In June, Shandong’s energy authorities announced the successful shut down of all small coal-fired “extraction condensing” units, which simultaneously generate electricity while extracting steam for heating.
Between 2021 and 2025, the eastern province had retired 555 coal-fired units of under 300 megawatts, removing 17.5 gigawatts of capacity, more than any other province.
Closing these smaller, less-efficient units has brought the Shandong’s average coal consumption per kilowatt-hour down from 308g of standard coal in 2020 to under 295g.
One of China’s most populous and industrialised provinces, Shandong has some of the country’s highest levels of demand for electricity and heating. Coal power has long been a major source of electricity for industry and households, as well as essential infrastructure for district heating and industrial steam supply. Even as renewable power expands rapidly, coal-fired generation continues to play a critical role in maintaining the security and stability of the power system.
Shandong’s round of closures was more than simply a matter of shutting down generating units. It was a systematic process of transforming coal power’s role and gradually transitioning to alternatives. Closing smaller plants is just the beginning. Tougher questions are yet to come: How to make up the heat gap? How can heat and power supply be better coordinated? And how can the power system obtain the flexibility it needs?
Whether Shandong can reduce its reliance on coal power while safeguarding heat supply and power-system stability will depend on several factors: the development of cleaner heating systems; greater decoupling of heat supply from power generation; effective coordination between renewable energy and energy storage; and more flexible electricity pricing that encourages businesses and households to adjust when and how they use energy.
How did Shandong get ready?
Shandong was able to lead the large-scale retirement of small coal-fired units because it had gradually put in place alternatives and supporting measures for electricity supply, heating and power-system flexibility.
First, the rapid expansion of renewable energy created room to reduce reliance on coal power. Between 2021 and 2025, non-fossil energy sources accounted for 93% of the province’s newly installed power capacity. Their combined capacity now represents around 55% of Shandong’s total installed capacity. The large-scale integration of low-cost wind and solar power is fundamentally reshaping the province’s power mix. Whereas growth in electricity demand was once met primarily by additional coal-fired generation, an increasing share is now being supplied by clean energy sources.
Second, the development of clean heating and long-distance heat transmission has helped ensure a stable heat supply. In Shandong, many small coal-fired power units have long provided district heating for cities as well as steam for industrial users. Without sufficient replacement heat sources, these units would have been difficult to retire, despite their relative inefficiency and high emissions.
In recent years, Shandong has continued to explore a diverse range of cleaner heating options, including nuclear heating, long-distance heat transmission, geothermal energy, biomass, industrial waste heat and heat pumps.
Haiyang nuclear power station has developed into the world’s largest nuclear co-generation project, providing clean heating to around 400,000 residents across 13 million sq metres of floor space. China’s largest long-distance heat delivery project connects three Shandong cities and heats over 90 million sq metres.
Shandong has also encouraged three types of retrofits for coal power generators: energy-efficiency and carbon-reduction retrofits; heating retrofits, which increase heat-supply capacity and overall energy efficiency; and flexibility retrofits, which improve units’ ability to adjust their output and help stabilise the power system.
Respectively, around 25 gigawatts, 26 gigawatts and 49 gigawatts of the three types of retrofits were carried out between 2021 and 2025, substantially strengthening the efficiency, heating capacity and system-support capabilities of Shandong’s coal-fired fleet.
The next problem
With inefficient smaller units out of the picture, the question now is how the province can reduce its reliance on coal power while maintaining secure heat and electricity supplies and sufficient power-system flexibility. This follow-up challenge may be much harder.
Although the province has diversified its sources of heat, coal burning still accounts for around 85% of space heating and more than 95% of industrial steam supply. Unlike electricity, heat – and industrial steam in particular – cannot be transported or dispatched quickly over long distances. Where alternative local heat sources are insufficient, the consequences can be immediate for both residential heating and industrial production. Ensuring a reliable transition in heat supply after small coal-fired units are retired therefore remains the most immediate constraint on Shandong’s coal-power transition.
Many of Shandong’s coal power plants provide heat, particularly when district heating systems are turned on during the winter. Often, they need to keep generating some electricity to keep the heat flowing, even if there’s an oversupply of power. The increase in renewables such as solar power has made the problem more acute: in the middle of the day, solar power generation peaks and ideally coal power would ease off, but the demand for heat means combined heat and power units need to keep running. This not only limits the system’s ability to accommodate renewable energy, but also slows the transformation of coal power into a more flexible source of system balancing.
Also, coal power is still heavily used for peak regulation in Shandong despite the province speeding up the construction of pumped-storage hydropower and battery energy storage, improving time-of-use tariffs and using “virtual power plants”. (Such a system uses software to manage small energy sources, like solar panels, batteries or electric vehicles, as if it were a single power plant.)
It remains common for Shandong’s coal power plants to significantly cut output (deep peak regulation) or to shut down generators to start up later (start-stop regulation), and even use rotating shutdowns. This increases the wear on equipment, creates additional operational risks, and increases coal consumption per unit of electricity. Research has shown that coal power plants are less efficient at lower loads, burning more coal per unit of electricity generated, increasing peak regulation costs.
When large quantities of renewable power are flowing onto the grid, coal power generators can respond to keep supply and demand in balance and accommodate more clean electricity.
“Deep peak regulation” means those coal power generators reduce their output, often to less than 50% of their rated capacity. That makes them less efficient and the cost of the electricity produced higher.
“Start-stop regulation” is a more extreme approach. When load on the grid is very low and deep peak regulation is inadequate for take-up of renewables, coal power generators can go through a shutdown and restart process. This places additional strain on equipment, consumes substantial amounts of fuel and requires considerable time.
“Rotating shutdowns”, meanwhile, involve taking some units at a power plant completely offline and holding them in reserve, while the remaining units meet electricity demand and adjust their output to balance the system.
The next step: Reshaping the role of coal power
For a big coal-power province like Shandong, a real transition isn’t just a case of building fewer coal power plants and using less coal power. It requires cleaner and more flexible resources to progressively take over coal power’s functions in heat supply, power-system balancing and security of supply.
With smaller-scale coal power phased out, Shandong needs to continue diversifying its heat sources. It should improve interconnections between local heating networks and coordinate their operation through smart heating systems. Urban renewal, the redevelopment of industrial parks and the planning of heating networks should be better integrated.
To encourage investment for cleaner heating options that remain relatively costly or lack mature business models in some applications, such as heat pumps, biomass and geothermal, more effective cost-sharing and price pass-through mechanisms will be needed.
Also, retrofits to combined heat and power generator units should be sped up in order to uncouple heat and power generation. The flexible use of electric boilers, hot water storage tanks and molten salt energy storage could be used to increase the flexibility of heat and electricity supply from generators, allowing plants to meet heating demand while reducing unnecessary electricity output. Power plants need to choose suitable technology and retrofit plans for their operating equipment and customer requirements to increase responsiveness.
Shandong must also enable pumped-storage hydropower, battery storage, demand shifting, managed charging of electric vehicles and inter-regional power transfers to play a meaningful role in balancing the power system, rather than continuing to rely primarily on coal-fired generation. How effectively battery storage and flexible demand respond to midday solar peaks and evening demand peaks will help determine whether coal generators still need to undertake deep peak regulation, start-stop regulation or even rotating shutdowns.
Finally, market price signals could be used more effectively. Shandong needs to further improve its electricity market and compensation mechanisms, reduce unnecessary administrative intervention, and make electricity price signals more stable and predictable. Resources that provide grid balancing, reserve capacity or demand response should receive appropriate compensation. Only when electricity prices reflect fluctuations in renewables generation and the costs of system regulation will coal’s role shift from being a major source of electricity to back-up and system-balancing.
