China Power System Transformation |
Context and status of power system transformation in China |
Meanwhile, it also plans to develop more flexible generation sources, including gas power and pumped hydropower.
China has already started on its path away from a fully centrally planned approach towards one that offers a stronger role for the market in the power system. The five-year plans have become more about setting policy direction and providing guidance. The government has also placed greater emphasis on a more co-ordinated planning process, meaning better central–provincial co-ordination and fossil fuel–renewables co-ordination (NEA, 2016a).
Development of demand-side response to support power system optimisation is another crucial aspect according to the government (NDRC et al., 2017a). Policy makers in China realise that power demand can be a part of the system that is actively managed, rather than something fixed that just has to be passively accepted. Demand-side response will play a more important role in future to help reduce the curtailment of variable renewables.
Brief introduction to China’s power system
Current status of power system in China
General perspective
The impressive speed of China’s economic growth has propelled demand for electricity, which has grown from 1 387 terawatt hours (TWh) in 2000 to 6 363 TWh in 2017, making China the world’s largest electricity consumer.
China now has the largest installed generation capacity in the world (1 780 GW by 2017), nearly 60% of which is coal powered. However, in the last few years the great expansion in capacity has coincided with a period of slower growth in power demand. The country has therefore experienced overcapacity in the power sector, particularly reflected in a reduction in the capacity factor for coal-fired generators.
Renewable capacity installed in China in the past decade amounted to more than one-fifth of all power capacity installed globally during the same period. The country already leads the world in installed capacity of hydropower, wind and solar power. However, the rapid growth of renewables has created an issue of integration, leading to a high curtailment rate of wind and solar generation. In some regions the curtailment rate has exceeded 40% (CEC, 2017).
China has implemented several rounds of electricity sector reform. In 2015 the government put forward a reform agenda under Opinions on Further Deepening the Reform of Power System
(Document No. 9), with the aim of increasing reliance on market forces (State Council, 2015b).
How the power system works in China
China’s power system was originally designed with the characteristics of a centrally planned system.7 With power sector reform, the current system is seen as a combination of the original system with new market-based elements.
The planning and investment cycle in China follows a centrally planned system (NEA, 2016a). The National Development and Reform Commission (NDRC) and National Energy Administration (NEA) are responsible for developing a five-year national plan. This plan includes
7 This section follows Power Sector Reform in China: An International Perspective (IEA, 2018a).
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China Power System Transformation |
Context and status of power system transformation in China |
strict investment and technology deployment objectives for generation, transmission and distribution by province. Provinces are responsible for achieving these targets and are in charge of permitting for many of the projects.
Midand long-term contracting8 used to contribute a small portion (2-10%) of the total power transactions, and the buyers and sellers were selected administratively before 2015, when Document No. 9 came into effect. China also has cross-regional (interprovincial/interregional) midand long-term trading, intended to improve the overall efficiency of the power system and make provincial grids more resilient by sharing their energy and backup services. However, most of the interprovincial/interregional power trading was predetermined by government following a national strategy, such as coal and wind power transmission from the Northeast to the Northern region, hydropower transmission from the Central to the Southern region, and coal power transmission from the Northwest region to the Central or Northern regions.
Since Document No. 9, midand long-term contracting is encouraged as the major form of market trading, with multiple timescales (annually, quarterly, monthly, weekly and days-ahead) and multiple forms (bilateral negotiation, listed auction, centralised auction and unbalanced energy trading). It accounted for a larger proportion (26%) of total power transactions in 2017 (EPPEI, 2017).
Responsibility for power dispatch has been assumed by provincial dispatching centres9 and still follows an administrative process (NEA, 1994). At the end of each year, the provincial dispatching centres forecast the total power demand for the coming year, and then allocate power generation quotas to each generator within their respective province following a fair dispatch rule. (Annual generation plans made by the dispatching centres need to be approved by the provincial government.) This rule allows each generator in the same category (e.g. coal power) to be allocated the same annual operating hours, with only minor differences in capacity, emissions levels and operating efficiency. Plants are dispatched to meet demand on the basis of target annual full load hours (+/- 1.5%), subject to priority dispatch for nuclear power plants and renewables.
Dispatch centres in China are affiliated to the grid companies and have a multi-level hierarchy, i.e. national, regional, provincial, prefectural and county levels. Provincial dispatching essentially plays the most important role in the system, while national/regional dispatch centres take charge of interregional/interprovincial power transmission, and prefectural/county dispatch centres are mainly responsible for prefectural/county load management (RAP, 2015).
There is currently no spot market, but eight provinces were selected by the NDRC to pilot a spot market and are expected to start trialling by June 2019. Meanwhile, the ancillary services market has been successfully implemented in Northeast China and then extended in five other provinces; the interregional renewable spot market has been adopted for surplus renewables trading, but at a fairly small scale (NDC, 2017).
China has adopted a centrally determined power pricing system, with a benchmarked on-grid price and a benchmarked retail price (IEA, 2006). Owing to the differences in economic development levels, benchmark prices vary between provinces. The benchmarked on-grid price reflects the cost of power plant construction and return expectations. The benchmarked retail price has four pricing categories depending on the type of end user: large-scale industrial;
8Midto long-term contracting allows large buyers and newly created independent retail companies to buy power directly from generators, signing monthly or annual bilateral contracts that specify the volume of electricity to be purchased and at what price. These deals are not yet required to schedule their generation to match demand; this is still managed by the grid company. These contracts only govern price and volume.
9Provincial dispatching centres are affiliated to grid companies.
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