The landscape of China is changing on a scale hard to fathom to outsiders with renewable energy projects stretching across vast terrains, and in the process altering the fortunes for dry bulk owners.
China’s investments in renewables are gigantic, leading the world in wind and solar, with twice as much capacity under construction as the rest of the world combined. The country is on track to reach 1,200 gigawatts (GW) of installed wind and solar capacity by the end of 2024 – six years ahead of Beijing’s target
For the first time ever, wind and solar energy have as of June this year collectively eclipsed coal in capacity, according to the latest data from the country’s National Energy Administration (NEA).
New analysis out today from Rystad Energy forecasts that by 2026, solar power alone will surpass coal as China’s primary energy source, with a cumulative capacity exceeding 1.38 terawatts (TW)—150 GW more than coal.
Since 2020, annual installations of wind and solar energy have consistently exceeded 100 GW, three to four times the capacity additions for coal, according to Rested analysis. This momentum has only gathered pace since then, with last year seeing China set a record with 293 GW of wind and solar installations.
China’s coal power sector is moving in the opposite direction. Last year, approximately 40 GW of coal power was added, but this figure plummeted to 8 GW in the first half of 2024, according Rysted estimates.
“We’re at a pivotal moment for both China and the global energy transition. With strong renewable energy project pipelines in place, the country is on track to shed its reputation as the world’s largest greenhouse gas emitter and power consumer. Solar energy will be central to this transformation, with advancements in supply chains, infrastructure and capacity additions set to surpass coal in future energy production. This shift could be a landmark achievement, potentially transforming China from a coal-dependent giant into a leader in clean energy,” said Simeng Deng, senior analyst at Rystad Energy.
Also looking at China’s rapidly changing energy sector recently, class society DNV has forecast that the People’s Republic will shift its power mix from 30% renewables today to 88% by mid-century. DNV is forecasting China will reduce annual emissions by 8 gigatons between now and 2050, which is three times as much as Europe’s emissions reductions.
In a recent dry bulk update, shipping organisation BIMCO has forecast coal shipments to China may slow or even fall from the second half of 2024 amid weaker demand and ample supply.
Electricity generation from coal decreased on a yearly basis during May and June amid strong generation from renewables.
Meanwhile, supply increased due to strong coal shipments, causing inventories to rise. Domestic coal mining also increased 3.9% year-on-year in June, the first increase this year. The International Energy Agency expects that safety inspections may be eased throughout the rest of the year, which would boost mining.
Such a swift energy transition has brought challenges. Greece’s URSA Shipbrokers notes, for instance, that in 2022, ten eastern and southern provincial-level areas, which consume 50% of the nation’s electricity, produced only 40% of its generation, highlighting a significant disparity between where power is produced and consumed.
Not only are cape and panamax owners having to contend with the shift away from coal, there is also a significant growth of Mongolian and Russian coal exports to the People’s Republic, something that slashes tonne-miles for dry bulk’s big ships.
“The increasing dominance of rail-borne supply from Mongolia, coupled with rising Russian imports, is reshaping trade flows and exerting downward pressure on seaborne freight rates,” Greece’s Xclusiv Shipbrokers argued in a recent market update
“The burgeoning coal trade between China, Mongolia, and Russia is poised to probably reshape the dry bulk shipping landscape,” Xclusiv suggested, saying that the rapid expansion of Mongolia’s coal production, coupled with significant investments in rail infrastructure is diverting a substantial volume of coal, away from seaborne transport. This trend, Xclusiv said, is exacerbated by the country’s growing imports of Russian coal, which, due to shorter shipping distances, will further erode demand for capesize vessels.
“Massive potential trade growth is expected between Mongolia and China due to the commencement of the railway network between the two countries in 2023 and the construction of two additional rail networks underway,” UK shipping consultants Drewry said in a recent report.
“The expansion in overland trade from Mongolia and the tepid growth in imports from Australia will dampen shipping demand,” Drewry claimed, saying that China’s coking coal imports from Mongolia have been “skyrocketing”.
Mongolia’s coking coal production more than doubled year-on-year in 2023, with more than 90% of the output headed to China.
Furthermore, China’s seaborne imports of coking coal from nearby Russia have been strengthening, registering a growth of 97% and 24% in 2022 and 2023, respectively, according to Drewry.
China’s imports from Australia remained “subdued” following the lifting of a ban, with Drewry forecasting there is no chance Australia will manage to get back to pre-ban levels of exports to the People’s Republic this year.
For every tonne of coal switched from Australia to Russia, the tonne-mile demand may reduce 62%, according to Drewry estimates.
Drewry claimed that China’s strategic shift towards rail-based coal imports from Mongolia and increased reliance on Russian coal marks a “transformative moment” for dry bulk shipping.
“The new rail networks and China’s heavy investments in Mongolia signal a decisive move away from seaborne trade, drastically reducing the demand for long-haul shipping. As Chinese steel mills face tight margins and weak domestic demand, the preference for closer, cost-effective sources will continue to reshape trade dynamics,” Drewry concluded.
A recent article from China International Capital Corporation (CICC) was bullish on Mongolian coal prospects as a result of price and comparative quality.
“We think Mongolia will be an important coal supplier as China’s coal industry adopts more stringent safety measures and coal output from major coal-producing areas in China drops. In our view, downstream clients will be more motivated to purchase Mongolian coal, leading to growth in Mongolian coal imports to China,” the report predicted.
