Title page 1

Contents 2

1. Introduction 3

2. Literature review 4

3. China's supply-driven approach to the energy transition 5

4. The hidden costs: subsidies, overcapacity and involution 8

4.1. The fiscal burden of renewable subsidies 8

4.2. The overcapacity problem 9

5. Infrastructure as a demand-side solution 12

5.1. The grid-generation gap 12

5.2. The east-west dimension 13

6. Scenario analysis: the medium-term impact of infrastructure investment 14

6.1. Modelling framework 14

6.2. Scenario 1: demand frontloading 15

6.3. Scenario 2: demand uplift via the Jevons effect 15

6.4. Summary 16

7. Conclusions 17

References 17

Table 1. Main renewable energy policy milestones in China 7

Table 2. Manufacturing utilisation rate projections in two scenarios 16

Figure 1. China's share of global emissions and energy 6

Figure 2. Chinese domestic energy production as a share of demand 6

Figure 3. Levelised cost of power generation by energy source 8

Figure 4. China on-grid power price by energy source 9

Figure 5. Effective subsidies from renewable power sales 9

Figure 6. Chinese solar manufacturing capacity 10

Figure 7. Solar product prices (indexed, 3 November 2020 = 100) 10

Figure 8. Renewable sector financial health 11

Figure 9. China's power mix: installed capacity vs. generation 12

Figure 10. Chinese power investment by category 13

Figure 11. Power supply surplus/deficit by region 13

Figure 12. Annual power demand forecast for China 14

Figure 13. Scenario 1, five-year demand frontloading 15

Figure 14. Scenario 2, 20 percent uplift in renewable demand 16