China’s coal-fired electricity generation took an unexpected sharp decline in the first quarter of 2025, signaling a significant shift in the country’s energy landscape. Coal generation dropped by about 4.7% year-over-year, a much steeper decrease than the overall grid electricity supply, which fell by just 1.3%. However, electricity demand itself increased by 1%, raising questions about the reasons behind this drop.
The decrease in coal generation wasn’t uniform across the entire quarter. It was primarily seen in the first two months, where warmer-than-usual weather reduced heating demand in January and February. This suggests that the reduction in coal use wasn’t due to a broader drop in economic activity or power consumption, but rather due to changes in China’s energy supply mix. Interestingly, coal usage in the steel sector actually increased by about 2%, driven by steady steel production, which is often seen as a barometer of industrial activity. This indicates that China’s overall economic health remained stable, even as coal-fired electricity generation fell.
In the first quarter, China’s steel exports rose by 6% year-over-year, reaching 27.4 million tons. This strong performance came despite global trade tensions and higher tariff barriers, particularly from Western countries. The rise in exports reflects competitive pricing and ongoing global demand for Chinese steel. This may change later in the year as tariffs take effect, but Chinese firms are also expanding into new markets to counteract trade challenges.
At the same time, China’s steel sector is gradually shifting toward electric arc furnace (EAF) technology, which uses domestic scrap metal rather than coal and iron ore. This move towards cleaner production methods, combined with strong export performance, suggests that China’s steel industry is becoming more sustainable. This shift could lead to a decline in coal demand for steel production in the near future, after remaining relatively stable in recent years. Steel production accounts for about one-third of China’s total coal consumption for electricity generation, so while steel coal demand has risen slightly, it’s nowhere near enough to offset the much larger decline in coal used for electricity generation.
The steel sector’s performance aligns with official reports of 5.4% GDP growth in China for the first quarter of 2025, countering claims that China’s economy is struggling or that tariffs are having a major negative impact. The rise in both electricity and steel demand suggests that China’s economy is continuing to grow, despite external pressures.
To understand the paradox of declining coal power generation amid rising electricity demand, we must consider the rapid growth of distributed solar photovoltaic (PV) systems in China. The National Energy Administration (NEA) reports that China added around 120 gigawatts (GW) of new distributed solar capacity in 2024, bringing its total installed capacity to approximately 370 GW by the end of the year. This trend continued in the first half of 2025, with developers rushing to complete installations before upcoming tariff changes. By mid-2025, China’s behind-the-meter solar capacity is expected to exceed 430 GW, providing a significant source of decentralized electricity that is not fully reflected in official energy statistics.
This surge in solar power generation is likely a key factor in the decline of coal-fired electricity generation, as it increasingly meets the country’s growing energy needs.
Related Topics:
- China’s Coal Imports Fall 6% in March Due to Low Demand, High Stocks
- UK Government Funds Coal Shipment to Support British Steel’s Furnaces
- Indonesia’s Coal Expansion Plan Faces Climate and Cost Challenges