How China's Long-Term Power Contracts Force the Grid to Burn Coal and Waste Renewable Energy

In the first half of 2026, China's power grid intentionally wasted 360 terawatt-hours of wind and solar energy. This volume of curtailed clean electricity—roughly equivalent to the entire annual power consumption of Indonesia—occurred not because of a lack of demand, but because the grid was contractually obligated to burn coal instead.[4]

Despite installing record amounts of wind and solar capacity, China's coal power generation rebounded by 3.4% year-on-year in early 2026. During the same six-month period, the country commissioned 30 gigawatts of new coal power capacity while retiring only 2.7 gigawatts, deepening an already severe oversupply in the power system.[4]

This simultaneous boom in both renewable energy and coal generation highlights a structural contradiction in the world's largest electricity market. The massive curtailment of clean energy is primarily driven by the rigid, planned nature of China's grid dispatch system, which prioritizes legacy contracts over real-time market efficiency.[1][4]

Unlike fully liberalized electricity markets where power plants bid to supply the grid based on their real-time marginal costs, China relies heavily on medium- and long-term contracts. Under these agreements, coal-fired power plants are guaranteed annual contracts that cover 60% to 70% of the electricity they delivered in the previous year.[4]

These mandatory minimums were designed as a systemic insurance policy. Following severe power shortages and rolling blackouts in 2021, provincial governments fast-tracked new coal projects and locked in long-term contracts to ensure baseline grid stability and protect generators from price volatility.[1][4]

However, this risk-management tool has evolved into a formidable barrier to decarbonization. Because coal plants are contractually required to run for a set number of hours, they cannot easily ramp down their output when weather conditions produce a surge of wind or solar power.[2][4]

When the sun shines brightly over the vast solar megabases in Qinghai or the wind howls across Inner Mongolia, the grid often lacks the legal and economic flexibility to absorb that zero-marginal-cost energy. To keep the coal plants running and maintain grid frequency, operators are forced to curtail—or simply throw away—the clean electricity.[1][2]

The scale of this waste is staggering. Data synthesized from recent energy transition reports indicates that the 360 terawatt-hours of curtailed wind and solar in early 2026 represented a 49% increase from the previous year, highlighting a growing disconnect between generation capacity and grid integration.[4]

Had this curtailed electricity been absorbed by the grid, the additional clean power supply could have met all of China's electricity demand growth for the period. Instead, the rigid dispatch rules forced a completely unnecessary 3.4% rebound in coal generation, undermining the emissions reductions achieved in 2025.[4]

This dynamic is the direct result of China's guiding energy principle since 2022: 'establishing the new before phasing out the old.' While this approach has driven unprecedented investment in renewable infrastructure, the reluctance to phase out the old has led to severe overcapacity and operational gridlock.[3][4]

The central government is acutely aware of the bottleneck and is attempting to reform the system. In late 2025 and early 2026, policymakers introduced new rules aimed at shifting renewable energy pricing away from fixed rates pegged to coal benchmarks and toward competitive auctions.[1][4]

These reforms are intended to mimic 'contract for difference' models used in Europe, encouraging the development of spot electricity markets where wind and solar can compete on their actual economic merits. In pilot provinces like Guangdong, early spot market trials have successfully reduced coal output and lowered curtailment rates.[1][4]

Yet, the transition from a centrally planned dispatch system to a unified national power market remains slow. Provincial authorities, who often rely on local coal plants for tax revenue and employment, have been hesitant to suspend the coal-specific contract minimums even when their grids are flooded with clean energy.[1][4]

Until these mandatory coal contracts are phased out in regions experiencing high renewable output, China's grid will remain fundamentally conflicted. The physical reality of the country's record-breaking clean energy installations will continue to clash with the bureaucratic reality of its coal-centric dispatch rules.[4]