As part of its ongoing effort to support scientific research, best practices, and case studies focused on policy-relevant issues, the Berkeley-Tsinghua Joint Research Center has launched a Working Paper Series to highlight the latest interdisciplinary work of BTJRC researchers and collaborators. The Working Paper Series will feature the latest thinking on the technological and institutional solutions required to address the challenges of transforming China's energy sector.
Electricity Market Transition in China: A Case Study of Guangdong Province
Abstract: China has embarked on reforms in its electricity sector that aim to introduce market mechanisms in wholesale pricing. This study provides a quantitative assessment of the impacts of electricity market transition in China, focusing on Guangdong Province. We examine the impact of market reforms on total generation costs and CO2 emissions, as well as the net revenue impacts on individual classes of generators. We find that market reforms deliver significant annual cost savings (21 to 63 billion yuan, 9%-27% reduction in total costs) to consumers in Guangdong, with smaller operating (production) cost savings (12 billion yuan, 13% reduction in production costs). Cost savings are driven primarily by reductions in average revenues for coal generators, fuel efficiency improvements for coal and natural gas generators, and natural gas-to-coal switching. Savings for consumers are accompanied by a large reduction in net revenues for coal and gas generators, as average market prices fall to around 300 yuan per MWh, raising concerns about generator solvency and the need for some form of scarcity pricing or capacity payments to generators to maintain resource adequacy. Even with scarcity or capacity payment that approach the annual fixed cost of new thermal generation, there are still substantial consumer savings.
Electricity Demand and Economic Transition in China: A Regional Analysis
Abstract: China’s economy is going through a major transition, characterized by a slower growth rate, a structural shift to the tertiary (service) sector, and industrial deleveraging—a process to reduce overcapacity that has built up in key industrial sectors over the past decades. Given the uncertainties faced by China during its current economic transition and the overcapacity in coal power plants, it is important to understand the key trends driving future demand growth in order to inform system planning for China’s power system. This analysis examined the relationship between electricity consumption, gross domestic product (GDP), economic structure, and overcapacity in heavy industries in China, using provincial-level data from 1995 through 2015. Our models showed that a structural shift to the tertiary sector and production reduction in heavy industries slows growth in electricity consumption, although GDP remains as the leading factor driving electricity demand. Our analysis projects an annual growth rate of 3.1 percent to 5.1 percent for electricity consumption in China by 2020, given that key features in China’s economic transition are likely to continue in the foreseeable future. In addition, we found regional patterns in electricity demand growth, separating the more developed regions along the eastern coast and the less-developed inland regions, due to different economic and demographic trends. These results provide a more rigorous/reliable perspective on trends in future electricity demand at both the national and provincial level and suggest that China needs a more transparent, robust, and dynamic planning methodology and process for its power sector.
China's Non-CO2 Greenhouse Gas Emissions: Future Trajectories, and Mitigation Options and Potential
Abstract: To understand the future drivers of non-CO2 GHGs and the significant mitigation potential for reducing non-CO2 GHGs, we use a bottom-up end-use modeling approach to capture macroeconomic and physical drivers of both energy and non-energy sectoral (e.g., agriculture, materials, waste generation) demand in China and the subsequent impact on CO2 and non-CO2 GHG emissions through 2050. This represents one of the first comprehensive modeling studies of China’s total future non-CO2 GHG emissions and mitigation potential using a bottom-up modeling approach. We developed two scenarios to evaluate the potential impact of non-CO2 GHG mitigation options, focusing on specific technologies, measures, and policies across key energy and non-energy sectors in terms of deployment potential, costs, and emission reduction efficiency. The Reference Scenario represents a counterfactual baseline scenario that reflects only current policies and assuming no additional non-CO2 mitigation measures will be implemented, with the exception of the HCFC phase-down schedule adopted as part of the Montreal Protocol and already underway in China.
Challenges and Strategies for Electricity Market Transition in China
Abstract: China is currently pursuing electricity reforms that would create wholesale markets for electricity. Electricity markets hold considerable promise for facilitating China’s transition to clean energy systems. However, transition obstacles have the potential to frustrate market reforms. The most important of these obstacles is the financial impact of market reforms on coal generation, which accounts for most of China’s electricity generating capacity. In this paper, we examine the impact of market reforms on coal generation in China, using a case study of Guangdong Province. We find that market prices are likely to lead to significant decreases in net revenues for coal generators relative to the current benchmark tariff, with 40% to 60% of coal generation capacity unable to cover the cost of remaining in commercial operation. We estimate that existing coal generators in Guangdong had 94 billion yuan (US$14 billion) in outstanding debt in 2016, creating large risks for banks and raising questions about the potential impacts of electricity market reforms on China’s financial industry. The impact of market reforms on coal generators creates two problems—transition and resource adequacy—that may have a common solution. We argue that dealing with transition issues through the development of long-term resource adequacy mechanisms presents a better balance between consumer savings and easing generator financial impacts from electricity market reforms than making transition payments to coal generators.
Chinese Policy Leadership Would Cool Global Air Conditioning Impacts
Abstract: Over the next decade, the global stock of room air conditioners is projected grow by 1.6 billion units, with critical implications for energy use and greenhouse gas emissions. At the same time, the phase down of hydrofluorocarbon (HFC) refrigerants under the Kigali Amendment, which entered into force 1 January 2019, provides an opportunity to couple the refrigerant transition with improvements in room air conditioner efficiency. A fast HFC phase down can avoid up to 0.5°C of warming by 2100, and it may be possible to double this with efficiency gains, according to the quadrennial assessment of the Montreal Protocol’s Scientific Assessment Panel. Because China produces approximately 70% of the world’s room air-conditioners, and about half of this production currently goes to the domestic market, there is a unique opportunity for Chinese leadership to spur economic transition to high quality production and accrue environmental benefits through a policy aligning the efficiencies of all Chinese room air-conditioners with the most efficient Chinese models produced today. This transition can lower costs by taking advantage of the parallel transition away from high-GWP HFC refrigerants under the Kigali Amendment to the Montreal Protocol, which was agreed in October 2016 thanks in large part to leadership by China.
Economic and environmental benefits of market-based power-system reform in China: provincial versus regional grid optimization
Abstract: China, whose power system accounts for about 13% of global energy-related carbon dioxide emissions, has begun implementing market-based power-sector reforms. This paper simulates power system dispatch in China’s Southern Grid region and examines the economic and environmental impacts of market-based operations. We find that market-based operation can increase efficiency and reduce costs in all Southern Grid provinces—reducing wholesale electricity costs by up to 35% for the entire region relative to the 2016 baseline. About 60% of the potential cost reduction can be realized by creating independent provincial markets within the region, and the rest by creating a regional market without transmission expansion. The wholesale market revenue is adequate to recover generator fixed costs; however, financial restructuring of current payment mechanisms may be necessary. Electricity markets could also reduce the Southern Grid’s carbon dioxide emissions by up to 10% owing to more efficient thermal dispatch and avoided hydro/renewable curtailment. The benefits of regional electricity markets with expanded transmission likely will increase as China’s renewable generation increases.
Sunsetting Coal Power in China
Abstract: Reducing CO2 emissions from coal-fired electricity generation in China will be critical to global efforts to limit global warming. Long-term projections of China’s electricity supply tend to assume that coal generation will be a mainstay of China’s electricity system through 2050, but it is unclear if and when carbon capture and storage will be viable at scale. This paper uses an analytical model to examine the resource, economic, and institutional implications of reducing and replacing coal generation in China with mostly renewable energy by 2040. We find that reducing and ultimately retiring all of China’s coal generation capacity by 2040 are technically and economically feasible, however, the scale of solar, wind, and storage resources needed to do so is extremely large — on the order of 100-150 GW yr-1 of solar and wind capacity and 15 GW yr-1 of battery storage from 2020 to 2025, growing to 250 GW yr-1 and 90 GW yr-1, respectively, from 2025 to 2040. However, the scale of new generation resources needed to meet 3-5 PWh (10-17 EJ) yr-1 of expected electricity demand growth in China by 2040 (relative to 2018) will be extremely large regardless of technology choices. Although the idea of terawatt-scale development of solar, wind, and batteries will naturally raise questions around feasibility, more important questions are around future technology costs, institutional changes needed to support a mostly renewable electricity system in China, and transition issues.