The pains of transition: Coal Price, grid constraints, and new energy investment efficiency

China's energy transition is proceeding under continued coal-system dependence. As a result, renewable investment remains exposed to coal-market turbulence through electricity-system balancing, financing conditions, and grid absorption constraints. These frictions capture an important dimension of the “pains of transition” in China's move toward a more renewable-based power system. Using panel data on Chinese A-share listed new energy firms from 2006 to 2024, this paper examines how coal price uncertainty affects corporate investment inefficiency. We first document a positive benchmark association between continuous coal price uncertainty and firm-level investment inefficiency. To strengthen identification, we then implement a shock-centered difference-in-differences design around the 2021 coal-market shock, in which treatment intensity is defined by firms' pre-shock industry coal exposure. The results show that the shock significantly increased investment inefficiency among more coal-exposed firms. We further show that this effect is amplified in provinces with tighter renewable absorption constraints, consistent with a grid-side physical amplification channel. Second, we estimate mechanism-consistent triple-difference specifications and find that the post-shock effect is stronger for firms with tighter ex-ante financing constraints, greater ex-ante information asymmetry, and higher ex-ante operational risk. Third, heterogeneity analyses further indicate that the adverse effect is more pronounced among state-owned enterprises, start-up firms, upstream and midstream firms, firms without industry–university–research collaboration, and firms located in highly marketized regions. Overall, the findings show that coal-market turbulence distorts new energy firm's capital allocation during China's energy transition and highlight the importance of stabilizing both market expectations and grid integration conditions.