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On 22 March 2022, China released the 14th Five-Year Plan (FYP)
for the energy sector, covering development plan through 2025. As
the first energy-specific FYP released following China's carbon
pledges, the policy pivots China's energy sector toward the
long-term transition goals and the establishment of a modern energy
system that addresses both sustainability and supply security
issues. Although the policy does not include many new quantitative
targets, it reaffirms the recent policy direction and provides more
clarity on the short-term approach and measures.
The 14th FYP discloses key 2025 objectives in four
categories—supply security, system transition, efficiency, and
innovation—to guide the energy sector toward the modern energy
system. Contrary to the focus in the 13th FYP on air pollution
control, the 14th FYP emphasizes on climate commitment and the
energy transition, reflected by the released targets on the primary
energy mix, flexible power sources, the electrification rate, and
new technologies. These targets, qualitative or quantitative, were
never a part of key objectives of China's FYPs before, though some
of them, such as nonfossil fuel share, energy intensity, and carbon
intensity goals, have been published in other policies
previously.
Renewables additions and system balancing capability will remain
the key focus in China's energy transition. Despite a lack of
specific wind and solar capacity targets, IHS Markit expects that
strong policy support will lead capacity additions of renewables
during the 14th FYP to be 50% higher than the annual average during
the 13th FYP period. To accommodate the growth of renewables, the
policy unprecedentedly emphasizes the balancing capacity of the
power system, with new targets assigned to pumped hydro, demand
response, and coal retrofits. As a peaking source, gas will develop
"where local circumstances permit," given fuel cost and
availability considerations.
Supply security will hold higher priority than in the previous
FYP. As a result, coal and coal-fired power reductions will take a
more cautious pace. Shifting from the tone in the 13th FYP, which
focused on dealing with overcapacity, the 14th FYP names coal as
"the backstop of supply security" and excludes caps on coal
consumption and coal-fired power capacity, alleviating the pressure
on gas supply. It is clear that the 14th FYP will continue
advancing the energy transition, but not at the expense of supply
security.
Market reforms will be a key tool to optimize resource
allocation to achieve the sustainability and supply security goals.
Power reforms will focus on the establishment of market and pricing
mechanisms to enable the growth and integration of renewables on an
enlarged scope. Gas reforms will increase system efficiency and
competition to reduce costs to end users while allowing cost
pass-throughs to maintain supply security.
