trigger the market exit of a substantial amount of generation capacity, in the absence of an appropriate economic mechanism. This issue will require close monitoring and possibly dedicated policy intervention to ensure an orderly transition. However, as the following section shows, the opening of electricity trade has a pronounced effect on which coal generators see a reduction in their utilisation.

Increasing penetration of VRE by reducing curtailment is only possible with a changed operational pattern of fossil fuel and dispatchable hydropower plants, as these move to balance a more volatile net load.50 This can be observed in particular during periods of very high net load ramps (Figure 33, right panel). However, assuming standard flexibility characteristics of the generation fleet, there is no major issue in balancing supply and demand at a national level.

Figure 33. National level load and generation mix of a typical week, fair and economic dispatch

The Chinese power system can accommodate a larger share of VRE with a mix of flexible generation technologies in the absence of dedicated plants to provide flexibility.

Value of unlocking interregional trading

The value of increased interconnection is explored in a number of different cases with a different emphasis. The first analysis – NPS-Flow – investigates the value of increased trade in the presence of fair dispatch. This allows an assessment of the relative importance of improved regional trade versus improved dispatch. The second analysis – NPS-Operations – combines improved trade and dispatch to investigate trade-offs and synergies between both options. The third analysis – NPS-Full flex – then looks at additional grid investment in a system that already relies on optimised operations.

more than offsets the estimated annuitized investment cost for the transmission of around USD 2.3 billion per year.

Fully unlocking the potential of regional trade has a number of effects, which are not linked primarily to VRE integration alone (Figure 35). The most notable effect is the result of the difference in the coal price across China, linked to the cost of transporting and difference in prices for domestic and imported coal.

As the barriers to fully utilising transmission capacity are lifted, there is a change in the way the different regions trade energy. By firstly unlocking interregional trade on the existing transmission network, more power flows from the hydro-rich SWR to the CR, while there is also an increase in the flow of power from the VRE-rich NWR to the CR and ER. NSR also sees a large increase in power imports from the NWR and NCR. The ability for it to import cheaper electricity will be helpful to Shandong’s economic structural change (see Annex A).

Following the increase in transmission utilisation, investment in the transmission network in the NPS-Full flex case leads to further development of interregional power trade, mostly characterised by a more than twofold increase in power exports from the NWR and increased power imports into both the CR and ER. The level of power exports from the NWR demonstrates the competitiveness of the low-cost VRE in this region – a fact that could benefit the development of the region’s economy.

Figure 35. Load and net import of energy by region, 2035, NPS cases

Increased interconnectivity raises the importance of regions with abundant, low-cost electricity supply to meet national power demand.

A closer look at VRE-rich regions

The implementation of economic dispatch substantially reduces VRE curtailment at a national level. However, considering the size of China, it is necessary also to examine regional levels of curtailment, as some regions with significant VRE capacity might experience high curtailment due to constrained transmission links. Two regions are especially relevant (see Table 12): the NCR and the NWR. These two regions have a curtailment rate of around 50–60% when applying fair dispatch, revealing the shortfall in flexibility of this administrative dispatching order (NCR has capacity of about 100 GW of wind and 100 GW of solar PV, while NWR has about 200 GW of wind and 200 GW of solar PV).

Interestingly, after switching to economic dispatch, the curtailment rates in the both NCR and NWR dramatically drop from 46% to 3% and from 55% to 10% respectively. This significant drop in VRE curtailment is due to the large amount of coal generation capacity in NCR and NWR that receive a generation allocation under fair dispatch protocols in the NPS-Inflex case. When moving from fair to economic dispatch, the amount of coal generation in NCR and NWR is reduced by more than 50%, given the large amount of low-cost VRE generation available.

VRE curtailment falls significantly after a shift to economic dispatch, but it remains relatively high in certain regions.

Indeed, the NWR hosts one-third of China’s solar and wind capacity due to significant potential resources and grid capacity, resulting in its VRE generation capacity far exceeding local demand. Hence, further flexibility enhancements are required to successfully integrate the region’s large amount of wind and solar capacity. Interregional trading can be enhanced so that more load from other regions is met by the NWR, helping to consume its large amount of VRE generation.

Current interregional electricity trading in China is mostly administrative and uses only a limited proportion of the transmission capacity. By allowing the full utilisation of existing interregional transmission capacity, interregional trade expands. Energy exports largely remove the VRE surplus in the NWR, leading to a 4 percentage point decrease in VRE curtailment (Figure 36). Additional investment in interregional transmission capacity can further decrease VRE curtailment to below 1% for the NWR. During periods with low VRE output, the system can still operate reliably with the flexibility of interregional trading and transmission capacity.