.

Of actors, some joint ownership, some provincial, etc.

There was a period of time in which these plants all had fairly rigid.

Government allocations of their generation quotas.

That time is gone.

Most of the generation from coal now.

Is sold through some kind of market.

Mechanism, medium to long term contracts, usually monthly to annual.

If you look at all electricity generation, about 60% or 2/3 is sold through some of these market mechanisms.

And coal, that share is higher.

So you have a good amount of.

Competitive pressure on these medium to long term markets. And so coal plants will have incentives for increasing efficiency, et cetera.

But the translation of those medium to.

Long term contracts to short Term flexibility.

Is a real barrier. And it's not to say that it.

Hasn'T dawned on Chinese central planners that this is an issue. They fully realize that this is an issue. And there have been massive plans to increase the marketization of the power sector, including a very ambitious plan to create a national power market by 2030, which will not be a fully ISO style market, if that's what you're hoping for. I'm sorry I disappoint.

But the increasing the flexibility of coal on that short term is a huge.

Part of where China is going with its power strategy.

So there's a couple of points here. One is if you have medium to long term contracts and they're physical, that.

Can create out of merit order dispatch problems where you're dispatching some inefficient resources.

Ahead of the other ones.

And so that could be a cause of some of these curtailment numbers that we're seeing.

And then you have a challenge of.

How you convert those contracts to short term profiles. And so there are some standard profiles that are used in some context in some very limited areas. There are also financial mechanisms like CFDs, but those are fairly rare and still not fully financial mechanisms because it's still very challenging to fully marketize.

And then you have a big question.

Of just revenue sufficiency.

So in most of these markets, the.

Price caps for coal or any generation source on the spot market is maybe 1.5 RMB, that's 15 cents US, that's like $150 per megawatt hour.

So that's extremely low. Which means that if you're reliant upon the spot market to meet your revenue.

Sufficiency, as you reduce your utilization, you're.

Going to fall short. So China is trying to increase other revenue streams.

And so there are ancillary service revenue streams and then capacity revenue streams. So China two years ago put in place a national capacity payment scheme for coal.

This was a huge step towards helping to address these issues. But it only was for coal and it was a payment, not a market. And so we've done some studies that show that in some provinces it's being overly generous, where you're giving plants that are already making a lot of money, more money. And then in other provinces they're still.

Underwater even after they receive this capacity payment.

So if you're looking at where you need to go, you need to reorient. I mean, this is the classic story everywhere that you've got three sources of.

Revenue for power generators, you got energy, you got ancillary services, you've got capacity.

China is so much in the energy.

Category that it has to reorient it in order to achieve lots of goals, but certainly to achieve more flexible coal fleet.

And as it's trying to re. As it's trying to reorient that, it.

Needs to do it very quickly because this now has all this coal capacity that's going to have to deal with.

[Obi Tson Meyer]

When you say there's a physical contract, you mean that the plants are either required to receive delivery of a certain amount of physical coal that then has to be burned in order to meet their requirement. What do you mean when you talk about these physical constraints on coal plant operation?

[Michael Davidson]

Physical and the grid dispatch. I love to nerd out on dispatch. So the dispatch system is essentially you have these market contracts, you also have these planning contracts, you know, allocations for.

Inter provincial trade as well as some specific sources within province.

Those are all given to the grid company and then they have to meet those by the end of the month.

And by the end of the year.

So you can imagine the great company is trying to optimize a lot of these things. It of course wants to reduce costs, but it also has to meet these.

Contracts that it was given by these other market and these plannings.

And so as a result of that, you have a lot of constraints in.

The way dispatch can be run now. It's certainly better than it was say 15 years ago where you had a lot of really inefficient long term contracts. And so that generated huge, huge problems with the dispatch. And the markets now help to give you more generation hours to the more efficient plans.

But still, most of these medium to.

Long term contracts are physical, meaning they need to be delivered in order to get revenue. They're not financial derivatives or financialized contracts.

And the grid company also has an.

Obligation to meet them and they get penalized if they deviate too much from what those contracted amounts are at the end of that period, whether it's a month or a year.

[Robinson Meyer]

Earlier in the show I mentioned a new podcast I'm excited to listen to. It's called Shocked and it's from my friends at the University of Chicago's Institute for Climate and Sustainable Growth. Shocked is about facing the reality that a warmer world is here. So now what it's about, questions like is using less energy really the answer? What will it cost to adapt? Republicans invented cap and trade, so why is it controversial? The idea of Shocked is sometimes we just start by re examining things we thought we knew each episode you'll hear journalist Amy Harder and economist Michael Greenstone do just that. Shocked is fun and insightful for those of us who work in climate and energy. And it's the perfect primer for the climate Curious. It's a podcast you could share with your boss and your mom. To listen to Shocked, search for Shocked, your podcast app. That's shocked. From the University of Chicago's Institute for.

[Obi Tson Meyer]

Climate and Sustainable Growth.

[Robinson Meyer]

You mentioned that data centers are not.

[Obi Tson Meyer]

A big part of the Chinese load growth story right now. I mean, this doesn't not resemble the U.S. but it's coming from the big three, solar battery and EV manufacturing, and then it's coming from electrifying the rest of the economy. And I would imagine it's coming from economic growth kind of broadly across the board as well.

[Robinson Meyer]

Is there a conversation in China about.

[Obi Tson Meyer]

Data centers and power demand in the same way we're having a conversation about it in the US either in that people are raising concerns about how much electricity data centers are going to use and what that will mean for the system, or in the sense of these data center demand centers are causing stresses in the grid itself, or is the Chinese grid, like already so set up for demand growth that like, like data centers are. It just eats those up. It doesn't care about those. That's not a big problem for the grid because it just eats demand growth for breakfast.

[Michael Davidson]

I think that's a great question. And I think the folks in Silicon Valley are looking across the Pacific and getting super jealous about how easy it.

Is to build data centers in China.

I think there was a discussion in China that, okay, do we have any real constraints? And then from what I hear there have been some AI and tech conferences.

Including this year, that there was a.

Discussion around this and then basically said.

No, no more problems in China for meeting data center growth.

We can permit the capacity.

We have all this extra capacity. We have tons of grids. China has the largest ultra high voltage grid network in the world. It's growing other grids dramatically. The grid companies are very solvent.

And with a 3 to 4% national.

Load, when you're growing your load at 6%, that's not a challenge.

So I think that's a huge difference.

If you're trying to take the sort of mental model of what the data center challenge looks like in the rest of the world and place it in.

China now going out, things could dramatically change, right?

I think everything about AI we don't really understand, right?

Is the chip energy demand going to dramatically grow or are we just going to become so much more efficient with our compute. And so we're going to keep energy.

Growth at a minimum.

I just think that that constraint does.

Not really factor in too much to China's power planning at the moment.

[Obi Tson Meyer]

What's the biggest problem you think that the Chinese grid faces right now? Either in climate or just unable to meet demand growth and reliability concerns Keep the lights on.

[Michael Davidson]

So for reliability we're looking at peak demand growth, Right? So peak growth is growing faster than overall growth. And so where is that coming from?

That's coming from impartial electrification of transport.

Though China's been really good at creating.

Incent for off peak charging and other kinds of ways to shift that off of the peak.

And then huge growth in heating and cooling. Particularly as we've seen these stresses on.

The power grid occur mostly in the.

Summer periods when you have heat waves.

And droughts and around say the eastern and central China regions, those represent the biggest problem for peak demand.

And then we add on top of.

That some of these other sources like transport, but data centers are mostly flat load. Right. And so that's not changing the fundamental dynamics of peak growth versus energy growth.

I think you, you alluded earlier, Rob, to like the spreadsheet math that China's overall demand is growing at 500 plus terawatt hours a year and clean energy cannot meet all of that just on a ter, not even hour to hour balancing.

Right.

So you could do so. That spreadsheet math is interesting and is.

Certainly a challenge to be reckoned with.

But the peak growth is even more.

Challenging and that's what's driving a lot of changes. So that's what's driving coal capacity and gas capacity in places and is what's potentially squeezing out investment in some of these other low carbon options that would also solve the energy problem. But since China's really focusing on the power problem right now, that I think would be the biggest way to reorient towards low carbon.

[Jesse Jenkins]

Wanted to pick up on something you said there, which is the challenge of just meeting that share growth in energy with new renewables. Obviously that hugely implicates when and at what level emissions in China would peak. I think some of the optimism around the likelihood that China has sort of reached a plateau in emissions has come from the fact that the growth in renewables is starting to catch up with growth in electricity demand. So two part question one, if we're about to see a slowdown in renewables growth, does that cause you to reconsider that or give us pause to think about whether we are likely to see that peak or is this just sort of transitory coincidence that we saw this rush to build out renewables in the last six to 12 months. That was kind of giving us too much optimism there. And then second, what else do we have to believe about the transition of China's economy to believe that we are at an imminent peak in emissions and what's set up for these kinds of deeper emissions reductions in the 2000s, late 2000s, beyond the power sector that is.

[Michael Davidson]

So I think it's important to know what's going on in the other sectors.

And so you need to know how.

Much electrification is taking place, what are.

Efficiency measures for non electric petrified uses and to account for those.

And then if we look at the.

Power sector, what share it needs to take on. And like I was saying, that's maybe around a 40% reduction from the peak.

That, you know, given current capacity builds.

And like the this average we were.

Talking about, it will be challenging if.

China does not address its utilization problems.

I think just to put some numbers on this, capacity factors for solar in China are 14%. In the US those numbers are 23%. Capacity factors for wind in China are 24%. In the United States it's 34%. So those are remarkably low. You have grid connection issues, you have this integration issues we talked about resource.

Certainly resource and location are issues. Last year where we had statistics was also a low wind year. So that also pushes down that a little bit.

But we would have to see some.

Improvements in the grid integration and some of these issues in order to have confidence that all of that 200 plus gigawatts of wind and solar is going to translate into increased generation and utilization.

I don't think that we are, we.

Don'T have all of that yet. I think there's some very promising signs, the storage numbers, et cetera, they're pushing on markets, they're trying to address this coal issue, but, but still relatively slowly on the capacity side, I think there's a lot of components that need to go into that.

This is why we were also pushing.

For a generation share target in China's NDC in addition to a capacity target. Because the capacity target does not give the full picture of how well you're utilizing all of these resources. And so in terms of a share target, what we were pushing for was a wind and solar share of generation. Around 40% in 2030 and around 50% by 2020 35. That would be the real number that matters for the, from the perspective of A climate trajectory. So if we see China's on track to achieve that and you can convert that to non fossil share, then I would say we're in a good position.

But if we're falling really behind that.

Because of poor utilization, then we're going to have to see some dramatic changes, increases in capacity or shifts to other resources. So there's a big question around offshore wind and can that take on a bigger role, higher capacity factors, et cetera, but a lot more expensive and other questions.

[Jesse Jenkins]

Yeah, I mean, just one observation which is interesting that sort of struck me when I was visiting China last December before the current policy changes, is that both the US and China have about a 40% non fossil electricity share today. I think the relative shares of nuclear and hydro are roughly flipped in the US versus China, but the renewable share is strikingly similar. And of course a lot of that growth that's expected coming forward is coming from renewables in both places. Before the repeal of the Inflation Reduction act incentives, our repeat project projections were that the United States is on track for a 70 to 75% non fossil share of electricity by 2035 with about 50% share from renewables. Now that's down to about 50 to 55% non fossil share while China continues to hopefully target that level of growth over the next decade. Just interesting parallelisms and let's hope we don't see the same kind of reduction in the outlook in China in the coming years.

[Obi Tson Meyer]

Can I ask about this coal issue again? Your research and other people's research has revealed that basically when China started making capacity payments to coal plants, like in some cases, it didn't have the effect on the bottom line of these plants that was hoped for.

[Robinson Meyer]

And also we didn't really see coal.

[Obi Tson Meyer]

Generation like go down or change in the year that it happened. It wasn't like they were playing these plants to stick around and not run. They were basically paying these plants to do the exact same thing they did the year before. But now they also got paid and maybe that was needed for their economics. We can talk about it. Why did coal get those payments and not say batteries or other sources of spare capacity like pumped hydro storage, like nuclear? Why did coal specifically get payments for capacity?

[Robinson Meyer]

And does it have to do with.

[Obi Tson Meyer]

Spinning reserve or does it have to do with like the political economy of coal in China?

[Michael Davidson]

Well, when it came out, we said exactly the same thing thing. We said, okay, this should be a technology neutral payment scheme and it should be a market, not a payment.

Right?

But China's building these things up little by little over time. We've seen historically actually a number of.

Systems internationally started with payments before they moved to markets because they realized that you could get a lot more competitive pressure with markets.

The capacity payment scheme for coal is extremely simple, right? It says okay, for each province we're going to say what percentage of our.

Benchmark coal investment costs are we going to subsidize? It's extremely simple, does not account for how much you're using it at a plant by plant level. It does not account for other factors, renewables, et cetera.

So yeah, it's a very coarse metric, but I wouldn't say that it had some perverse negative effect on the outcome.

Of what coal generation is.

Probably more likely is that these payments were seen for some as sort of extra support. But then for some that are really hurting, they're saying, okay, well then we.

Will maybe put up less obstacles to market reforms.

But then on top of that, you.

Have to have the energy.

You have to put in the hourly.

Energy demand growth story and say, okay, well, you have all these renewables, you don't have enough storage to shift to evening peaks.

You're going to rely on coal to.

Meet that, given the current rigid dispatch system. And so you're dispatching them kind of regardless of whether or not you have the payment schemes.

I will say that I was a skeptic because when people told me that China should put in place a capacity market, I said China has overcapacity. So if you have an overcapacity situation, you put in place a market, the.

Prices should be zero, so what's the point?

But actually when you're looking out ahead.

With all of this surplus coal capacity that you're trying to push down, you're.

Trying to push those capacity factors of.

Those coal plants from 50, 60% down.

To 20% or even lower, they need.

To have other revenue schemes.

If you're not going to dramatically open.

Up your spot markets, which China is very hesitant to do, very risk averse when it comes to the openness of spot markets in terms of price gaps. It's a necessary part of this transition.

But it can be done more efficiently.

And it should done technology neutral.

And by the way, that is happening.

In certain places, prices, that's a national scheme.

But we actually see that the implementation.

For example, An Xi province, we have a technology neutral scheme that would include other resources, not just coal.

[Obi Tson Meyer]

We've been talking all about the power sector, which is actually great this whole conversation.

[Robinson Meyer]

And I'm going to ask you a question about transport and industry, but it's.

[Obi Tson Meyer]

Actually also going to be a question about the power sector, which is to meet the new Chinese goal of the Paris Agreement, the plurality of emissions reductions are going to have to come from, from the power sector, but it also needs to make progress in transport and industry.

[Robinson Meyer]

Are we reaching the point in China.

[Obi Tson Meyer]

Where, like the demand growth implied by the, by electrifying transport and electrifying industry, because electrification of the economy is just as core to the Chinese climate plan as it is to America's or the European Unions or anywhere else in the world. Are we reaching the point where that is starting to stress the power system's ability to decarbonize at the same time? Or are these technologies going to be more supportive to the power sector because they're going to allow for demand response because they kind of bring new, maybe more innovative companies into the mix of interests that compete over the Chinese power sector?

[Michael Davidson]

I think in the short term, electrification of EVs and industry is not going.

To help the power sector to balance renewables more efficiently. I don't think that we have dramatic flexibility right now in the way industry electrification occurs. So there are opportunities.

And in terms of EVs, I think.

The real goal here is to just avoid it at the peak and to try to shift it off and smooth it.

These are growing.

They're not the largest source of incremental demand in China, despite how fast EVs are growing.

But it is going to be something.

That will need to be reckoned with as China expands the EV fleet out to mid century.

[Jesse Jenkins]

So Michael, I guess for our listeners here who maybe aren't following developments in China as closely as you do, can you give us sort of like two or three signposts that we should be looking for in the news to sort of get a sense of whether things are going according to plan or not in terms of the emissions trajectory that China is laying out in its NDCs.

[Michael Davidson]

So the first signpost is going to be the five year plan.

So the next five year plan 15.

Five year plan is going to come out in the next half a year.

I mean, it's always a little bit of a guessing game.

The purpose of the NDC in the more numerical targets is to create a, create a path so that the five.

Year Plan sets you up for those later goals.

I would not expect the five Year Plan to go well beyond and more.

Ambitious than what we see in the ndc.

But as you see progression on that.

Five Year Plan, you could see that the NDC might be over delivered, right, in terms of what those plans are.

The second, which is maybe a little bit more diffuse, is what, what the.

Actual actors are doing. So state owned enterprises are the ones that are going to be deploying all of these capacities. And if you don't have SOEs in your mental model of China's emissions pathways, then you won't get the country right. Virtually all utility art is state owned and this is because of the declining revenues and the curtailment pressure we discussed.

And on distributed solar, we also have.

A lot of evidence that the grid companies have been fairly favorable to initial rollout of DG and solar relative to say, private utilities in other countries. And on top of that we have the state owned enterprises having some really clear mandates to build out renewables. So for the big five generation companies.

The owner of the state owned assets.

Called SESAC, set a 50% renewable energy.

Target capacity by 2025. Most of the SOEs have achieved that.

We're just waiting on China Energy, the largest, which is around 40% I think, to achieve those targets.

So we see those out in front.

And then the third is the utilization.

So how are we getting increasing capacity.

Factors from our renewable energy?

Are we addressing some of these bottleneck.

Issues in terms of grid connection? Are our markets becoming more effective at transmitting electricity over larger distances in a more flexible manner?

And I guess related to that would.

Be where China goes with its renewable portfolio standard policy as well, which up to date has been relatively minor and kind of an afterthought. But that could also a concrete floor at the provincial level to push up some of these renewables in terms of shares and not just capacities.

[Robinson Meyer]

At the beginning of this conversation we.

[Obi Tson Meyer]

Were talking about how the U.S. you know, America's approach to the Paris Agreement and to climate pledges generally has been to over promise and underdeliver and not.

[Robinson Meyer]

Only to over promise and under deliver.

[Obi Tson Meyer]

But in fact to not really consider, I think, the pragmatism of what it.

[Robinson Meyer]

Was pledging in part because there is.

[Obi Tson Meyer]

No US body that like checks this or does this kind of emissions math. US policymakers are reliant on, I would.

[Robinson Meyer]

Say people like Jesse, but often literally.

[Obi Tson Meyer]

Jesse and a few other organizations to do this kind of emissions projection.

[Robinson Meyer]

China's approach has been to under promise.

[Obi Tson Meyer]

And over deliver and to focus on its pragmatic energy security needs, its reliability needs. What can the US learn from China's approach? What should American policymakers take away from China's approach?

[Michael Davidson]

If anything, there are so many layers, but I think the core of this is that the political economic system is.

So dramatically different in the way that.

Climate policy is created and then the.

Way that has converted into energy policy.

Are so distinct that I think at.

A policy level it's really challenging.

I think when we get to a technical level and then some market designs, I think there's a lot of interesting.

Feedback that we can discuss where there are some sharing that's possible.

China's boom in clean energy has been.

Supported largely by very low cost clean energy technology. We cannot forget that solar manufacturing now in China is 10 cents a watt.

That makes a lot of things possible. And then on top of that, we also saw dramatic growth in distributed solar, something that's you have to fight tooth.

And nail for in other contexts because.

One, it's a whole lot more expensive, as Jesse, you've written about, and two.

You have regulatory barriers and utilities pushing.

Back distributed solar in China is almost.

At parity with utility solar.

[Jesse Jenkins]

And in fact, the scale of the China's. If China's distributed solar market in recent years has been larger than the entire United States solar PV market, which is also just staggering.

[Michael Davidson]

Yeah, distributed solar in China was growing.

Around 40, 50% a year over the last period. US was around 20% and it's falling. Right. As a percentage increase.

So those things provide so much support.

For China's growth in clean energy.

On top of all of the political.

Incentives that we talked about, it's going to be a challenge to replicate those.

In the United States.

I think we're going to do it differently.

We of course have the advantage of very efficient markets.

Right. That can balance renewables over really large distances. Right. We just had, for example, I know you guys out east are super, super proud and confident of your regional transmission organizations and us in the west. We just have a California, only one.

But we just passed a bill that was going to move towards creating a regional balancing authority. Those market incentives are, I think, where we shine relative to China in terms.

Of balancing renewables over larger distances and dealing with high penetration.

But both of our economies right now.

We'Re between 15 and 20% wind and solar share countrywide. China's about 18%. US is about that. That's nothing. Right where we need to go right.

Locally, in certain pockets, it's much higher. But in the grand scheme of things, we should all be able to manage.

Our systems at those levels just fine.

When we go to really high penetrations.

Of wind and solar these variable, then we're all going to be facing a lot of challenges.

And I think China is going to.

Come up with its own set of.

Solutions which have some amount of incentives, but might also have some kind of mandates and requirements and other areas in.

Which it can shift resource allocation in an efficient way to help address the variable renewable energy problem.

[Robinson Meyer]

Michael Davidson, thank you so much for joining us on Shift Key. This was great.

[Michael Davidson]

It was a lot of fun.

[Robinson Meyer]

Now it's time for Upshift Downshift, our.

[Obi Tson Meyer]

Weekly look at climate news where Jesse and I pull one item of news from the vast news inventory out in the world. And if it's making us feel more more upbeat about the energy transition, it's an upshift. If it's making us feel more downbeat about the energy transition, it is, of course, a downshift. Jesse, do you have an upshift or a downshift for us this week?

[Jesse Jenkins]

I have an upshift for you. A little bit of good news amidst the sea of depression that is Washington, D.C. right now, and that is regarding the National Electric Vehicle Infrastructure Formula Program, or nevi. Listeners of the show have probably heard us talk about NEVI in the past. This is a great grant program that was established out of the bipartisan infrastructure law back in 2021 to create about $5 billion in grant funding that would go out to states to build out their public EV charging infrastructure. Particularly most of that funding focused on DC Fast chargers, the kinds of rapid chargers you'd see on the highway that kind of fill the role that gas stations do for gasoline vehicles when you're out on a road trip. This has been not an upshift in the past. I think I've used it as a downshift previously because it has sort of become emblematic of just how slowly it's taken for some of the funding made available under the Biden administration and the bipartisan infrastructure law or the inflation reduction act to actually get out into the world and do some good. As of the end of the Biden administration's term, basically no funding had actually flown out of Washington and resulted in large scale construction of chargers as originally intended. However, and that led many to speculate, including myself, that most of this funding would never see the light of the day after the transition to the Trump administration, that even though it was committed, Trump clearly came in on day one with a set of executive orders that targeted the quote unquote mandate and the kind of green new scam and all the sorts of programs that were supporting electric vehicles. And while many of those programs have been pared back, including as of October 1, the personal EV tax credit, the $7,500 tax credit that was available for the purchase of a new EV that expired at the end of September. But despite all of that, it seems that the Trump administration's Department of Transportation is actually moving forward with the NEVI grant. Politico reported this week that at least 40 states have said that they're in the process of actually unlocking their shares of the cash, including Republican states like Texas and Montana. And at least 32 have already gotten their plans approved and are likely to start receiving funding under both the previous fiscal years that were kind of held up and pending approval of revised plans that the Trump administration requested, as well as the current fiscal year of funding, which is the last tranche of funds authorized under the infrastructure law. So I'll call that an upshift. We're finally going to see some funding rolling out. $5 billion in total, hopefully will hit the streets, including $526 million that has been allocated but not spent. And that should lead to an accelerated build out of public charging infrastructure across the country. One of the changes that the Trump administration made is basically, they said, if we're going to do this, we want to. We want to make this more flexible and easier for people to build, actually. And so one of the things they did was end a requirement that the funds went to build out stations roughly every 50 miles along major highways, which for rural states like Alaska or Montana, they argued was impractical and very hard to meet. And so the states will actually have more flexibility under the Trump administration program to try to site these charging stations where they're most useful amidst their broader transportation networks and cities. And so, arguably, that's a positive step as well.

[Robinson Meyer]

I think another thing that we're seeing.

[Obi Tson Meyer]

Is that the Trump administration just reduced or eliminated a ton of the rules the Biden administration put around the NEVI funding.

[Robinson Meyer]

The other place, another big area that's.

[Obi Tson Meyer]

Happened is around gas stations. So gas stations would have really struggled to get NEPI funding under the Biden version of the scheme. Under the Trump version of the scheme, it's easy for them, if not encouraged. Do you think that's bad for gas stations to, like. Like, be where a lot of this funding is going, such that you'll drive up to a gas station, you'll plug in your car, you'll sit there for 25 minutes?

[Michael Davidson]

No.

[Jesse Jenkins]

I mean, in my experience, the best charging experiences I've had are at the large convenience store chains, the gas station convenience store chains, whether that's Wawa or Sheets in Pennsylvania. Pilot is another big national brand that has been rolling out EV charging infrastructure. Lucky's.

[Michael Davidson]

Yeah.

[Jesse Jenkins]

So these kinds of large brands that have major presence across the interstate highway system, they have service stations, but their real business is sell you food and snacks and coffee and things like that while you're waiting. And so having chargers there, as opposed to say, like the ass end of a mall next to the substation, which is where a lot of the other ones are, is very convenient. They're right next to highway off ramps and on ramps. They've got 24, seven bathrooms and services often. So if they're not going to be at like actual public rest stations, then having these private large gas and service stations, I think it's actually pretty convenient location for road trips and for EV drivers. And I've had a pretty good experience as an EV customer with those kinds of stations and generally seek them out now when I have the option. Rob, what's your shift for this week?

[Obi Tson Meyer]

I have a neutral shift. I feel like it's super relevant to the conversation we just had, which is this Bloomberg story that just came out yesterday. The headline is, China is beating the US in the battle for Energy Export Dominance. And it basically compares the exports from China's big three new industries, solar batteries.

[Robinson Meyer]

And EVs, against America's fossil fuel exports. The US is not the number one.

[Obi Tson Meyer]

Exporter of fossil fuels, as China is.

[Robinson Meyer]

In those three sectors, but the US.

[Obi Tson Meyer]

Is a significant exporter of fossil fuels. It's the biggest exporter of liquefied natural.

[Robinson Meyer]

Gas in the world.

[Obi Tson Meyer]

It's like top 10, top six, I think, for oil. We're certainly the largest producer of fossil fuels, but we're also such a big consumer that it kind of all comes out in the wash.

[Robinson Meyer]

The point is, though, we export a lot of fossil fuels, and the Trump.

[Obi Tson Meyer]

Administration has premised its whole energy policy on the idea that we are going to export more fossil fuels and that.

[Robinson Meyer]

Exporting fossil fuels is beneficial to the.

[Obi Tson Meyer]

American consumer and the American economy.

[Robinson Meyer]

And what's interesting is that Bloomberg finds that once you do this comparison, China is actually ahead these three new Chinese industries. In 2024, China exported $180 billion worth of exports of solar, EVs and batteries.

[Obi Tson Meyer]

While the US exported $150 billion in oil and gas.

[Robinson Meyer]

And so far in 2025, or actually.

[Obi Tson Meyer]

Rather through kind of August 1, 2025, China's exported $120 billion of solar batteries and EVs, while the US has exported a mere $80 billion of oil and gas.

[Robinson Meyer]

So when you look at what drives.

[Obi Tson Meyer]

Energy dominance, if such a thing exists, and how that helps export oriented economies. China seems to be way ahead with its approach of exporting these final manufactured goods as opposed to the US Embrace of these commodity fossil fuel exports.

[Jesse Jenkins]

This is why you got to listen to Shift Key. I had actually missed that one. So that's a notable story.

[Obi Tson Meyer]

I thought it was a smart.

[Jesse Jenkins]

I think it would be interesting to look at later, a little bit later, deeper to see what the value added is from each of those industries in terms of how much they're actually bringing into the economy. But just at the raw numbers, total export volume, that's quite remarkable. And of course, I imagine the growth trajectory for one is a bit faster than the other other at the moment, that is China's exports are growing quite rapidly in those three industries.

[Obi Tson Meyer]

That's exactly right. China's growing much faster than the US Is in fossil fuels.

[Robinson Meyer]

And I should add that that story.

[Obi Tson Meyer]

Was by Akshat Rathi, former Shift Key guest. Hello Akshat. And that will do it for this week's episode of Shift Key. Thank you so much for listening.

[Robinson Meyer]

If you enjoyed this episode, you know.

[Obi Tson Meyer]

Send it to a friend and please rate us in whatever podcast app you use. You can find me at obitsonmeyer on the social network formerly known as Twitter and as robinsonmeyer. Bsky Social, I think on bluesky. Just search my name on whatever that social network is like there I am, Jesse. Where can people find you?

[Jesse Jenkins]

You can find me on X at JesseJenkins and you can find me on Blueskyessydjenkins.com and I'm on LinkedIn as well if you want to keep in touch there.

[Obi Tson Meyer]

Shift Key is a production, as always, of heatmap News. Our editors are Gillian Goodman and Nicoloricella. Multimedia editing and audio engineering is by Jacob Lambert and by Nick Woodbury. Our theme is by Adam Cromwell. Thank you so much for listening as always and see you next week.