Why China Remains an Attractive Market for Renewables Investment in 2025
Executive Summary
- China's renewable energy sector continues to defy global market uncertainties, accounting for two thirds of global renewable capacity growth in 2023. The country has achieved its 2030 targets six years ahead of schedule.
- Progress on power market reform has accelerated with four provincial spot markets entering into commercial operation in 2024, and with over 20 other provinces having conducted trial operation to date.
- Success in China's renewable sector now demands a sophisticated understanding of both market fundamentals across its diverse provincial markets and thoughtful portfolio positioning to manage risks while capturing emerging opportunities. Our leading province-by-province market modelling provides the data and insight to make the right decisions.
China market remains a strong growing trend for renewables investment
China's dominance in clean energy deployment reached new heights in 2023, commanding 63% of global solar PV additions, 66% of onshore wind growth, and 65% of offshore wind installations according to IRENA data. This trend has continued with China’s National Energy Administration recently announcing 279 GW of new solar PV and 80 GW of new wind added throughout 2024. This overwhelming market leadership demonstrates China's unrivaled position in driving the global energy transition.
Figure 1: 2023 RES technology capacity growth by country/region
Various government support schemes, coupled with falling technology costs enabling merchant builds, have led to 605 GW of solar PV and 267 GW of wind being between 2021 and 2024. This remarkable trajectory has enabled China to achieve its 2030 renewable energy targets six years ahead of schedule. Looking ahead, the momentum shows no signs of slowing; our analysis of various provinces’ carbon peaking plans indicates that an additional 108 GW of solar and 259 GW of wind capacity will be installed by 2030. This sustained growth underscores China's unwavering commitment to energy transition and presents a clear signal to investors about the market's long-term potential.
Figure 2: Historical RES capacity and 2030 policy targets
Market reforms are creating competition and new opportunities
China's power sector reforms have accelerated dramatically since inception in 2015 following the central government’s directive in 2023. This directive has marked a decisive shift from the traditional state-dominated model toward a more market-oriented structure. These reforms have principally been aimed at increasing competition across retail and generation and improve efficiency within the power system and are a key pillar for providing China with energy security, driving decarbonisation, and keeping energy affordable.
The prerequisite of a competitive market is a functioning market design, and to this end spot markets have been developed across provinces to price electricity based on its fundamental value. As of January 2025, there are 4 provincial spot markets that are in commercial operation, while 21 others have conducted or entered into continuous trial operation.
Figure 3: Provincial Spot Market Development Status (Selected)
Source: AFRY analysis based on various government and power exchange announcements
Functioning spot markets with harmonised market arrangements will be key to forming a national power market that will enable more real-time optimisation of power transmission across regions. While officially policy planning remains high-level, industry-level consensus has emerged, culminating in a Blue Paper published jointly by the National Energy Administration and China Electricity Council in 2024. With this we expect China to achieve a fairly liberalised national market with optimised interprovincial transmission flows some time between 2030 and 2035.
New market realities require nuanced understanding of market and regulatory risks
The investment landscape for renewable energy in China is shifting rapidly, moving away from the traditional guaranteed revenue model toward market-driven returns. For investors, this evolution demands a more sophisticated approach to renewable investments, requiring careful consideration of both market dynamics and regulatory risks.
Figure 4: Utility RES projects average market exposure in selected provinces in 2025 (hrs.)
Source: AFRY analysis based on various government work plans
The key risks to consider for renewables are:
- Market price: The wholesale market prices are volatile and may be lower than the prevailing regulated price
- Capture price cannibalisation: As renewable deployment continues to grow, the prices captured on the power market bear the risk to be eroded over time due to competing generation during the same time period
- Curtailment: RES generation may be curtailed as increased capacity brings about excess supply relative to demand, or due to delays in transmission and distribution (T&D) infrastructure development
- Offtaker: As the grid offtake scheme phases out, generators will increasingly compete in the market for offtakers
- Ancillary service costs: As renewable capacity continues to grow aggressively, system need for certain ancillary services (e.g., ramping and frequency regulation) is expected to increase, leading to increased costs for renewable generators
Figure 5: Key Regulatory and Market Risks for RES Investment
The winning strategy for China renewables investment in 2025
Success in China's renewable energy market requires investors to develop a strategy that aligns with their composition of investment portfolio, risk appetite, M&A and exit strategy, etc. Given China's vast and complex market landscape, a systematic approach focusing on provincial market fundamentals is essential.
We suggest a simplified framework to categorise China's provincial markets into three zones based on their fundamental characteristics:
- Demand centres, especially provinces along the east coast, with robust industrial consumption and fast-growing demand;
- Central provinces with thermal-dominant systems and relatively low level of non-hydro RES penetration for now and in the near future;
- Resource-rich regions with strong renewable potential.
These regional differences create diverse investment opportunities with their unique pros and cons across China's power landscape.
In addition to resource availability, generation mix, and demand, a key variable is each province’s transmission and distribution (T&D) infrastructure serving as a key prerequisite to facilitate integrated dispatch of generators across geographies. Sufficient transmission capacity enables cost-competitive renewable power to flow to high-price coastal markets while boosting prices in resource-rich regions through enhanced market coupling. The lack thereof, conversely, will suppress prices in renewable-rich regions whilst keeping prices in demand centres afloat with more expensive marginal generators.
Figure 6: Key Characteristics of the Three Categories of Provincial Markets
Source: AFRY analysis
Understanding these market archetypes and their respective risk-reward profiles can enable investors to build fit-for-purpose portfolios to weather market volatility while capturing long-term value. Investors will have different strategic objectives and risk appetite, and we have identified three typical strategic approaches:
Risk-Averse: Investors prioritising stability and predictable returns should consider overweighting their portfolios toward central provinces. These markets, characterised by thermal-dominant systems and gradual renewable energy penetration, typically offer more stable pricing dynamics and lower market risks. This approach particularly suits institutional investors with lower risk tolerance or those in early stages of entering the Chinese market.
Scale-Focused: For investors seeking to build significant market presence, resource-rich western regions offer compelling opportunities due to their substantial renewable energy potential and ambitious capacity addition targets. However, success with this approach requires careful selection of the markets to mitigate risks in western regions such as curtailment, transmission constraints, and cannibalisation. This strategy may appeal to large utilities or investors with strong operational capabilities and longer investment horizons. The rapid growth of data centre demand presents an additional opportunity in these renewables-rich regions, particularly for non-latency-sensitive computing and storage operations that can serve as stable anchor loads while avoiding transmission constraints.
Balanced Portfolio: Some investors opt for a more balanced regional distribution in their portfolios, recognising the natural hedge created by offsetting market dynamics across geographies. When transmission constraints impact western regions, coastal demand centers often see stronger prices, and vice versa. This approach provides natural portfolio diversification while maintaining exposure to both high-growth and stable-return opportunities, allowing investors to build core positions in attractive markets while capturing upside arising from future infrastructure development.
Why China Remains an Attractive Destination for Renewables Investment
As China progresses toward a competitive national power market, investors who can build fit-for-purpose portfolios will be best positioned to generate sustainable returns. The market's unprecedented scale, continued policy support, and maturing market mechanisms suggest that China will remain an essential market for global renewable energy investment, offering attractive risk-adjusted returns for those who can execute a purpose-built strategy.
AFRY’s globally endorsed electricity market modelling approach – economic dispatch via merit order – is becoming ever more relevant against the backdrop of China’s fast liberalising market. Our analysis captures the market fundamentals of all provinces across China and provides a forward-looking view. Our quantitative-driven insights, coupled with in-depth understanding of the regulatory landscape, help clients refine their strategy and support their investment decisions. Please contact us for further details.
Written by Pei Pei Gao and Roman Chen
