SHORTPAPER:AuthorFCHeadingHeadingFCSubheadingSubheadingNovember2023EnergyInsight:139AndersHove,SeniorResearchFellow,OIESNewmovesinChina’spowermarketreformchessgameThispaperprovidesanupdateonChina’sprogresstowardsachievingcarbonpeakingandneutralitygivendevelopmentsinthepastyear,particularlyintermsofmajorgrowthinbothcoalandrenewablecapacity,aswellasthenewlypublishedpowermarketreformdocuments.•High-levelemphasisonenergysecurityoverclimateandairqualityprioritiesiscontributingtoaburstofcoalpowerconstructionacrossChina.Coaladditionsaretakingplaceinregionswithamplecoalcapacitytomeetpeakandbalancevariablerenewables.Thisappearstobedrivenprimarilybythedesireofprovincialofficialstolockinmoreinfrastructureinvestmentsnow,whilecoalplantsareencouraged.•China’spresentcoalboomislikelytoleadtoovercapacityinmanyprovinces.Currently,Chinareliesonadministrativepoliciestoencouragegridcompaniesandprovincialplannerstoabsorbvariablerenewableenergy.•Asthecoalovercapacityproblemworsens,financiallossesatcoalplantsaredrivingthepushtoadoptaspecificcapacitypaymentforcoalplants.ThecapacitypaymentpolicyannouncedinNovember2023couldprovidefurtherincentivetobuildmorecoalcapacity,whichmighteventuallyleadofficialstoweakenrequirementsforfullyutilizingwindandsolarenergy,andeventodiscourageconstructionofnewwindandsolarcapacity.•China’sotherrecentmarketreformdocuments,suchastherecentlyreleasedprinciplesforanationalpowermarketdesign,leavemostaspectsofmarketdesignuptoprovincialofficials,andmayprovideinsufficientimpetustoincreasevolumesofinter-provincialtradingorspotmarkettradingthatcouldreducethemotivationtobuildmorecoalplants.•Thecoaloverbuild,whileaimedatimprovingreliability,willalsoleadtohighercosts,especiallycomparedtoalternativessuchasincreasingpowertradingamongprovincesandregions,orincreasingdemandresponsebyallowinggreaterpricevolatilityinshort-termpowermarkets.Highercostsultimatelyleadtohigherelectricityprices,whetherthesearebornebythestate(suchasthroughfinanciallossesatstate-ownedcoalplants)orbyelectricitycustomersthroughhigherprices.•Similarly,coalovercapacitycouldrestricttheinterestininvestmentinnewgascapacityand,intheabsenceofhigh-volumespotelectricitymarkets,couldreducethedispatchofexistinggas-firedpowerassets.•Chinaremainscommittedtocarbonneutralityanditsrenewablecapacityisalsoexpandingatanacceleratingrate,includingdistributedsolarphotovoltaics(PV)andenergystoragetobalancetheintermittencyofrenewables.WindandsolarnotonlywillexceedChina’s2030targetsyearsaheadofschedule,butalsocouldsurpasswhatvariousforecastssuggested2Thecontentsofthispaperaretheauthor’ssoleresponsibility.TheydonotnecessarilyrepresenttheviewsoftheOxfordInstituteforEnergyStudiesoranyofitsMembers.Chinawouldneedtoachievecarbonneutralitybymid-century.1However,thisassumesthatrenewablescontinuetobeaddedandfullyutilized.•Whilerenewablesaregrowingatanunprecedentedpaceandcurtailmentispresentlyundercontrol,tyingupfinancialresourcesinexcesscoalcapacitycouldpressureplannersandothermarketplayerstoslowtheenergytransition.Thiscouldincludeallowinggreaterwindandsolarcurtailment(whichallowscoalplantstooperateathigherlevelstorecovercosts),discouragingnewrenewableadditions,orimposingnewcostsonrenewablegenerators(suchascapacitypayments,storagerequirements,orrequirementstosubsidizelocalindustry)thatwouldslowinvestmentinthefield.•Lastly,anenergy...