Restructuring and evolution: Key drivers in China's power demand surge

Fading glory: energy-intensive industries

For decades, China's power demand was anchored by energy-intensive sectors such as aluminum, steel, cement and construction, which fueled the country's rapid urbanization. However, these energy-intensive industries have seen their influence wane dramatically since 2020, contributing just 26% to recent power demand growth compared to 50% in the early 2000s.

The slowdown in real estate development, coupled with government efforts to curb industrial overcapacity and pollution, has led to stagnation in power demand in steel and cement production and construction, with annual growth rates dropping to -0.8%, -13.3%, and -6.5%, respectively, by 2024.

This marks a pivotal moment in China's economic evolution. The economy is shedding its reliance on heavy industry and embracing sectors that align with global trends in innovation and sustainability.

Booming oasis: Commercial, residential sectors lead

Three dynamic sectors -- commercial services, residential consumption, and advanced manufacturing -- are filling the vacuum left by energy-intensive industry.

Commercial services, including IT, finance and retail, now account for 25% of incremental power demand growth.

The rise of data centers -- propelled by artificial intelligence, cloud computing and 5G networks -- is a standout trend. Power demand from data centers is projected to grow by 17%-27% annually through 2030, reflecting China's ambitions to dominate the digital economy.

Meanwhile, residential electricity use has surged due to rising living standards and electrification. Households are increasingly adopting the use of air conditioners and electric heating systems, which now make up 30% of residential power consumption.

Electric vehicle adoption has also played a role, with 2024 residential EV charging demand tripling since 2020.

Despite these gains, the per capita residential power use in China at 1,000 kWh remains well below levels in Japan at 2,000 kWh and Australia at 2,500 kWh, signaling room for further growth.

Rising phoenix: The rise of advanced manufacturing

The rise of advanced manufacturing is not just about energy -- it's about reshaping China's economic identity.

China's push to develop "strategic emerging industries" has turned advanced manufacturing into a critical driver of energy demand.

Government policies favoring EVs, solar equipment and high-tech electronics have spurred remarkable growth:

• Automotive production and EV charging consumed 168 TWh in 2024, with demand growing 27% annually.
• Renewable supply chain required 188 TWh in 2024, cementing China's role as the global leader in renewable supply chains.
• Sectors like semiconductors, medical devices and robotics are expanding rapidly, supported by Beijing's efforts to reduce reliance on foreign technology.

Together, these industries contributed 20% of total power demand growth over the past four years, despite representing only 10% of overall consumption.

Renewables to cover 95% of demand growth by 2030

Renewable energy is poised to become the backbone of China's power grid, with wind and solar expected to meet 95% of new demand by 2030.

The country plans to add 2,000 GW of wind and solar capacity between 2025 and 2030 -- doubling its current installations -- while coal's share in power generation will drop below 40%, down from 55% in 2024.

However, challenges remain. Coal-fired power plants will continue to provide baseload support during periods of renewable intermittency, and absolute coal consumption may rise slightly to meet seasonal peaks. Grid modernization and energy storage solutions, including battery systems and pumped hydro, will be critical to managing intraday fluctuations.

Renewables are no longer an alternative -- they're the centerpiece of China's energy strategy in the next decade. However, the transition requires massive investments in grid flexibility and storage to ensure stability.

Growth amid uncertainty

China's total power demand to reach over 13,000 TWh by 2030, up from 9,800 TWh in 2024, according to Commodity Insights forecasts. The commercial sector and advanced manufacturing are expected to lead growth, expanding at 7.8% and 8.0% annually, respectively.

Yet the path forward is not without hurdles. Grid infrastructure bottlenecks, geopolitical tensions over solar exports and the lingering reliance on coal pose risks to decarbonization goals.

On the opportunity side, energy storage capacity is projected to grow tenfold by 2030, while green hydrogen is emerging as a potential game-changer for industries like steel and chemicals. China's energy future hinges on innovation. The technologies it adopts today will determine whether it can balance growth with sustainability.

Implications for global markets

China's energy transformation carries global ramifications.

As the largest emitter of greenhouse gases, its shift toward renewables could accelerate global climate efforts. Conversely, its dominance in solar and EV supply chains may deepen trade tensions with western economies seeking to build domestic industries.

For investors, the message is clear: China's energy sector offers vast opportunities in renewables, storage and advanced manufacturing, but success requires navigating a complex landscape of policy shifts and market volatility.