Year in Review: China’s Energy Transition Hits Resistance

China’s pursuit of its decarbonization targets faced significant turning points in 2025 as the country balanced the conflicting demands of market reforms, emerging technologies, geopolitical pressures, and the risk of overcapacity in green industries. These dynamics will shape the direction of China’s 15th Five-Year Plan (2026-2030), crucial in determining whether China—the world’s largest energy consumer and producer—can reduce coal reliance, strengthen energy security, advance technological independence, and foster new economic sectors [para. 1][para. 2][para. 3].

A major policy shift occurred in February with the power market reform that ended guaranteed grid purchases for new wind and solar projects. Instead, a market-based pricing system took effect, placing renewable energy onto an open market beginning June 1. Simultaneously, local governments were prohibited from mandating energy storage systems for project approval—previously a key but costly requirement that sometimes resulted in substandard storage solutions. This pushed storage providers to compete on economic merit rather than policy support. Consequently, developers rushed to complete projects before the rule change, causing a record surge in solar installations in May. Broader trends—such as expanded renewable capacity, lower coal prices, weakened industrial demand, and the rollout of local spot markets—drove power prices lower in several regions. In September, the introduction of China’s first national rules for electricity spot markets marked another step toward a competitive power system [para. 4][para. 5][para. 6][para. 7][para. 8][para. 9][para. 10][para. 11].

Next-generation technologies, particularly artificial intelligence and batteries, played a more prominent role in China’s energy sector in 2025. The release of DeepSeek’s open-source large language model made powerful AI tools more accessible, catalyzing a wave of experimentation especially among state-owned enterprises. By March, SOEs had tested AI applications in over 500 operational scenarios, mainly to cut costs and boost efficiency. While promising, AI integration has yet to fundamentally reshape business models. Meanwhile, China’s EV industry focused heavily on solid-state batteries, targeting improved range, safety, and performance. Technological experimentation extended to a new ammonia production facility powered by a standalone renewable energy grid, suggesting disruptive opportunities for energy capture and use in resource-rich regions [para. 12][para. 13][para. 14][para. 15][para. 16][para. 17].

The U.S.-China conflict over critical minerals intensified in 2025. In April, China expanded its export controls on rare earths, regarded as a response to U.S. President Donald Trump’s new tariffs. The U.S., in turn, imposed new technology export restrictions, notably affecting Nvidia chips. After a brief diplomatic thaw, both sides temporarily eased restrictions, allowing rare earth and advanced chip exports to partially resume. However, tensions quickly reignited, with renewed controls on both sides, before another agreement was reached in October to suspend the latest restrictions for a year. Beyond rare earths, instability in countries such as the Democratic Republic of the Congo and Indonesia’s tightened nickel policy further complicated Chinese supply chains and investment strategies in critical minerals [para. 18][para. 19][para. 20][para. 21][para. 22][para. 23][para. 24][para. 25].

Despite these complications, China’s “New Three” green industries—EVs, solar cells, and lithium-ion batteries—experienced severe overcapacity and price wars in 2025. Solar industry losses were particularly acute, with raw material prices plunging nearly 90% below their 2022 highs and major firms reporting heavy losses. Government and industry responses included calls to rein in competition and the creation of a joint venture among polysilicon producers to address overcapacity. While EV and battery exports stayed resilient, solar cell exports declined nearly 10%, with the global market outlook dampened by weaker demand and growing foreign trade barriers. Analysts warn that China’s solar sector faces persistent structural headwinds, limiting prospects for recovery in the near term [para. 26][para. 27][para. 28][para. 29][para. 30][para. 31][para. 32][para. 33][para. 34].