huge spending on the grid to cope with the growing demand for green energy

China’s power grid will undergo an unprecedented investment of more than $800 billion over the next six years to help overcome the burden on the country’s energy system from the rapid transition from coal-fired power to renewable energy sources.

A creaky grid is proving to be a major obstacle to green progress, with growing signs across China of pressure on the distribution and transmission of electricity.

In the first four months of this year alone, China invested RMB122.9 billion ($17 billion) in its power grid projects, up 24.9 percent year-on-year. That compares with the $3.5 billion spending announced last October by U.S. President Joe Biden’s administration, which covers 58 projects in 44 U.S. states.

According to data from research group Rystad Energy, China’s projected capital expenditure will rise from about $102 billion this year to $157 billion in 2030.

However, despite China’s massive spending program, over the past year more than 100 counties and cities in five different provinces have suspended the connection of new, small-scale solar power plants to the distribution grid.

Showing that limits have already been reached in many regions, at least 12 of China’s 34 provincial governments have either encouraged solar operators to use battery storage or demanded that they do so to relieve the local power grid.

Yunnan, a debt-ridden southeastern province, faces a potential electricity shortfall of about 10 percent this year despite a doubling of installed renewable energy capacity last year, local media reported.

Similarly, in Qinghai, in the country’s northwest, most of the energy generated by the region’s solar farms goes to waste during the day. The province is forced to buy power from coal-fired plants in neighboring provinces to meet demand in the evening.

“Current spending levels have not kept pace with the pace at which new solar and wind installations are growing in China,” says Xuyang Dong, a China energy analyst at Climate Energy Finance, a think tank.

According to the International Energy Agency, China has accounted for more than a third of the expansion of the global transmission grid over the past decade, and has the highest percentage of transmission lines that are less than 10 years old.

This includes more than 500,000 km of lines connecting the country’s western and northern provinces, which are rich in energy resources, with the largest centers of demand being in the east of the country.

Growing electricity demand to power artificial intelligence, data centers and electric vehicles is accelerating the long-term growth of electricity’s share of national energy consumption — from 12 percent in 2006 to 19 percent in 2023, Dong noted.

Electricity demand growth in the first four months of 2024 was 7.4% year-on-year, up 5.2% in the first quarter.

“Amid the growing demand for electricity due to the ‘electrification of everything’… China needs to prioritize building, modernizing and upgrading power grids, as well as deploying sufficient energy storage capacity, to stabilize coal use in the near future,” she added.

Against this backdrop, Beijing has again increased spending on power grid equipment, software and market systems needed to efficiently deliver electricity to the country of 1.4 billion people.

Despite this acceleration, Fitch Ratings forecasts that the rate of reduction in China’s solar and wind power use will accelerate in the near term as the rapid pace of renewable energy adoption outpaces the pace of power system modernization.

According to research group Wood Mackenzie, by 2023 China will account for 65% of the world’s wind capacity and 60% of the world’s solar capacity.

Fitch analysts noted that as renewable energy capacity continues to break records, the country’s solar curtailment rate doubled in the first quarter of this year, reaching 4 percent.

Ken Liu, head of renewables, utilities and energy research at UBS in China, said a key challenge for the country is improving the dispatch system, or software that controls electricity flows to residential, commercial and industrial users.

Liu expects as much as 15 percent of China’s total grid investment to go toward this software. Another 15 percent will go toward ultra-high-voltage lines, 30 percent toward local distribution systems, and the remaining 40 percent toward building more transmission lines, he estimated.

“The grid has to be more advanced,” he said. “From a demand perspective, electrification has happened faster than many people expected … and artificial intelligence has happened much faster than people expected.”

Liu warned, however, that China is facing years of delays in deliveries of transformers — the switch that allows voltage to be stepped up or down.

Share prices of two key companies in the sector, Sieyuan Electric and Shanghai Huaming Power Equipment, have surged more than 600 percent and 300 percent respectively over the past five years.

“It turns out it’s hard to make these transformers… everything has to be custom-made,” he said. “The delay in ordering a transformer is longer than (the lead time for world-leading) Nvidia chips.”

A boom in energy storage, mainly through large battery-based grid-level storage, should help ease the supply-demand mismatch in China’s grid in the long term. Goldman Sachs analysts are forecasting a 70-fold increase in battery storage in 2030 from 2021 levels.

Climate Energy Finance analyst Dong also notes that there has been a “significant shift” in the scale of solar power in China in the past year.

Utility-scale solar grew to 120 GW from 36 GW the previous year, outpacing smaller-scale distributed solar — mostly on rooftops — which rose to 96 GW from 52 GW. Over time, this shift is expected to further ease pressure on local electricity distribution systems.

President Xi Jinping has set a twin goal for China: peaking carbon dioxide emissions in 2030 and carbon neutrality by 2060. Overcoming grid constraints will be crucial if the country’s powerful leader’s demands are to be met.