Chinas reform pushes renewables

China’s drive for a cleaner and more efficient energy grid received a boost in April when the Chinese government issued four documents on power sector reform. The documents, which were published in rapid succession, came from several different ministries and outlined long-awaited upgrades to the functioning of the world’s largest utility. The reforms were wide-ranging and introduced a number of different topics, including improving efficiency in the power sector, assisting efforts to integrate renewable energy into the grid, and removing conflicting incentives in power generation, all changes that NRDC has been advocating for years.

The first document, issued by China’s State Council, sets forth general guidelines for power sector reform in China. It’s the first major State Council document on power sector reform since 2002, but these latest reforms take a stronger stance on environmental protection than past policy changes. The document emphasizes the increased use of market mechanisms, injecting competition and diversification of supply into an industry that has long been held back by the lethargy characteristic of monopolies. The vast majority of China’s utility operations are controlled by a single company, the State Grid, a situation that has made China’s power sector sclerotic and resistant to change. The document — called State Council Document #9 — mentions a broad range of measures, like grid company revenue reform and improved electricity dispatch, that will help shift China’s grid into a greener direction. The document doesn’t offer details on how these measures will be implemented, leaving this task to supporting releases from other ministries.

One area where the document is especially direct is in its support of demand-side management (DSM), an area that NRDC pioneered in China. State Council Document #9 explicitly encourages demand-side management as a means for improving energy efficiency and increasing the share of renewable energy and distributed generation in the energy mix. DSM is taking a central role in China’s latest round of reforms to the power sector as the need to balance supply and demand in the power sector becomes increasingly more important. NRDC has long promoted the use of demand-side management as a promising and cost-effective way to improve the efficiency of the electricity grid in China, but its use is still limited. This new reform should speed up its adoption nationwide.

This high-level support for DSM is fleshed out in the other reform documents. The second document, issued by the National Energy Administration (essentially China’s Department of Energy), specifically addresses the integration of renewable energy into the grid. It identifies DSM as one of the primary tools for doing this. Despite massive investment in renewable energy by the Chinese government over the past decade, the industry is still hobbled by curtailment issues: If the wind blows at times of low demand, the grid won’t be able to accept that energy because there will be nowhere for it to go. Demand-side management can help fix this by allowing the utilities to use price signals and other techniques to influence when periods of high and low demand will occur, directing sources of flexible electricity demand (like electric vehicles) to draw power when renewable energy is available.

The last two documents were issued by the National Development and Reform Commission (NDRC) and concern specific pilot projects in the field of power sector reform. The first looks at China’s current DSM pilot cities — Beijing, Suzhou, Tangshan, Foshan — directing them to share results and best practices and develop new programs for demand response. The second document addresses another pilot project that’s testing revenue-cap regulation in Shenzhen and Inner Mongolia, expanding the pilot to four other provinces (Ningxia, Anhui, Yunnan, and Hubei). Revenue-cap regulation is similar to decoupling, a model that has already been adopted in many parts of the U.S. and Europe to disassociate utility profits from the amount of electricity they produce. It will be a key component for furthering the transition of China’s power grid to one that is high in efficiency and low in carbon emissions.

These changes represent a milestone in NRDC’s long-standing efforts to green China’s power sector. These efforts began over ten years ago when NRDC signed a Memorandum of Understanding with the industrial province of Jiangsu, working with local government officials and utility operators to develop a blueprint for the country’s first-ever DSM program. Since then, NRDC China’s DSM team has been on the front lines of this ongoing endeavor. We provide training on DSM best practices, policies, and techniques for government officials and grid employees in the current pilot cities and are currently developing a project that will make use of China’s burgeoning electric vehicle industry to balance demand and increase integration of renewable energy into the grid. These efforts will all be helped directly by China’s recent policy pronouncements, and we’re excited to continue our work with support from these new reforms.