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How natural gas prices and renewable capital costs can change the generation mix in China

Although coal and natural gas will generally remain the primary fuels used for electricity generation in China and other Asian countries that are not part of the Organization for Economic Cooperation and Development (OECD), lower renewable cost cases project that renewables (wind, solar and hydroelectric) will become significant sources of generation by 2050.

This is the result of analysis by the U.S. Energy Information Administration (EIA). In the International Energy Outlook (IEO) 2020, EIA projects that electricity generation in Asia will more than double between 2019 and 2050. EIA analyzed the impacts of changing the price of natural gas and the capital costs associated with adding renewable energy power plants on the future electricity generation mix in China and other non-OECD Asian countries.

China’s energy policies will limit future growth in coal-fired generation, and changes in renewables costs and natural gas prices could further limit coal. Lower natural gas prices tend to increase projected natural gas-fired generation, displacing generation from coal and renewables. Lower capital costs for renewable power plants tend to increase their adoption and ultimately their projected contribution to the electricity generation mix, but capital costs have relatively little effect on natural gas-fired generation. Solar could become the predominant source of electricity generation in China by 2050 if future renewable costs are low and natural gas prices are high, EIA said.

In the IEO region Other Non-OECD Asia, the dynamic between coal, natural gas and renewable technologies drives the projected generation mix. Without a unitary emissions policy in the region, natural gas and renewables will only be economically competitive with coal-fired generation if their fuel prices and capital costs are low.

In the Low Natural Gas Price case, EIA assumed that natural gas fuel prices would decline by 50% each year through 2050. This assumption resulted in natural gas becoming the primary fuel for electricity generation in Other Non-OECD Asia in the future. Conversely, increasing natural gas fuel prices, combined with lower renewable capital costs, resulted in a higher combined share of generation from solar, wind and hydro technologies, which increase up to 61% by 2050. This share is more than double the Comparative Reference case share of 29%.

These IEO2020 cases indicate that solar resources will generally be the most economically competitive and available renewable technology in Other Non-OECD Asia. Unlike China, which has already built out its easily accessible hydro resources, Other Non-OECD Asia can develop economically attractive hydro resources to help balance intermittent wind and solar generation.