Polaris Power Transmission and Distribution News: Over the past few years, China has led the world in both investment and installed capacity within the renewable energy power generation sector. Indeed, between 2010 and 2015, China invested a staggering US$377 billion in this sector – exceeding the combined investments of the second and third-ranked nations, the United States and Germany. Presently, China’s wind power capacity stands at 150GW, while its solar photovoltaic capacity reaches 77GW, surpassing figures for nations such as the United States (80GW and 35GW respectively).
In the World Bank’s RISE study, China’s performance significantly outperformed the global average, establishing it as the regional leader in East Asia. In numerous aspects, it either surpassed or matched OECD nations. While many OECD countries lagged considerably behind China in investment and installed capacity, they outperformed China in several renewable energy indicators.
So why does this discrepancy exist?
The findings of the World Bank’s Regulatory Indicators for Sustainable Energy (RISE) study partially illuminate the underlying reasons.
Released in February 2017, the RISE study represents an unprecedented policy scoring system in both breadth and depth, evaluating 111 countries across three dimensions: energy access, energy efficiency, and renewable energy. The framework focuses on these nations’ regulatory frameworks and measures directly within policymakers’ remit. The scores were derived from data provided to the indicator team by late 2015 and underwent thorough, rigorous validation. The RISE study found that China’s challenges are partly beyond the scope of energy policy to control or explain. As the world’s second-largest economy, its substantially growing electricity demand has created diverse opportunities. A large skilled workforce and extensive supply chains have enabled the construction of cost-effective wind farms and solar power plants locally. Moreover, the Chinese government has implemented significant initiatives to attract social investment across diverse sectors.
Strengthening certain elements of the policy framework could further unlock China’s renewable resource potential. In 2016, the national average curtailment rate stood at 17%, meaning 17% of wind power generation was not delivered to end consumers and consequently wasted.
China could strengthen the following aspects within its renewable energy regulatory framework
1. Unified power generation and transmission planning framework. We note that China currently lacks both an expansion plan for the power sector and a transmission plan accommodating the scaling up of renewable energy. However, this observation does not take into account the forthcoming 13th Five-Year Plan, which will systematically address power generation and transmission planning alongside renewable energy development matters. Furthermore, the various planning departments within the energy sector (the National Development and Reform Commission, the National Energy Administration, the Ministry of Industry and Information Technology, and the Ministry of Environmental Protection) still need to coordinate to identify the regions or industries with the greatest electricity demand. As with other Chinese policies, the key lies in the effective implementation of planning policies at local levels.
2. Priority dispatch for renewable energy generation. Although renewable energy power plants enjoy priority access to the grid, generation is not dispatched based on operating costs (i.e., an economic dispatch model). China continues to operate under an ‘equal allocation of generation’ dispatch model, whereby all power plants are allocated identical operating hours annually without consideration of actual operating costs. Furthermore, as utilities are not required to pay compensation for any form of curtailed generation, and the necessary sales infrastructure is not always built in a timely manner, the associated risks are borne entirely by the project developers. While this situation does not sufficiently constrain total investment, it may lead to increased uncertainty and a reduction in financially viable projects.
3. Regional Power Trading and Grid Integration. Inter-provincial power trading remains limited due to the absence of electricity markets capable of pooling generation and facilitating cross-provincial transactions. This is critical because increasing the proportion of variable renewable generation integrated into the grid reduces supply volatility. Expanding the scope of power pooling enhances system stability. Furthermore, administrative barriers and competition between Chinese provinces hinder power trading.
How might China bridge these gaps and deliver clean electricity more effectively to end-users?
China’s latest round of power sector reforms aims to address this challenge head-on. The overarching approach is to enable markets to play a decisive role in resource allocation. As GDP and electricity demand growth slow, the critical shift is from expanding installed capacity to genuinely delivering clean energy to consumers. Strengthening the following measures could help provide more green electricity to Chinese consumers while further reducing carbon dioxide emissions:
1. Liberalising wholesale and retail electricity markets while adopting economic dispatch models. This approach facilitates greater clean energy provision by prioritising renewable power generation, which typically boasts the lowest marginal costs.
2. Strengthening regional coordination mechanisms and enhancing grid management flexibility. As more intermittent renewable generation connects to the grid, expanding coordination scopes improves system stability.
3. Establishing achievable targets and timelines for reducing curtailed electricity will enable end-users to access more clean energy. Provinces with relatively low curtailment rates should initiate such targets first. For instance, Xinjiang faces significantly greater difficulty in reducing its curtailment rate from 40% to 10% within three years than Hebei does in lowering its rate from 9% to 3%.
4. Decoupling grid companies’ revenues from electricity sales volumes, permitting them to charge fixed grid usage and maintenance fees. Previously, China’s grid companies’ revenues were tied to electricity sales. Decoupling would encourage China’s robust public utilities to gradually shift towards supporting end-users’ adoption of clean energy, enhancing energy efficiency, and distributing renewable power generation. Shenzhen’s pilot project is regarded as a model for China’s further development of the renewable power generation sector.
As greater volumes of renewable generation enter the grid system, numerous challenges and opportunities will coexist. The more renewable power is utilised, the lower the electricity prices for other energy sources become. It would be prudent for Chinese planners and regulators to seize this momentum, already evident in parts of Europe and certain US states.