Institutions and practices for power sector planning are the foundation for cost-effective investment and environmental sustainability. The main challenge is to shift the Chinese power sector away from the old model, in which meeting rapid demand growth was the prime consideration, and toward a model that gives careful consideration of complex trade-offs and multiple targets, including China’s goals for renewable energy, environmental quality, affordability, and reliability.
The National Energy Agency’s (NEA) June 2016 Power Sector Planning Regulation is a very good step toward this framework. The challenge now is to flesh out this new framework and ensure that planning is well coordinated with markets and other aspects of power sector reform, particularly China’s new electricity markets. To this end, the NEA regulation includes the principle that “market mechanisms” are to be used to procure the resources, conforming to “guidance” provided by the plan. This is certainly in line with experience in other countries. For example, the authors find that even in parts of the U.S. that have implemented electricity markets, planning still plays an essential role in evaluating resource adequacy, informing the need for adjustments to market design, and helping coordinate investments in generation with those in transmission and demand-side resources.
Based on a review of power sector planning practices in the U.S., the authors suggest five areas of planning that would benefit from attention:
- Clarify the planning roles and responsibilities among government agencies and between government agencies, grid companies, generating companies, and other entities.
- Clarify the role of planning in investment decision-making.
- Coordinate various investment options (demand-side resources, generation, storage, and transmission) to identify least-cost resources.
- Develop and apply quantitative modeling tools.
- Incorporate risk management into planning analysis and investment decision-making.
This paper is one in a series of papers by RAP and the Natural Resources Defense Council that looks at international experience for potential solutions and perspectives to inform China’s policymakers as they work toward meeting the country’s air quality and greenhouse gas reduction goals. Other papers address renewable energy integration, wholesale markets, and regulation and governance.
This paper is also available here in Chinese.