Over the years, China has been pushing ahead with urbanization and industrialization. Heavy industry in a variety of sectors linked to infrastructure construction such as steel, cement and machinery consumed nearly 62.8 percent of the total energy used by the economy in 2014, while contributing just 25.5 percent of the country's GDP.
As China continues with its economic transition in the upcoming five years, the process of the country's urbanization and industrialization will slow down and its infrastructure construction spree will gradually taper off. As a consequence, the downturn for heavy industry is expected to reduce energy needs, but might not have a big impact on GDP growth. Furthermore, heavy industry's downward spiral is set to cut energy prices, an indirect boon for economic growth.
If that is the case, there might be a widening gap between GDP growth and energy demand expansion. Factoring in the GDP growth scenario of around 6.5 percent during the next five years, energy firms will need to brace themselves for lower demand.
That will inevitably require a rethink of the overhaul of the country's energy sector during the 13th Five-Year Plan period.
Last year, fossil fuels including coal, petroleum and natural gas accounted for 64 percent, 18.1 percent and 5.9 percent, respectively, of the country's entire energy consumption. Among the non-fossil energy resources, hydropower represented 8.5 percent of the total, nuclear power 1.4 percent, wind power 1.6 percent and solar power 0.5 percent.
It is estimated that the share of petroleum and hydropower in the overall energy consumption landscape will remain roughly unchanged during the 13th Five-Year Plan period, which means a combined amount of around 26.6 percent. That said, the sector will be expected to rebalance between coal, the primary source of energy, and clean energy resources comprising natural gas, nuclear power, wind power and solar power which added up to roughly 9.4 percent in the total energy consumption. To be clear, the share of coal in the country's energy sector will fall while that of clean energies is on course to climb along with the government's efforts to rein in pollution and push for the use of low-carbon and clean fuels.
Specifically, the use of non-fossil energy resources as a percentage of the total energy consumption should rise by 3 percentage points to 15 percent by 2020 in order to meet the official target. Additionally, a jump of 2 percent is likely to be seen in the contribution to be made by natural gas during the five years. Coal use will accordingly drop from last year's 64 percent to 59 percent by 2020.
Whether the country's energy sector can be successfully remodeled as expected depends not only on policy support from the government, but also energy demand growth during the period. If what happened last year - when energy demand growth turned out to be negative - reoccurs, it will be an easier task to replace coal with clean fuels. In 2015, the ratio of coal consumption in the total energy consumption fell from the previous year's 65.6 percent to 64 percent.
With clean fuel consumption currently accounting for a little over 9 percent of the country's entire energy consumption, if growth in energy needs stays unchanged, a rise of about 10 percent in clean energy consumption will be able to replace 1 percent of coal consumption. If the total energy consumption growth figure comes in at 1 percent, consumption of clean energy resources will need to grow by 20 percent for 1 percent of coal consumption to be replaced. And if the total energy consumption growth rises by 2 percent, clean energy consumption will have to go up by 30 percent. That will decidedly slow down the pace of replacement.
Although the anticipated low growth of energy demand in the new Five-Year Plan period will be beneficial for the replacement of coal with clean energy, it is still too optimistic to anticipate that the proportion of coal consumption in the total energy mix will drop by 1 percentage point every year.
What energy firms should pay close attention to is changes in the absolute volume of energy consumption. Currently, the proportion of clean energy is too small, and it cannot be a substitute for coal if the demand for energy grows rapidly.
In conclusion, coal consumption as a percentage of the country's overall energy consumption will fall, but the rate of the drop will vary according to fluctuations in overall energy demand growth. But it can't be denied that coal will continue to be the primary energy resource for the Chinese economy for a considerable period of time, which renders it equally important for the country to use coal in a cleaner and more efficient way.