Coal Power Generation Declines in China and India for First Time in Over Five Decades

Structural Shift in Power Mix Begins to Influence Coal, Power Costs, and Steel Margins

Snapshot Summary: CY2025

Historic Turning Point in Asia’s Power Sector

Coal fired electricity generation declined simultaneously in both China and India in 2025, marking the first such occurrence since the early 1970s. According to analysis published by Carbon Brief, China recorded a year on year decline of approximately 1.6 percent in coal based generation, while India saw a sharper contraction of around 3 percent.

In absolute terms, coal power output fell by more than 115 terawatt hours combined across the two countries. The significance of this shift lies in the fact that it occurred despite continued growth in electricity demand, confirming a structural rather than cyclical change in the power generation mix.

Renewables Absorb Incremental Power Demand

Record additions of solar and wind capacity, supported by higher hydro and nuclear availability, enabled both countries to meet incremental electricity demand without expanding coal generation.

China’s clean energy expansion exceeded overall power demand growth, while India benefited from accelerated renewable commissioning and improved grid integration. As a result, coal based power was displaced at the margin rather than expanded, breaking a decades long linkage between demand growth and coal consumption.

Coal’s Role Is Evolving, Not Disappearing

Coal remains central to energy security in both countries and continues to account for more than half of total power generation. New coal capacity is still under construction, primarily to ensure grid stability and peak demand coverage.

However, coal’s role is shifting from baseload dominance to load following and grid balancing. This transition is resulting in lower average plant load factors, higher cycling requirements, and rising operational complexity for thermal generators.

India Specific Implications

Impact on Coal Miners

For Indian coal producers, the data does not imply an immediate demand contraction. Domestic coal demand remains supported by high absolute electricity consumption and limited short term alternatives for peak load management.

However, growth visibility is weakening. Incremental power demand is increasingly being captured by renewables, suggesting slower coal demand growth over the medium term. This places greater emphasis on mine productivity, logistics efficiency, and cost competitiveness rather than volume expansion.

Long term greenfield mine development and capacity additions may face closer scrutiny as utilisation rates stabilise.

Impact on Power Utilities

Coal based power generators are likely to experience sustained pressure on plant load factors, particularly older and less efficient units. Increased ramping requirements will raise maintenance and operating costs, while fixed cost recovery could become more challenging under long term power purchase agreements.

Utilities with flexible generation assets, better heat rates, and access to blended fuel strategies are expected to outperform, while inefficient units may see reduced dispatch priority or accelerated retirement.

Steel Sector Lens: Coal, Power Costs, and Margin Dynamics

The shift in coal based power generation has direct implications for the steel sector, particularly in India where power and fuel costs account for a significant share of production expenses.

Power Cost Volatility for Steelmakers

As coal fired power plants operate at lower utilisation levels, fixed costs are spread over fewer units of electricity, potentially increasing per unit power tariffs. For steel producers dependent on grid power, this introduces upward pressure on electricity costs, especially during peak demand periods.

Captive power plants using domestic coal may retain a relative cost advantage, although higher cycling and efficiency losses could partially offset this benefit.

Thermal Coal and Coking Coal Divergence

The structural moderation in thermal coal demand contrasts with sustained demand for coking coal in blast furnace based steelmaking. While thermal coal markets face long term growth uncertainty, coking coal remains structurally critical for steel production, reinforcing divergent price and investment trajectories between the two coal segments.

Steel producers with access to stable coking coal supply chains are better positioned to manage input cost volatility.

Margin Sensitivity and Strategic Response

Lower visibility on coal based power growth strengthens the case for steelmakers to:

• Increase reliance on captive and renewable power sourcing

• Improve energy efficiency and waste heat recovery

• Diversify fuel and power procurement strategies

Electric arc furnace operators, in particular, remain sensitive to grid power pricing, making long term power contracts and renewable integration increasingly important for margin stability.

Outlook

Coal is not exiting Asia’s power system, but its dominance is clearly weakening at the margin. For coal miners, power utilities, and steel producers, the 2025 data confirms the beginning of a structurally slower growth phase where efficiency, flexibility, and cost optimisation will define competitiveness.

Electricity demand growth will no longer automatically translate into higher coal consumption. For the steel sector, managing power costs and fuel strategy will be as critical as managing raw material procurement in protecting margins over the coming decade.