By Anders Hove
On July 18, China’s National Energy Administration (NEA) announced that the Beijing-Tianjin-Hebei (Jing-Jin-Ji) region would become a pilot zone for electricity market reforms, with the goals of maintaining electric reliability, raising efficiency, and improving renewable integration. NEA also announced a new working group to model and simulate how various power market reforms could affect power supplies and prices across the region. The working group will be headed by representatives from State Grid, the National Development and Reform Commission (NDRC, of which NEA is a part), and the Ministry of Industry and Information Technology (MIIT).
This is a big step forward for power market reform in China, which to date has mostly been focused on much smaller pilot projects, rather than entire mega-metropolises like Jing-Jin-Ji. This region is particularly well-suited to a renewable energy pilot, as we pointed out in a recent “Going for Gold” report. The Jing-Jin-Ji region is among the most polluted areas of China, and power market reform is ultimately a tool for increasing renewable energy and using energy more efficiently. The region also already boasts large amounts of renewable energy, especially near the city of Zhangjiakou, which is only over 200 kilometers away from Beijing and will co-host the 2022 Winter Olympic Games together with Beijing. Zhangjiakou has 8 GW of wind and solar capacity today, and plans to boost wind and solar energy production to 50 GW by 2030.
The challenge, of course, is getting renewable energy in Zhangjiakou to where it’s needed—namely to the rest of the Jing-Jin-Ji region.
NEA’s Jing-Jin-Ji power reform pilot can help get clean power to high energy demand cities in two ways, both of which should be key points of focus for the new working group.
- First, power prices should be set by the market, instead of by the government. At present, the government sets power prices, and wind and solar are artificially expensive relative to coal. This has helped promote investment in power plants but has reduced the incentive to dispatch more renewable energy. The establishment of a region-wide “spot power market”—in which electricity is traded in real time, as opposed to preset power contracts for a month, year, or several years at a time—could help promote renewable energy integration. Why? Spot markets reward renewable power plants that have very low fuel and operating costs. (Note: In a separate announcement on July 21, China’s NDRC announced a two-year timeline for adopting a spot power market nationwide.)
- Second, establishing Jing-Jin-Ji as a region for experimenting with market reforms could break down institutional barriers to more efficient dispatch of energy across a wider geographical area. As we noted in “Going for Gold,” both Germany and Texas managed to enlarge their balancing areas, which allowed for renewable energy to be shared across great distances. Currently, Jing-Jin-Ji is divided up into several dispatch zones, and improving their coordination is a challenge. Establishing Jing-Jin-Ji as a power market reform demonstration zone could help overcome those barriers.
While the NEA’s announcement is an important step toward better renewable energy integration, challenges remain. The most crucial is establishing a clear timeline and metrics for success. Integrating renewable energy is an essential element of achieving China’s domestic and international goals on non-fossil energy and carbon emissions. China has adopted a number of policies related to prioritizing dispatch of renewable energy, but often these policy documents do not spell out clear implementation steps, timelines, and measurable goals for evaluating their success. (While this is in keeping with general practice, the government does occasionally issue more concrete targets, such as in five-year plans, or in the 2013 Action Plan on Air Pollution Control and Prevention, which set out implementation steps and timelines for reducing pollution in Jing-Jin-Ji and other regions.) Given that Jing-Jin-Ji’s renewable energy profile resembles Germany and Texas in many key respects—such as amount of renewable energy relative to demand, and distance from renewable power plants to major energy consuming urban areas—the region can and should learn from these international best practices. Most crucially, Germany and Texas have demonstrated how specific policies (spot power markets, integrated planning of transmission and generation, and wider balancing areas for renewable energy) can bring down the percentage of curtailed (wasted) renewable energy, ultimately reducing the power sector’s carbon emissions while contributing to cleaner air.
Power market reforms have many goals—greater efficiency, lower prices, and improved reliability among them. The NEA’s designation of a Jing-Jin-Ji electricity reform pilot is a step in the right direction, but more needs to be done. In particular, it’s vitally important that the working group in charge of designing the Jing-Jin-Ji pilot quickly adopts clear and transparent timelines for improved integration of renewable energy. Prioritizing the use of renewable energy over coal has been a long-term priority for policy-makers, but progress to date has been slow. The Jing-Jin-Ji power reform pilot is a chance to set a plan for achieving a cleaner power grid for the entire region—something which, if implemented, can help the 110 million people living in Jing-Jin-Ji breathe a little easier and bring a solution to other regions that have even higher renewable curtailment problems.
Anders Hove is Associate Director of Research at the Paulson Institute.