Lu Ruquan: Five major trends & three subtle shifts amid China's energy transition

China National Petroleum Corporation Research Chief says technological and business model breakthroughs still elude China's energy transition

Weeks ago, this newsletter featured a piece by Dr. Lu Ruquan (陆如泉), offering a five-dimensional framework for decoding China's (energy) policy rhetoric. I am glad to see that our subscribers find it useful.

Dr. Lu heads the Economics & Technology Research Institute at China National Petroleum Corporation (CNPC ETRI), the only one among China's 29 nationally recognized elite think tanks dedicated to energy.

Drawing on his vantage point as an industry insider, Lu consistently explores China's energy governance, green transition, and its shifting role in the global energy order.

Last week, he spoke at the 11th China and Globalization Forum, co-convened by Center for China and Globalization (CCG) and Chinese People's Association for Friendship with Foreign Countries (CPAFFC).

Dr. Lu's remarks centered on China's cooperation with the Global South in the area of energy governance. He later published his three main takeaways on his personal WeChat blog. The third point is particularly noteworthy:

Thirdly, in the context of U.S. "energy independence" and Trump's return to fossil fuel energy and withdraw from the Paris Agreement again in his second administration, China, as the world's largest importer of oil and natural gas and the world's largest producer and exporter of new energy technologies, will form new models of international energy governance with the Global South and the EU respectively. It is even conceivable that China and the U.S. may establish novel forms of energy cooperation.

On one hand, China currently imports 550 million tonnes of oil and 180 billion cubic meters of natural gas annually, firmly positioning itself as the world's largest oil and gas import market. For major oil-exporting countries in the Middle East (such as the Gulf states), Africa (represented by Angola and Nigeria), and Central Asia (represented by Kazakhstan and Turkmenistan), China is regarded as their most important export destination. This will reinforce China's energy governance ties with these Global South countries.

On the other hand, China now accounts for over half of the world's production capacity in new energy sectors, including photovoltaic modules, energy storage batteries, wind turbines, and electric vehicles. As the Trump administration retreats from global efforts on climate change and energy transition, China and the EU are poised to become the principal forces driving the global energy transition and addressing climate change. It is believed that both parties will deepen their cooperation in the governance of new energy.

Furthermore, if China and the U.S. reach a new tariff and trade agreement within the next 90 days, it is not impossible that China could significantly increase imports of U.S. oil and gas, helping to address the U.S. trade deficit with China. Such a shift would also reshape the framework of energy governance between China and the U.S.

You can also access the livestream from the video below (starts at 27:30).

As the architecture of global energy governance is being reshaped, it is imperative to scrutinize the latest developments in China's energy transition. Earlier this year, Dr. Lu published an analysis, arguing that China's energy transition is now defined by five major trends and three subtle shifts.

The five major trends:

1. China's energy transition is gathering speed—milestones once projected for 2030 or even 2035 are already appearing on the horizon.

2. Two pathways for energy transition have become clearer, though neither technological innovation nor business models have yet achieved decisive breakthroughs.

3. Regardless of the primary energy source, the ultimate competition lies in which source can produce electricity—this secondary energy—more conveniently, safely, affordably, cleanly, and abundantly.

4. China-U.S. competition over energy transition is deeply intertwined with AI development. The U.S. enjoys an edge in computational power, while China holds an advantage in electricity supply.

5. Fifth, China's comparative advantages in energy transition will become more pronounced during Trump 2.0.

The three subtle shifts:

1. China’s solar photovoltaic sector has descended into a “red ocean”—a brutal arena where cutthroat competition is squeezing margins to the bone.

2. Second, while policy guidance has become more targeted, the translation of these policies into tangible productive forces—particularly new quality productive forces—remains to be seen.

3. Third, significant breakthroughs remain elusive in coordinating traditional centralized energy supply systems with the distributed renewable energy infrastructure, with grid connection persisting as the most prominent challenge.

Dr. Lu has kindly authorized your host to translate the piece, please find the full English version below.

中国能源转型呈现“五大三小”新动向：写在2025年初的思考

Five Major Trends and Three Subtle Shifts in China's Energy Transition: Reflections at the Dawn of 2025

A few days ago, I met with senior representatives from a leading domestic internet-based financial services group and a partner from a globally renowned consulting firm. They sought my perspectives on China's ongoing energy transition and discussed how their digitally intelligent financial services group could better leverage this momentum. Specifically, they explored strategies to evolve into a future-oriented financial services provider powered by the "twin engines" of AI and green energy.

I shared my thoughts on China's energy transition and offered some suggestions on how this internet financial group could position itself as a green, low-carbon, and digitally intelligent financial provider by capitalizing on this transformation. Building on our discussion, I've further refined my thoughts into this brief article.

The current state of China's energy transition can be summarized as the "Five Major Trends and Three Subtle Shifts."

The five major trends are as follows:

First, China's energy transition is gathering speed—milestones once slated for 2030 or even 2035 are already appearing on the horizon.

Whether we believe it, welcome it, or accept it, the current pace of China's energy shift is staggering, as evidenced by these key figures:

• In 2024, new energy vehicle (NEV) sales in China surpassed 12 million units for the first time, reaching 12.866 million—a 35.5% year-on-year increase.

• NEVs accounted for over 40% of total auto sales (40.3%) (with national vehicle sales hitting 31.926 million units, maintaining China's global lead).

Notably, initial forecasts suggested China's NEV penetration rate would only cross 40% around 2035. Yet this threshold was achieved in 2024—a full 11 years ahead of expectations!

Moreover, since July 2024, NEVs have consistently captured over 50% of China's auto market share—what we used to cautiously call "penetration" has now evolved into full-scale dominance. In other words, NEVs have accounted for more than half of all vehicle sales since the second half of 2024. Behind this shift is the electrification of transportation energy, the rapid growth of the lithium battery storage industry, the expansion of renewable power generation, and the widespread awareness of green consumer values.

A related development is the premature peak in China's refined oil product consumption (gasoline + diesel + jet fuel).

In 2024, NEVs and liquefied natural gas (LNG) -powered heavy trucks displaced over 50 million tonnes of gasoline and diesel, accounting for nearly one-seventh of total refined oil consumption. This displacement has propelled China's refined oil demand into an irreversible decline phase, with annual consumption dropping 2.4% year-on-year to 390 million tonnes. Industry forecasts had once expected China's refined oil consumption to peak around 2030, with a possible 1-2 year earlier peak. But reality has outpaced predictions by a staggering 6 years!

Second, the two pathways for energy transition have become clear, though neither technological innovation nor business models have yet achieved decisive breakthroughs.

After nearly a decade of exploration, a global consensus has emerged—including in China—that the energy transition will follow two distinct trajectories.

The first path focuses on decarbonizing traditional fossil fuels through carbon capture, storage, and utilization (CCS/CCUS), enabling cleaner development and ultimately achieving net-zero emissions. The alternative route involves pivoting to non-fossil energy sources, like wind, solar, hydropower, hydrogen, geothermal, nuclear, and biomass energy, supported by large-scale energy storage systems to ensure stable and continuous energy supply.

Unfortunately, CCS/CCUS has not yet achieved full industrial-scale commercialization. This means the emerging industry currently cannot generate substantial sales revenue at scale. Moreover, direct air capture technology remains immature, with carbon capture costs still prohibitively high.

Unless CCS/CCUS achieves technological breakthroughs to reach cost breakeven points, establishes scalable revenue streams, and successfully transforms CO2 into a commercial commodity (while CO2-enhanced oil recovery exists, its applications remain limited), the industry will remain trapped in a vicious cycle of stagnation.

On energy storage, China's new energy storage capacity has experienced explosive growth since 2023, with diversified technological pathways now entering large-scale development. However, this initial phase of scaling faces several challenges: development directions remain unclear, planning and operations lack scientific rigor, industry growth carries hidden risks, and market mechanisms struggle to achieve profitability.

A stable power system requires maintaining three critical balances simultaneously:

1. Power balance (power level)

2. Energy balance (energy level)

3. System stability (safety level)

Current large-scale energy storage facilities still cannot adequately meet all three requirements concurrently.

Third, regardless of the primary energy source, the ultimate competition lies in which source can produce electricity—this secondary energy—more conveniently, safely, affordably, cleanly, and abundantly.

China's energy system development has set clear objectives: building a new energy system with a modernized power system at its core.

By the end of 2023, China's industrial sector had achieved an electrification rate of 27.6%, with electricity consumption in strategic emerging industries maintaining rapid growth. Nationally, railway electrification reached 75.2%, while airports surpassed a 60% electrification rate. These figures demonstrate China's accelerating electrification across sectors.

According to the prediction of Shou Yinbiao, an academician of the Chinese Academy of Engineering, by 2050, China's electricity consumption will account for 70% of total energy consumption, non-fossil energy consumption will exceed 80%, and clean energy generation will make up over 90%.

Among current primary energy sources, coal remains the dominant fuel for power generation and serves as China's energy safety net, despite producing the highest CO2 emissions and greenhouse effects. Natural gas, another major generation source, accounts for over 40% of U.S. power production but less than 5% in China. While relatively cleaner, natural gas remains prohibitively expensive due to immature pricing mechanisms. Wind and solar power show strong potential to become frontrunners, with generation costs now negligible, yet their systemic costs—including intermittency challenges and curtailment expenses—remain substantial. Other sources like geothermal, nuclear, and biomass power each face their own limitations.

Ultimately, it all comes down to how we can generate electricity more conveniently, safely, affordably, cleanly, and abundantly. Whichever energy source can simultaneously satisfy all these conditions will ultimately prevail in the energy transition.

Fourth, the China-U.S. competition over energy transition is deeply intertwined with AI development. The U.S. enjoys an edge in computational power, while China holds an advantage in electricity supply.

A prevailing industry adage captures this dynamic perfectly: "The limit of AI is computational power, and the limit of computational power is electricity." The logic is straightforward: AI fundamentally relies on chips, semiconductor technology, data algorithms, and data centers/computing hubs -- all of which demand massive, stable power systems to operate.

In 2023, China's data and computing centers consumed approximately 150 billion kWh of electricity, accounting for roughly 1.6% of the nation's total power consumption. Projections indicate that by 2025, these facilities' electricity consumption will approach 500 billion kWh, representing about 5% of China's total power usage.

For context, a single training session for ChatGPT-3 consumes 1,287 MWh of electricity -- enough to power 3,000 Tesla electric cars to travel 200,000 miles each. The energy required for GPT-4's training could, if fully converted to heat, boil the water in approximately 1,000 Olympic-sized swimming pools.

On a global scale, AI's energy consumption is growing as technology and demand evolve. Boston Consulting Group projects US data center electricity consumption will triple by 2030 compared to 2022 levels, with AI driving most of this surge. Energy consumption has now emerged as a critical constraint for data and computing centers, particularly evident in the US market. Therefore, America's AI leadership stems from chips, while China's advantage lies in electricity, with both having their own strengths.

Fifth, China's comparative advantages in energy transition will become more pronounced during Trump 2.0.

The energy policy divergence between Trump and Biden administrations is stark: while Biden aggressively supported renewable energy development, Trump prioritizes traditional fossil fuel expansion. Trump proposed policies include ramping up fossil fuel production, reducing tax credits and subsidies for electric vehicles and other clean energy products, while maintaining tariffs on renewable energy imports.

In practice, cutting EV subsidies will slow down demand growth in the U.S. market, and reducing investment incentives will likely slow capacity expansion in the renewable energy sector. Of course, America's manufacturing reshoring push may still drive significant growth in lithium battery and photovoltaic components. Tesla and other domestic clean energy leaders—bolstered by Elon Musk's influence—are expected to maintain robust expansion regardless of policy shifts.

By contrast, China's stable and consistent new energy industrial policies will enable it to maintain—and potentially strengthen—its comparative advantage over the U.S. across the entire supply chain for electric vehicles, lithium batteries, next-generation energy storage systems, and solar power generation.

Besides these major trends, China's energy transition also presents three subtle shifts that merit attention.

First, China's solar photovoltaic sector has descended into a "red ocean"—a brutal arena where cutthroat competition is squeezing margins to the bone.

Take LONGi Green Energy Technology as an example. After years of growth, the company has emerged as the world's largest monocrystalline PV product manufacturer integrating R&D, production, sales and service. Yet it has now reported losses for five consecutive quarters.

On January 16, LONGi released its 2024 earnings forecast, projecting a net loss attributable to shareholders of 8.2 to 8.8 billion yuan (1.12 to 1.21 billion USD), compared to a net profit of 10.751 billion yuan in the previous year. "2024 will be LONGi's most challenging year in nearly a decade," predicted Zhong Baoshen, Chairman of LONGi Green Energy Technology, in early April 2024.

Second, while policy guidance has become more targeted, the translation of these policies into tangible productive forces—particularly new quality productive forces—remains to be seen.

On August 11, 2024, the Central Committee of the Communist Party of China and the State Council issued the Opinions on Accelerating the Comprehensive Green Transformation of Economic and Social Development, which clearly outlined objectives for transitioning toward green development. This policy has accelerated the renewable energy sector's expansion and solidified societal consensus around dual-carbon goals of carbon peaking and carbon neutrality, establishing green and low-carbon development as the dominant theme in energy.

However, resolving the "red ocean competition" within the renewable energy industry will require more substantial measures. Given that the vast majority of China's new energy enterprises are privately owned, traditional government-led approaches such as forced closures, mergers, or restructuring are not viable solutions. Instead, the next phase demands large-scale, market-driven mergers and capital operations to truly move forward.

Third, significant breakthroughs remain elusive in coordinating traditional centralized energy supply systems with the distributed renewable energy infrastructure, with grid connection persisting as the most prominent challenge.

Technical barriers between renewable power plants and grid networks continue to hinder effective grid connection. Existing grid infrastructure proves inadequate for wind power requirements, particularly in resolving the fundamental mismatch between wind energy's intermittent generation patterns and grid operators' stability demands.

In summary, while challenges exist, they cannot overshadow China's remarkable progress—the development of its new energy industry has emerged as a driving force in the nation's modernization, deserving the collective support and dedication of all energy practitioners.

Looking ahead to 2025, China is steadily advancing its carbon peaking and neutrality goals at its own pace. Fossil fuel production is expected to grow steadily, while renewable energy output expands rapidly, driving total domestic energy production to approximately 5.26 billion tonnes of standard coal equivalent and raising the energy self-sufficiency rate to 84.7%, a 0.1 percentage point increase from 2024.

The rapid development of non-fossil energy sources is accelerating the share of clean energy. Wind and solar power are projected to maintain strong growth, pushing the proportion of non-fossil energy consumption above 19.5%, with natural gas accounting for 9.4%. Together, clean energy sources are expected to approach 29% of total consumption—a significant 1.3 percentage point year-on-year increase.

Let us work together to forge a new equilibrium in the energy transition.