Macroeconomic Impacts of China’s Energy Transition

Solar and wind power account for a growing share of electricity generation in China and now dominate new capacity additions. As the power system transitions toward renewable generation, greater flexibility will be required to maintain system stability. This paper uses a computable general equilibrium model to assess the macroeconomic implications of this transition. Model results indicate a modest increase in electricity prices in the near-term, followed by sustained declines as renewable shares rise, particularly when variability is managed through battery storage rather than coal-fired backup generation. While the transition requires substantial adjustments in electricity supply and investment, it raises GDP in the long run and strengthens energy security. Battery-based flexibility outperforms continued reliance on coal across multiple dimensions, even when accounting for rising electricity demand from emerging technologies such as artificial intelligence. However, this transition pathway also increases the risk of stranded assets in the coal power sector.