Findings and recommendations

Report context and objectives

This document summarises the main messages of the China Power System Transformation report. The full report has two objectives. First, it provides a summary of the state of play of power system transformation (PST) in the People’s Republic of China (“China”) and a comprehensive discussion of PST internationally. Second, it presents findings from a detailed power sector modelling exercise for China in 2035, which explores the impact and value proposition of various public policy and technology deployment options currently under consideration by Chinese policy makers. The report provides a number of insights on possible Chinese PST pathways based on the results of this modelling exercise.

Drivers of change in power systems

The rise of low-cost wind and solar power, deployment of DER and increasing digitalisation are accelerating change in power systems around the world. Throughout the world, power systems are undergoing a period of profound change. The fundamental drivers behind this transformation are threefold. First, renewable energy – in particular wind and solar power – is on track to becoming the cheapest source of new electricity generation in many regions of the world. Wind and solar photovoltaics (PV) can already out-compete new natural gas, and even coal-fired power plants, in areas with high-quality resources and low financing costs. This is leading to transformation on the supply side of electricity.

Second, distributed energy resources (DER) such as electric vehicles (EVs) and rooftop solar PV systems are changing the value chain of electricity. The demand side is poised to play a much more active role in the system, and distributed generation is emerging as a more relevant complement to large-scale generation.

Third, digitalisation of the power sector is expanding from the transmission level – where digital sensors and controls have been used for decades – into mediumand low-voltage networks, all the way to individual devices. This increased connectivity opens up advanced options to more dynamically match demand and supply.

With the right framework conditions in place, these trends can combine to bring more fundamental change to power systems, leading to a much stronger integration between the demand and supply sides while allowing a more rapid uptake of variable generation resources (Figure 1).

However, if wind and solar PV achieve cost parity with coal-fired generation, they could experience accelerated update. Current trends are encouraging in this regard and the Chinese government has announced several pilots for subsidy-free wind and solar PV plants for 2019. This makes it relevant to investigate the ability of the Chinese power system to absorb much higher proportions of variable renewable energy (VRE) in the future.

Very high shares of variable renewables are technically possible. International experience clearly demonstrates that there is no hard technical limit to the uptake of VRE in power systems. In countries where such limits were announced, further investigation showed that limits could be overcome. Technical solutions exist to deal with all issues that may arise from the increased variability and uncertainty inherent in wind and solar PV generation, or from their specific technical design that makes them behave differently on the power system compared to conventional power plants.

Reaching high shares of variable renewables in a cost-effective way calls for a system-wide approach. As experience in a large number of countries demonstrates, traditional approaches to integrating VRE do not take a system-wide perspective. VRE is often treated in isolation from the rest of the system and measures aim to make VRE more similar to conventional generators. However, such an approach becomes increasingly inefficient at growing shares and can lead to unnecessary high costs and/or curtailment. Advanced methods take a systemic approach that aims for a more comprehensive transformation of the power system. The main paradigm of such a transformation is an increase in power system flexibility.

Power system flexibility

Power system flexibility – a concept that goes beyond power plant flexibility – is the crucial element for a successful transformation of the power system at growing proportions of wind and solar power. Driven in many contexts by a higher share of VRE in daily operations, power system flexibility is an increasingly important topic for policy makers and system planners to consider. It is a core aspect of power system transformation, and is crucial for ensuring electricity security in modern power systems.

Power system flexibility is defined as the ability of a power system to reliably and costeffectively manage the variability and uncertainty of demand and supply across all relevant timescales, from ensuring instantaneous stability of the power system to supporting long-term security of supply. A lack of system flexibility can reduce the resilience of power systems, or lead to the loss of substantial amounts of clean electricity through curtailment of VRE.

Importantly, power systems are already designed with the flexibility to manage variability and uncertainty, but requirements may grow and change over time. A number of operational, policy and investment-based interventions are available to make modern systems more flexible, facilitating cleaner, more reliable, more resilient and more affordable power systems.

Power system flexibility is a concept that is much broader than power plant flexibility.

Traditionally, flexibility has been associated with the more flexible operation of coal power plants in China. However, the concept of power system flexibility is much broader. Indeed, it encompasses all resources of the power system that allow for its efficient and reliable operation at growing shares of variability and uncertainty. Apart from power plants, it can be provided by grid infrastructure, demand-side response and electricity storage (Figure 2). In a transformed power system with higher shares of VRE, the importance of flexibility options beyond power plants increases sharply. This can open synergies with other developments in the power sector, such as the deployment of EVs.