Macroeconomic Impacts of China’s Energy Transition

IMF Working Papers, August 28, 2026

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Solar and wind power account for a growing share of electricity generation in China and now dominate new capacity additions.
The power system transition toward renewable generation increases the need for greater flexibility to maintain system stability.
The paper uses a computable general equilibrium (CGE) model to assess 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.
The transition requires substantial adjustments in electricity supply and investment, 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.
The battery-centered transition pathway increases the risk of stranded assets in the coal power sector.

Method: Computable general equilibrium model (CGE models).
Geographic focus: China.
Sectors and topics: Electricity, Renewable energy, Non-renewable resources, Renewable resources, Environment, Commodities.
Consideration of demand-side changes including rising electricity demand from emerging technologies such as artificial intelligence.

Near-term: modest increase in electricity prices.
Medium-to-long term: sustained declines in electricity prices as renewable shares rise.
Flexibility options compared:
- Battery storage management leads to better outcomes than coal-fired backup generation.
Macroeconomic impacts:
- The transition raises GDP in the long run.
- Strengthens energy security.
Structural and investment implications:
- Requires substantial adjustments in electricity supply and investment.
- Raises the risk of stranded assets in the coal power sector.

Favor battery-based flexibility over continued reliance on coal to achieve stronger macroeconomic and energy-security outcomes.
Prepare for significant electricity supply and investment adjustments during the transition.
Anticipate and manage the risk of stranded coal assets through targeted policies (investment planning, retraining, and asset-transition measures implied by the findings).