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Posted on Sep 26th, 2022

The Quest for Renewables: Energy Transition in China


Jeremy Lin, CFA

Portfolio Manager

Transitioning to clean energy is the end goal for every developed nation. But like we've said before, this is not an overnight process – climate change's effects are hindering renewable energy sources, leading some to question how smooth the transition process will be.

For our latest Quest for Renewables entry, we're looking at China. China has taken many strides in becoming a leader in energy transition, with new green bond principles and continued nuclear development, but the effects of climate change have thrown a wrench into their plans.

Key Takeaways:

  • China’s new mandatory Green Bond Principles will potentially make them a leader in global green bond regulation.
  • Continued nuclear development puts China on pace to lead the world in total generating capacity.
  • A massive drought in China has drastically affected hydropower plants and threatens global supply chains.

New Green Bond Principles

The Chinese green bond market – among the world’s fastest-growing – once operated under several different standards, with variations in definitions, disclosure requirements, and use of proceeds. However, China recently raised the bar for green bond issuances, taking a giant step towards adopting global standards while eliminating greenwashing. These new criteria will play a crucial role in promoting further use of green bonds in China, which are a vital component of their plan to reach targets of peak carbon emissions by 2030 and carbon neutrality by 2060.

China’s set of self-disciplinary frameworks, China Green Bond Principles, unifies the criteria for domestic users as they rush to establish standards in line with international norms. Beginning in August, the Shanghai Stock Exchange, the country’s premier index, began requiring 100% of the proceeds from green bond issuances to be invested solely in green projects.1

Previously, some domestic green bonds required a vague ‘at least’ 70%. However, varying definitions and misalignment with international standards led to some Chinese green bonds not being recognized in the international market. The new guidelines are mandatory for exchange-traded bonds, which will reduce the risk of exaggerated environment-friendly claims.

The changes would make China a leader in global green bond regulation. While many securities regulators set voluntary green bond guidelines, Sean Kidney, CEO of Climate Bond Initiative – a London-based non-profit that promotes investment in the low-carbon economy – said, “to the best of my knowledge, China would be the first to make [green bond guidelines] mandatory.”2

The Chinese green bond market was the fastest-growing single-country market in 2021, with an annual $68 billion of issuance and cumulative issuance of just under $200 billion by year-end and accounted for roughly half of Asia-Pacific (APAC) issuance to date.3

Chinese green bond issuance rebounded in 2021
(Source: Climate Bonds Initiative)

Nuclear Expansion Plans Accelerate

Earlier this year, the Chinese government approved the construction of six nuclear reactors as part of their plan to more than double their nuclear power capacity this decade, reducing their carbon dioxide emissions. China ranks third in the world in terms of installed nuclear power capacity, but nuclear energy only accounts for a little over 2% of the country’s power generating capacity and a mere 5% of overall electricity output last year.4

China had 53 nuclear power plants in operation at the end of 2021, generating a total capacity of about 55 gigawatts (GW), but plans to extend the scale to 70 GW by 2025 and between 120 GW and 150 GW in 2030, which could potentially rank them first in the world.5

China set a new nuclear plan after missing its most recent target

But the China Nuclear Energy Association believes the national target of six to eight new reactors a year could be raised to ten.6 The agency also advocates bringing more nuclear power inland, also acting as a backup to their massive buildout of wind and solar farms that can only generate power intermittently.

These ambitious goals are backed by a domestic manufacturing base that can supply 90% of the components used in the newest third-generation reactors as well as smaller modular reactors.7 While China typically built reactors near the sea, coastal land has dwindled after years of expansion; however, the China Nuclear Energy Association voiced support for plants to be constructed close to energy-scarce population centres, using river water for cooling needs.8

Water Crisis

Like so many other countries, China’s wrestling with how to avoid power shortages because of extreme weather and drought – the latter taking its toll on Asia’s longest river, the Yangtze. The massive river flows through China and feeds the farms that provide much of the country’s food and massive hydroelectric stations, including the world’s largest power plant, the Three Gorges Dam.

The Yangtze’s low water levels sparked energy chaos across parts of the country. With below-average electricity generation at many key hydropower plants, cities like Shanghai are turning off lights and escalators and cutting back on air conditioning. The southwestern province of Sichuan has been hit the hardest because of its high dependence on hydropower. Dam generation plunged in the region, but a heatwave sent electricity demand soaring. The power shortage in Sichuan – with hydropower viewed as the most stable renewable source – has some questioning how smoothly the country can shift away from its reliance on fossil fuels, especially when government pressure has boosted coal mining output.

Hydropower is China's biggest source of clean energy

Water scarcity is not only limiting agricultural production in China; it’s exacerbating an acute domestic energy crisis that mirrors Europe’s and affects nearly every economic sector – like manufacturing. As the rest of the world imports roughly $3.36 trillion of Chinese economic output annually,9 few sectors are shielded from supply-chain shocks. Already dominating the supply chain for lithium-ion batteries and most rare minerals used in clean energy, China’s share of the global polysilicon market – a crucial component of photovoltaic solar panels – recently hit 80% and may grow even higher.10 Since January 2021, the price of polysilicon has more than tripled from $13/kg to over $43/kg.11

Moving Forward

China has taken many steps forward in their transition plan, but petty geopolitical squabbles and climate change's already-evident effects also have them taking steps backwards. But continued nuclear expansion – and bolstering its total overall electricity output – will help lessen the reliance on coal as they seek to develop more sustainable renewable energy sources.

The transition to renewable energy, while vital to our survival, also presents considerable investment opportunities. The Purpose Energy Transition Fund looks at global natural resources, electricity generation, and the supply chains of geopolitically stable regions. Investing in both renewables and low-carbon fossil fuels serves today's energy needs while providing the sustainability needed for the future.


  1. “China launches green bond principles to standardise national market,” Responsible Investor:
  2. “Exclusive-China tightens green bond rules to align them with global norms,” Reuters:
  3. “China Green Bond Market Report,” Climate Bonds Initiative:
  4. “China greenlights 6 new nuclear reactors in shift away from coal,” Nikkei Asia:
  5. “Factbox: Energy crisis revives nuclear power plans globally,” Reuters:
  6. “China’s Nuclear Industry Says It Can Accelerate Expansion Plans,” Bloomberg:
  7. “China Gives Nuclear Power a Fresh Push in Drive to Go Green,” Bloomberg:
  8. “China’s Nuclear Industry Says It Can Accelerate Expansion Plans,” Bloomberg:
  9. “China’s Water Crisis could Scramble the Global Economic Outlook,” Barron’s:
  10. “Chinese producers tighten hold over polysilicon production rankings as expansions gather pace,” PV Tech:
  11. “Polysilicon prices rise over 200% in 2022 amid supply shortages,” PV Magazine:

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