- •Abstract
- •Highlights
- •Executive summary
- •Actions to boost flexibility and investment
- •Modelling analyses
- •Spot markets and trade
- •Advanced power system flexibility
- •International implications
- •Findings and recommendations
- •Report context and objectives
- •Drivers of change in power systems
- •Rapid growth of wind and solar PV
- •Power system flexibility
- •Phases of VRE integration
- •Priority areas for system transformation
- •Modelling approach
- •Spot markets and regional trade
- •Advanced power system flexibility
- •Investment certainty
- •Renewable energy policy
- •Market design and planning
- •Wholesale market design
- •Retail market design
- •Upgraded planning frameworks
- •International implications
- •Technical analysis
- •Introduction
- •Context and status of power system transformation in China
- •Background
- •Economically shifting gears
- •Ecological civilisation
- •Power system transformation
- •Brief introduction to China’s power system
- •Current status of power system in China
- •General perspective
- •How the power system works in China
- •Historical evolution
- •Power sector reform in 2015
- •Challenges in China’s power sector
- •Planning
- •Interprovincial and interregional trading
- •Dispatching order
- •Benchmark pricing system
- •Renewable development and integration
- •Emerging trends in system transformation in China
- •Introducing flexible market operation
- •Establishing spot markets
- •Incremental distribution grid pilots
- •Unlocking the retail side
- •Power plant flexibility pilots
- •Realising optimised planning
- •Five-year plan
- •Long-term strategy
- •Technological innovation and electrification
- •Distributed energy
- •Multi-energy projects, microgrids and “Internet+” smart energy
- •Digitalisation
- •Demand-side management/demand-side response
- •Electricity storage
- •EV development
- •Clean winter heating programme
- •Summary
- •References
- •Power system transformation and flexibility
- •Three global trends in power systems
- •Low-cost wind power and solar photovoltaics
- •Digitalisation
- •Rise of DER
- •Distributed solar PV
- •Electricity-based clean heating
- •Implications for power systems
- •Flexibility as the core concept of power system transformation
- •Properties of VRE generators
- •Phases of system integration
- •Different timescales of system flexibility
- •Layers of system flexibility
- •Redefining the role of system resources
- •Differentiating energy volume and energy option contributions
- •Evolving grids
- •From passive demand to load shaping
- •Implications for centralised system resources
- •Operational regime shifts for thermal assets
- •Matching VRE to system requirements
- •Increasing need for advanced grid solutions
- •Deploying advanced grid solutions
- •Multiple deployment opportunities for large-scale storage
- •Optimising the use of PSH
- •Embracing the versatility of grid-scale batteries
- •Synthetic fuels and other long-term storage options
- •Large-scale load shaping
- •Industrial demand response
- •Efficient industry electrification
- •Implications for DER
- •System benefits of energy efficiency
- •Mobilising the load through EVs
- •Targeting energy efficiency for system flexibility
- •Engaging distributed battery storage
- •Distributed generation for system services
- •Aggregation for load shaping
- •References
- •Policy, market and regulatory frameworks for power system transformation
- •Basic principles to unlock flexibility
- •Wholesale market design
- •General setup
- •Short-term markets (minutes to hours)
- •Medium-term markets (month to three years)
- •Long-term investment market (three years and beyond)
- •Economic dispatch and rapid trading
- •Cross-regional trade of electricity
- •Benefits of regional power system integration
- •Centralised versus decentralised models of integration
- •Market integration in the European Union
- •Market organisation
- •Attracting investment in low-carbon generation capacity
- •SV as a key concept for renewable and low-carbon energy development
- •System-friendly VRE deployment
- •German market premium system
- •Mexican clean energy and capacity auctions
- •Pricing of externalities
- •Impact of CO2 pricing on daily and long-term operations in the power market
- •Policy packages and interactions
- •Electricity sector design
- •Retail markets and distributed energy resources
- •Retail pricing reform
- •Degrees of granularity for retail tariffs
- •Compensating DER
- •Implications for general policy design
- •Revisiting roles and responsibilities
- •The DSO-TSO interface
- •Aggregators
- •Role of ISOs
- •Centralised and decentralised platforms for DER engagement
- •Elements of structural reform
- •Policy principles for DER
- •Upgraded planning frameworks
- •Integrated planning incorporating demand-side resources
- •Integrated generation and network planning
- •Integrated planning between the power sector and other sectors
- •Interregional planning
- •Including system flexibility assessments in long-term planning
- •Planning for distribution grids
- •Improved screening/study techniques
- •Including local flexibility requirements in planning techniques
- •Policy principles for planning and infrastructure
- •Transition mechanisms to facilitate system reforms
- •Mexico’s legacy contracts for the regulated supplier
- •Transition from the public service regime
- •Transition from the private-party regime (self-supply)
- •Treatment of “stranded costs” in the United States
- •References
- •Power system transformation pathways for China to 2035
- •General trends in China’s power system evolution
- •Achieving a “Beautiful China”
- •Key variables for system transformation
- •Different power system pathways
- •Two main scenarios for 2035
- •Power sector modelling cases analysed for the NPS
- •Power sector modelling cases analysed for the SDS
- •Description of power system model used for analysis
- •Power sector modelling results
- •Comparing basic features of the WEO 2018 NPS and SDS results
- •NPS modelling cases
- •High-level summary of results
- •Value of moving from fair dispatch to economic dispatch
- •Value of unlocking interregional trading
- •A closer look at VRE-rich regions
- •SDS modelling cases
- •High-level summary of the results
- •Understanding an SDS power system without advanced flexibility options: SDS-Inflex
- •Assessing individual flexibility options
- •Understanding the value of DSR deployment: SDS-DSR
- •Understanding the value of electricity storage: SDS-Storage
- •Understanding the value of smart EV charging: SDS-EV
- •Assessing portfolios of flexibility options
- •Understanding the value of a portfolio of DSR and EVs: SDS-DSR+EV
- •Understanding the value of a portfolio of storage and EVs: SDS-Storage+EV
- •Understanding the value of a combined portfolio of smart EV charging, DSR and storage: SDS-Full flex
- •Summary
- •References
- •Summary and conclusions
- •Power system transformation in China
- •China has already embarked on its own pathway to power system optimisation.
- •Integrating variable renewable energy and an orderly reduction of coal power will be the primary challenges for successful power system optimisation.
- •Power system flexibility will become the most important attribute of a transformed power system.
- •Different layers of the power system need to be addressed in order to achieve system transformation successfully.
- •The alignment and integration of different policies and measures in the power sector and related sectors are pivotal to long-term success.
- •Optimising the dispatch of power plants is a fundamental prerequisite for reducing power generation costs and preserving VRE investability.
- •Creating short-term markets and robust short-term price signals can greatly facilitate power system transformation and reduce system-wide energy prices.
- •The optimised use of existing and soon-to-be-built transmission lines can substantially reduce renewable energy curtailment and integrate additional wind and solar capacity.
- •Optimising power system operation is bound to trigger the market exit of inefficient coal generators; this process is likely to need active management.
- •Innovative options to further accelerate progress towards a “Beautiful China”
- •Optimised use of demand-shaping techniques is critical to unlock very high shares of renewable energy cost-effectively.
- •Electric mobility has great potential for integrating renewable energy, but only if charging patterns are optimised.
- •Applying digital technologies to the distribution grid and at the customer level can unlock additional flexibility and is an opportunity for economic development.
- •Additional considerations for markets, policies, regulation and planning
- •Advanced renewable energy policies can minimise integration challenges.
- •Advanced design of wholesale markets, including markets for system services, is an important tool to accelerate power system transformation.
- •Changes to electricity tariffs could help optimise the deployment and use of distributed energy resources (DER).
- •Integrated long-term planning that includes demand shaping and advanced options for energy storage is a crucial foundation for a successful transformation of the power system.
- •International implications
- •Accelerated progress on power sector optimisation could bring substantial benefits for China and the world.
- •References
- •Annexes
- •Annex A. Spatial disaggregation of national demand and supply
- •Modelling regions and interconnections
- •Defining modelling regions and regional interconnections
- •Creating regional electricity demand profiles
- •Generating hourly load profiles for each region
- •Allocating generation capacity between regions
- •Method used for calculating CAPEX savings
- •References
- •Acronyms
- •Acknowledgements, contributors and credits
- •Table of contents
- •List of figures
- •List of boxes
- •List of tables
China Power System Transformation |
Summary and conclusions |
curtailment would rise to 6%. Adding a further approx. 200 GW of transmission lines to the existing 230 GW assumed brings this number down to 0% in the Northwest region.
Optimising power system operation is bound to trigger the market exit of inefficient coal generators; this process is likely to need active management.
Moving from the fair dispatch system to economic dispatch, combined with more optimised trade of electricity, would lead to a substantial shift in the operating pattern of coal-fired power plants.
International experience shows that prices based on economic dispatch, in the context of rising shares of VRE, can lead to insufficient remuneration for conventional generation. In the Chinese context, less-efficient coal-fired power plants may face reduced operating hours and a smaller share of the market as a result of increased renewable electricity production and more competitive conventional generation. International experience suggests that such plants may be at risk of closure. In order to ensure reliable service is maintained, it is critical that a mechanism is in place to retain any such plants that might still be needed for reliability and/or resiliency purposes.
Furthermore, the modelling analysis in this report demonstrates that if economic dispatch were implemented in concert with additional transmission infrastructure buildout, significant interregional shifts in generation would occur, with some regions becoming major exporters and others major importers. There are important social and economic implications of such changes, and a smooth transition is needed to allow for the necessary socio-economic adjustment, particularly in areas that may experience a reduction in economic activity as a result of lower coal-fired generation levels.
The issue of power plant retention for reliability purposes can be addressed via capacity remuneration mechanisms (CRMs). Well-designed CRMs help to provide more revenue certainty to plants deemed necessary to maintain reliability, ideally allowing a range of generation and demand-side resources to compete in a market-based system that secures such payments. Using a market-based (i.e. competitive) system for determining the appropriate allocation and level of CRM payments can help to reduce system costs and ensure that the most efficient resources are being utilised to provide reliability services.
The issue of socio-economic adjustments can be addressed by a variety of transition mechanisms. Their design is fundamentally a political choice and depends on how quickly regions are being transitioned toward economic dispatch, and what socio-economic impact (if any) that change may ultimately result in. This report contains a number of examples of transition mechanisms that have been implemented internationally to smooth transition challenges associated with adopting economic dispatch.
Innovative options to further accelerate progress towards a “Beautiful China”
Optimised use of demand-shaping techniques is critical to unlock very high shares of renewable energy cost-effectively.
The SDS features a VRE share of 49%, ranging from 12% in Guangdong to 74% in the Northwest region. These shares imply a much higher level of supply-side variability and uncertainty. Consequently, shaping electricity demand to better match variable supply can bring substantial benefits to the system.
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China Power System Transformation |
Summary and conclusions |
Load shaping can be achieved with three basic mechanisms:
electrification, which creates new demand when and where there is VRE supply (e.g. electrification of transport using smart charging)
shedding of load during times of low supply (e.g. reducing consumption in certain industrial processes)
shifting load from times of low supply to times of high supply (e.g. shifting the time of heating water in electric water heaters).
In practice, these effects can be achieved through “implicit” and “explicit” load-shaping practices. While explicit practices directly control the load shape, implicit practices attempt to more indirectly influence its shape through economic signals. Time-of-use retail electricity tariffs are an example of an implicit practice, where customers are presented with a timevariable tariff which sends an economic signal to reduce or increase their demand throughout the day or week. More direct utility-led demand response programmes are an example of an explicit load-shaping practice, where the utility is given more direct control over certain aspects of their customers’ load in exchange for bill reductions. Such utility-led programmes may also incorporate energy efficiency measures for load shaping.
Optimising demand for electricity also requires reducing wasteful use of energy. China has made substantial progress in improving energy efficiency through programmes such as the Top 1 000 Programme, energy performance contracting and the Energy Efficiency Obligation. Without energy efficiency improvements made since 2000, China would have used 12% more energy in 2017, emitting an additional 1.2 gigatonnes of CO2 equivalent. China’s energy efficiency policies should continue to achieve energy savings, reducing the absolute volume of resources needed while at the same time delivering economic, environmental and social benefits.
In addition to strong policies in support of energy efficiency, comprehensive strategies for load shaping are an emerging trend in China, as well as globally in countries with growing proportions of VRE. China has a substantial opportunity to develop and implement advanced solutions for load shaping, which could also help boost long-term industrial development.
Electric mobility has great potential for integrating renewable energy, but only if charging patterns are optimised.
China is a global leader in electric mobility. In 2017, China accounted for 5 out of every 10 EVs sold, and 99% of battery electric buses are in China. This trend is likely to continue thanks to a mix of policy support, technology improvement and cost reductions. The SDS projects there to be 220 million EVs in China in 2035, with an aggregate peak charging capacity of 250 GW, or almost 20% of peak demand.
Dynamically matching the times when EVs are charging to the availability of VRE can help balance supply and demand from a few seconds up to several hours. However, EVs do not automatically result in a benefit to the power system. Indeed, unmanaged charging of EVs can increase peak demand and worsen the match between VRE supply and demand. For example, it makes a great difference if charging is concentrated in the evening when people return home or during the day when people are at work or conducting daily activities. In the case of unmanaged home charging in the evening, EV charging will show a very poor match with solar PV availability. Conversely, daytime charging leads to a much better match. In addition, unmanaged charging of EVs may result in the need for additional distribution grid upgrades, particularly in congested urban areas. To move forward, the integration of transport planning
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