China’s energy investments seek to assure energy security

The just-released World Energy Investment Report from the International Energy Agency (IEA) finds that China invested over $625 billion in clean energy in 2024, achieving the country’s target of an installed capacity of 1.2 TW in wind and solar power six years ahead of schedule. Last year, China accounted for 29 % of global clean energy investment and 23 % of investment in fossil fuel production. Energy investment overall corresponds to about 4.4 % of the country’s GDP, well above the 2.9 % average for the rest of the world. Weak demand and deflationary pressures have muddled China’s energy investment plans, which increasingly focus on assuring stable and guaranteed supply of electricity rather than increasing production capacity. China this year is investing $88 billion in the national electricity grid, which has been struggling with rolling brownouts and other overloading issues from spikes during heatwaves and industrial demand strains.

Although the country’s new energy investments largely focus on renewable energy sources, China ultimately relies on coal for its energy security. The value of China’s investments in fossil fuel production are expected to exceed $257 billion in 2025, with over $54 billion going to investment in coal power generation. The steel industry, which accounts for 17 % of China’s carbon emissions, is also one of the biggest drivers of China’s upstream fossil fuel investment. China’s 2025 target calls for at least 15 % of the country’s crude steel to be produced in cleaner low-carbon electric arc furnaces fed with either recycled steel scrap or sponge iron produced by direct reduction of iron with hydrogen (a zero carbon process). According to a recent report from the Centre for Research on Energy and Clean Air (CREA), China is seriously undershooting its targets, with less than 10 % of crude steel production using low-carbon arc furnaces.

Fossil fuels hold their own in Chinese energy investment

* IEA estimate

Sources: International Energy Agency (IEA) and BOFIT

China’s energy sector has traditionally been controlled by state-owned companies, but in recent years the central government has incentivised private-sector entities to enter strategically important branches involved with electrical power production, including civilian nuclear power facilities. According to the International Atomic Energy Agency (IAEA), about half of all nuclear reactors currently under construction are located in China. China currently has 58 operational nuclear reactors. China’s installed capacity last year was about 60 GW, and production amounted to roughly 406 terawatt hours, slightly less than 5 % of China’s total electrical power generation. In terms of installed capacity, China still slightly lags France (65 GW) and the United States (100 GW). China hopes to reach an installed capacity of 200 GW by 2035, at which time nuclear would account for 10 % of electrical power generation.