Moving Forward on China's Electricity Reforms
China’s electricity system has powered China’s emergence as the world’s largest economy. Due to heavy reliance on coal, however, this system contributes to more than 13% of global energy-related carbon dioxide emissions and is a major contributor to poor air quality in China and the Pacific region.
In early 2015, China resumed a long-delayed effort to reform its electricity sector, with the stated goals of improving economic efficiency and environmental performance. After more than a year of policy discussions and pilots, this new reform effort does not show clear signs of marked progress. This project proposes to work with and support thought leaders to advance the conversation of electricity-sector reform in China, by focusing on two key areas:
Near-term pathways for electricity reforms in China
The first area will describe politically feasible pathways for reforms, focusing on the role of long-term contracts, clean energy support mechanisms, real-time balancing, provisioning of ancillary services, transmission pricing, market regulation, and environmental regulation. Specific activities may include:
Review of existing reform documents: consolidation, review, and gaps analysis of the central and provincial regulatory documents that have emerged since March 2015, focusing on the China Southern Grid region.
Pathways analysis for market designs: systematic analysis of potential options for forward contracting, capacity markets, day-ahead and real-time markets, ancillary service markets, transmission pricing, regional coordination, organizational structure, market power monitoring and mitigation, and environmental regulation.
Economic assessment of market implementation: analysis of the benefits and costs of different market designs on different kinds of generators, grid companies, and customers across a province or region (e.g., the impact of phasing out generation quotas over the next few years on generator profitability and bidding strategies, possible technical and financial solutions through capacity markets or transition contracts).
Capacity expansion and dispatch model: building a model that can examine various options of resources needs (generation, transmission, and demand-side resources) that can support the integrated planning process in power sector.
The long-term future of clean electricity markets
The second area will examine the longer-term future of markets under higher penetrations of non-fossil fuel energy, based on recent research and analysis in the United States. This analysis seeks to provide a clearer endpoint for Chinese policymakers on what the longer-term (e.g., 2030) future of electricity markets might look like. Specific activities may include:
Analysis of the evolution of wholesale markets under high penetrations of clean energy: analysis of the robustness of currently electricity wholesale market designs to higher penetrations of clean energy, and in particular variable renewable generation, expanding on recent analysis of high penetration renewable electricity systems in California and New York.
Joint work will be conducted with leading institutions in China on electricity reform, producing authoritative publications in Chinese and English on the economics, engineering, and political economy of different reform options.
Analytical work will be conducted by Berkeley Lab on market design, market modeling, and potential regulatory (political economy) solutions in China, producing authoritative publications that can be used to engage with Chinese partners.
Lin, Jiang, Fredrich Kahrl, Jihai Yuan, Qixin Chen, and Xu Liu. Electricity Market Transition in China: A Case Study of Guangdong Province. BTJRC Working Paper 001. June 2018.
Lin, Jiang, Xu Liu, and Gang He. Electricity Demand and Economic Transition in China: A Regional Analysis. BTJRC Working Paper 002. July 2018.