Chinese Government Releases Major Policy Guidance on Renewable Integration and Related Issues

In late March, the National Development and Reform Council (NDRC) and the National Energy Administration (NEA) jointly issued Guidance on Improving Power Sector Operation to Enable More Generation and Full Generation of Clean Energy. This document followed closely on the heels of Deepening Reform of the Power Sector, a major policy announcement issued by the Central Committee of the Communist Party and the State Council. Although the NDRC announcement does not directly mention Deepening Reform, it is closely in line with the principles set out in the latter and offers more detail on key topics.

This note provides a selective overview and preliminary reactions NDRC’s Guidance document, which focuses on renewables integration and reducing renewable energy curtailment. (For more background on these topics, see Low Carbon Power Sector Regulations: Options for ChinaIntegrating Renewable Energy into Power Systems in China, and Power Systems in China: A Technical Primer: Power System Operations).

Promoting renewable energy: The guidance document repeatedly emphasizes the importance of purchasing all renewable electricity, including in the following contexts:

  • In preparation of the annual balancing plan, provincial authorities should “ensure purchase of all renewable generation” (Article 1);
  • In preparation of the annual generation output plan, provincial authorities should ensure that new incremental demand-side requirements are “in priority fashion satisfied with clean energy generation (either from within or without the province)” (Article 3); and
  • In cross-provincial exchange planning (Article 6).

This emphasis on promoting renewable energy is much needed — but the challenges will include developing a detailed strategy, providing the right incentives to various players, and implementing it successfully.

Grid company role: Article 22 puts the onus on grid companies (gridcos) for key renewable energy integration issues, stating that “gridcos should have overall responsibility for clean energy generation forecasts, scientific unit commitment, fully tap the potential for load following, and rationally manage spinning reserve capacity; while ensuring safe operation of the power grid, gridcos should promote clean energy priority dispatch, implement full use of renewable energy [reduce curtailment]; speed up transformation of transmission lines; accept more energy from renewable energy sources.” NDRC calls for the NEA, along with provincial and local Development Reform Commissions (DRCs), to implement and enforce the new guidelines. However, their capacity may be limited and implementation will not be easy.  

The Guidance does not address the possibility of sharing the cost of curtailment between generators and grid companies — a practice that is increasingly common in the United States and other countries. This practice gives grid companies incentives to consider possibilities to reduce curtailment, while also encouraging wind generators to locate in areas where transmission is adequate and curtailment is less likely.

In the past, the gridcos have pointed to the need for system stability to avoid full implementation of measures to integrate renewable energy. The Guidance effectively leaves this in place by stating that system stability is a precondition that must be satisfied (在保障电网安全稳定的前提下). 

Dispatch reform: The Guidance stops well short of calling for a rapid shift to economic dispatch. Instead, the document envisages maintaining annual planned hours ( 地区年度发电计划) for at least a large fraction of generator output. However, this planning will be modified so that 1) renewable energy is given priority, and 2) cleaner thermal generation units are given more hours than dirtier ones. This is similar conceptually to the existing energy efficient dispatch pilots. However, the Guidance does leave an opening for “optimized” dispatch, at least for “qualified” parts of the grid (Article 2).  Grids with the “right conditions” can also implement priority dispatch pilots (Article 23).   

The Guidance also suggests that “direct trading” agreements will influence dispatch, saying that “energy already accounted for in direct trading market can be deducted from the annual plan” (Article 2), although it is not immediately clear how this will work. In other countries, generators may contract for some or all of their output, but are still dispatched according to economic dispatch. The Guidance does not address what happens if, for example, a relatively inefficient coal plant manages to arrange contracts for a more-than-otherwise-justified number of hours.

Ancillary services compensation: The Guidance addresses compensation for ancillary services (“peak adjustment”), although many details will have to be decided (Article 10). Higher amounts of variable generation will require additional ancillary services, such as load following, spinning reserves, non-spinning reserves, or a combination of multiple types of ancillary services. Generators will need compensation to provide these services, and the current compensation arrangements do not fully reflect their costs, including opportunity costs.

Transparency and data sharing: There is good news on this topic. The Guidance says “regulatory agencies should together with provincial governments publish data about ancillary services and grid operations” (Article 15).

Demand-side management: The Guidance promotes the use of demand-side management to support renewable energy integration. The focus is heavily on demand response and load shifting.

Market mechanisms: The Guidance includes much discussion of direct trading.  However, it is unclear how direct trading interacts with generation output planning. “After provincial governments set the annual generation output plan and cross-provincial exchange plan, power sector firms should accordingly negotiate and sign power purchase contracts; using generation rights trading and ancillary service markets (and other markets), balance the interest of different types of resources and promote “greater and full” generation of clean energy” (Article 9).

Issues addressed without much detail: A number of other issues will apparently will be decided in greater detail later. These include:

  • Distributed energy resources: Stresses the need to support them (Article 19)
  • Storage: Talks about “encouraging” thermal storage (Article 20)
  • Regulatory oversight: Rightly stresses the importance of good regulation (Article 25), but provides little detail and no hint on how to improve institutional capacity or strengthen regulatory authority and oversight.

--Max Dupuy, Kevin Porter, and Wang Xuan (30 April 2015)