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.