energy efficiency and - energy studies institute

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Energy efficiency and conservation in China’s power

sector

Opportunities and Challenges in China’s

Energy development

Jiahai Yuan, NCEPU

[email protected]

Outline

Brief overview on power sector in China

• EE&C in power sector: drivers and policy

• EE&C in power sector: overall progress

• EE&C in power sector: prospective

Brief history of power system in China

Period Guiding policies Description

1949–1985 Centrally planned and

administered system

Vertical integrated SRE; government agencies

plan, finance, manage, and operate the

system; oscillations between centralized and

decentralized management

1985–1997 Decentralization to provinces;

opening of investment

Opening up of the sector to provincial

government, private, and foreign investment;

guaranteed investment return on generation

investment

1997–2002 Separation of government and

business

Corporatization of the sector through the

creation of the State Power Corporation (SPC);

Ministry of Electric Power dissolved, functions

transferred to the State Economic and Trade

Commission (SETC) and the State

Development and Planning Commission

(SDPC), later merged into the NDRC

2002– Separation of generators and grid

companies

Dismantling of the SPC into 5 national SOE

generating companies, 2 national grid

companies; creation of SERC (merged into

NEA in 2013) and NEA

Features of power system in China

Developmentalism: fueling economic growth with cheap

energy is a long and deep-rooted ideology; supply

adequacy is always a priority

Socialism: state-ownership; central planning; fruitless

market reform

Shortage and rapid growth: rank No.2 in total installation

(1140GW after the USA in 2012) but per capita

installation or consumption reveals utterly different

picture

Regional imbalance: province-based operation;

mismatch of load and resources

Carbon lock-in: coal power dominates installed capacity

(72.3%) and generation (82.4%); power generation

accounts for more than 50% of coal consumption

Features of power system in China

%

coal consumed for

power generation

electricity over primary

energy

electricity over end-

use energy

1985 19.6 21.32 7.43

1990 26.9 24.68 9.05

1995 35.05 29.58 12.38

2000 45.54 41. 72 17.89

2005 53.72 41.39 19.22

2010 54.32 43.43 21.26

Table: share of electricity over primary and end-use energy in China

Source: China Electricity Council

Outline

• Brief overview on power sector in China

※EE&C in power sector: drivers and policy



Drivers and policies

Aspect

Power generation Power grid End-user

EE drivers

Improvement in

thermal power

Clean energy

development

Improvement in

grid infrastructure

Improvement in

grid operation

Integration of

more renewable

Smart grids

Optimize power

consumption in

industrial,

commercial and

residential

customers

Measures Improvement in

operation efficiency

of thermal power

Scale-up of

generation units and

technical innovation

CHP

Clean power:

hydro, wind, solar…

Energy efficient

transformer

Optimization of

power grid structure

(UHV)

Energy efficient

dispatch

Renewable-

friendly grid…

Differential tariff to

industrial customers

TOU pricing

Customer-side

retrofitting or

investment coupled

with fiscal subsidy

Novel smart grids

applications…

Replacement of small coal power units with

large ones

1999-2003: mandatory closure of generation units

at 50MW and below

2006-2010: plan to close a total of 50GW units at

100MW and below (NDRC and NEA)

Progress: 76.83 GW(2010); 80 GW(2011)

Improvement in thermal power

(sce

gram/KWh) 100MW unit 300MW unit

600MW unit

(SC)

600MW unit

(USC)

1GW

unit

coal

consumption

rate of power

supply

380 330 310-320 310 290

• Replacement of small thermal power with large units

(Cont.)

Assume an reduction of 70 gce in heat rate and annual

operation of 4700 hours (2011), 80GW replacement

results to an annual conservation of 26.3 Mtce primary

energy.


• Technology investment in efficient generation units

• In the 1990s, most of the thermal power generators

above 300 MW/unit were imported; now 600MW(SC)

and 1GW(USC) generators can be produced in China

• In 2011, 300MW and above units accounted for 74.5%

of total thermal power plants in China; but in 1993 the

share was only 23%.

• However, there are still about 80GW small units in

operation.

% 1GW 600MW 300MW 200MW

200MW and

below

share 5.3 33.5 35.6 7.0 18.5

Table China’s coal power structure in 2011


Energy efficiency benchmarking in SOE

generators(NDRC,2007)

In 2007 NDRC introduced EE benchmarking in

SOE generators, including evaluation system,

enforcement body and annual information

disclosure mechanism

Progress: The generation efficiency levels of

TOP5 improved continuously and converged at

315 gce/KWh power supply in 2012


290

300

310

320

330

340

350

360

370

HUANENG DATANG HUADIAN GUODIAN CHINA POWER INV.

2006

2007

2008

2009

2010

2011

2012

Fig. coal consumption rate of power supply in China’ TOP5 SOE generators


• Energy-saving dispatch (NDRC, 2007): “Rank

various power generators according to the energy

consumption and emission level”

1 Renewable

• Unadjustable like wind and solar

• Adjustable like hydro and biomass…

2 Clean

3 Efficent

• Nuclear power

4 Gas and other coal

• Gas power

• Other coal power

• CHP thermal power


Energy-saving dispatch (NDRC, 2007)

“Conduct pilot test in five provinces and then

implement it throughout the country”

In essence, this policy can result in what happened

in countries where market mechanism has been

introduced.

Result: pilot test reveals remarkable conservation

potential. But it was strongly opposed by

generators and local governments. Without a

strong determination on market reform, it is

suspended with no follow-up.


• Economic policies

• Regional benchmark price (NDRC, 2004)

• Though competitive bidding was terminated, regional

benchmark price introduced by NDRC in 2004 acted as

“power pool” and contributed to efficiency improvement

in power generation

• Before benchmark price, generation pricing was

complicated in China. In 1980s and 1990s, in order to

attract investment in power sector and solve the

headache of serious power shortage, the government

even set generation price on a unit-by-unit base.


• Economic policies

• Co-movement of coal price and wholesale power

generation price (NDRC, 2005):

• “In no less than 6 months, if coal price increases by 5% or more,

then NDRC will adjust generation price accordingly”. But actual

implementation reveals that generators have to burden part of the

coal price increase.

• A transitional “quasi-market and quasi-planning” measure: coal

price is determined by market (profit-seeking) but wholesale

power price is strictly regulated by the government (developmental

and other social purposes) .

• But the hike of coal price (1000RMB/ton in 2008 vs. 200RMB/ton

in 2003) and the co-movement mechanism does provide incentive

for the generators to improve energy efficiency.


Comprehensive policy package from legislation,

to medium-and-long-term renewable energy

planning and specific implementation measures

Key points of developing policies in China

• Renewable generation quota for generators (>5GW)

• Mandatory purchase of renewable power accessed to

power grid

• Creation of special fund to promote renewable power

• Feed-in-tariff for wind power (2009) and solar power

(2013)

Clean energy development

Table installed capacity and power generation in China, 2012


Results

• Largest developer of hydropower (249GW) and wind

power (75.6GW)

• Possible take-off of solar power (newly installation of

3GW in 2011 and 2012)

Challenges

• Serious curtailment of wind power (and hydropower)

• Difficulty of integrating renewable into the grid

• Inadequacy of supporting fund: 1.5 cent/KWh surcharge

is not enough to sustain the FIT scheme


The share of non-

hydropower renewable in

total power generation is

small in China

Wind share in total

generation

Denmark: 34%

Portugal: 21%

Spain: 17%

Ireland: 16%

Germany: 7%

China: 2.67%


thermal

(Xingjiang)

On-grid price: RES-E V.S. Thermal power

in China, 2010 (Unit: CNY/kWh)

wind

solar PV

bio-energy

solar

thermal

geo-, ocean-

thermal

Power source

thermal

(Guangdong)


Improved grid infrastructure

• UHV (AC 1000 KV; DC 800KV), to transport electric power,

instead of coal in long distance

• Standardized planning, design and operation of power system

• Pilot Smart grids projects

Improved grid operation and dispatch • Trans-regional transaction of power sources

• Implementation of Generation Rights Trade

Results during 2006-2010 • Directly saving 11 Mtce by reducing line loss

• Indirectly saving 54 Mtce by improving grid operation and dispatch

Improvement in power grid

Key measures

• Differential tariff to large industrial users（差别电价）

(NDRC, 2004): higher price for energy-intensive industry

• Demand-side management (DSM) (NDRC, 2010)

• Tiered tariff in residential users (阶梯电价) (NDRC, 2012)

Results and comments

• The potential of DSM is vast in China, but its actual

implementation is very limited in China;

• Differential tariff in industrial sectors is largely industrial

policy, not for energy efficiency;

• It is too early to judge the actual effect of tiered tariff

Improvement in end-user

Outline



※EE&C in power sector: overall progress


Overall progress

Year Line

loss (%)

Heat rate (generation)

(gce/KWh)

Heat rate (supply)

(gce/KWh)

1985 8.18 398 431

1990 8.06 392 427

1995 8.77 379 412

2000 7.70 363 392

2005 7.21 343 370

2011 6.52 308 329

Table energy efficiency in China’ s power sector

CEC, 2013

Overall progress

Table Comparison of CO2 emission from coal power plants

Grams

CO2/kWh 1995 2000 2005 2006 2007

World 883 879 909 910 903

European

Union—27 818 813 814 828 835

United

States 938 916 914 903 920

Japan 1006 961 911 917 910

United

Kingdom 880 906 935 923 927

China 987 911 937 930 893

Brazil 1543 1464 1585 1616 1605

India 1213 1203 1244 1247 1252

OECD (2011)

Overall progress

Table International comparison of line loss

SGCC (2010)

% 1980 1990 2000 2005 2011

Korea 6.97 5.62 4.71 4.51

Japan 5.80 5.70 5.20 5.10

US 9.35 6.68 6.34 6.47

France 6.81 7.87 6.88 6.59

China 8.50 7.23 7.26 7.12 6.52

Australia 10.45 7.37 7.75 7.15

Canada 9.43 7.29 8.57 7.82

UK 8.12 8.06 8.48 8.46

Russia 8.38 8.86 12.41 12.62

Brazil 11.91 12.99 16.49 15.36

India 17.89 20.45 29.23 26.35

Overall progress

Overall comments China can catch up with industrialized countries in both

generation efficiency of thermal power and line loss of the

power grid

The resulted progress mainly comes from

• Scale economy in thermal power, mainly by command-and-control

and partly driven by competition in generators and coal price hike.

But its future potential is rather limited

• Clean generation quota requirement for main generators and a FIT

scheme. But the conflicts between “coal power based macro-grid”

and “renewable-based distributed and micro-grid” will exacerbate

under the existing institutional arrangement

DSM, or Contracting energy performance (CEP), has yet to

develop into a mainstream market in China

Outline




※ EE&C in power sector: prospective

prospective

Improvement in thermal power Scale of economy: little to moderate

Operation efficiency improvement: little to moderate

CHP or other combined process: moderate to large

Renewable energy Wind : large

Solar : little in 3-5 years, but moderate to large in 10 years

biomass and others: little to moderate

Power grid Energy-saving dispatch: large

Smart grid: vast

DSM Effective pricing mechanism: vast

CEP: vast

policy implication

Transition

Technical progress: from generation side to

grid and customer side

Overall contribution: from technical efficiency

to economic efficiency

Change in mechanism: from regulation (CAC,

technical standard etc) to market-based

incentive

Policy implication

Institutional arrangement • Re-defining the role of power grid company (public utility,

separation of T&D, SO with power supply business)

• A level playground for all investors in renewable and

energy efficiency market

Market reform

• Generation bidding and bilateral contracting: proper price

signing the scarcity of resource

• Independent T&D pricing: regulated cost-based pricing

• Renewable power: pre-competitive

Integrated infrastructure (smart grids)

• Active customer involvement

• DG and micro-grid

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