***REGISTER NOW for CHINA: Carbon Neutral by 2060 – INNOVATION*** – China has the world’s largest power plant fleet for both coal and renewables. Together they make up most of the total power capacity of over 2,200 GW…

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…The tremendous growth of solar, wind and hydro during the past ten years means renewables are almost on a par with coal. But two-thirds of the actual electricity generated is from coal. That’s because the development of markets that allow customers to buy at the lowest price have not kept up with the clean energy transformation, explains Simon Göss at cr.hub. Part of the problem is the vast distances involved, though that is being addressed by China’s impressive investment in long-distance ultra-high-voltage (UHV) power lines. That leaves the problem of designing and enabling the markets. Göss summarises the challenges. It’s a big issue that all nations and regions are facing, requires innovative thinking, and therefore an important opportunity for knowledge-sharing and cooperation between the EU and China.

With the largest power plant fleet worldwide both for coal and renewables, China’s transformation to a less carbon intensive and renewable energy system is a complex process. Certainly the tremendous build-out of solar, wind and hydro during the past ten years made it a power house in renewable generation. Yet, king coal still reigns and about two-thirds of the country’s electricity is generated in coal-fired power plants.

For China to reach its “dual carbon” targets of peaking emissions in 2030 and achieving climate neutrality in 2060 many roadblocks still have to be overcome. Technological and policy innovations will certainly help the most populous country on Earth achieve its targets. By taking a closer look at important pieces of the transition, I hope to shed light on where and how China could pick up valuable points from the European energy transition experiences (both, the do’s and the dont’s).

Capacity of renewables almost at the level of coal

With the large addition of about 120 GW of renewable capacity in 2021, China’s power plant fleet topped more than 2,200 GW. The good news: renewable capacity (solar, wind and hydro) make up more than 1,000 GW of that capacity and are almost on par with the coal capacities. The bad news: also in 2021 coal-fired power plants were still added to the grid. Figure 1 depicts the share of the installed capacities of the main power sources in the Chinese grid by the end of 2021 (source: Baker Institute, China Energy Portal).

As I detailed in another article on the development of the Chinese electricity system in 2021, renewables produced over 2,300 TWh of electricity and generated 28 per cent of the country’s electricity last year. This is indeed great progress and China is set to overachieve its 2030 target of 1,200 GW of renewable capacity.

On the other hand, the generation from coal also increased during last year and led to the highest CO2-emissions of China ever recorded: more than 10.6 Gt in 2021. Clearly, despite the huge growth of renewables, additional measures will be necessary for the country to achieve its climate targets as well.

Let us now take a closer look at a few topics, where technological and policy innovation might play an important role to boost China’s energy and climate ambitions.

China’s power grid needs the integration of infrastructure and market

As a country that spans across several thousands of kilometers, connecting the load centers on the east coast of China with some of the coal and renewable generation bases further inland and to the west warrants a considerable build-out of power lines.

As early as 2006 the construction of long-distance ultra-high-voltage (UHV) power lines with more than 800 kV commenced (compare Figure 2). Currently there are more than 30 long-distance power lines installed. They allow for a transmission of 450 TWh of electricity annually (source: Rethink Research). An additional 10 UHV projects have been approved in 2020 (source: Energy Iceberg).

Currently however, the utilisation of these power lines is lower than their name-plate capacities indicate. Specifically a lack of an interconnected and integrated electricity market stifles the real benefit of these large-scale electricity transmission lines. As of now, most of the UHV lines run under long-term contracts for coal, with fixed amounts and prices. Therefore a situation of an electricity surplus in one area due to a high generation from renewables and a shortfall in other province cannot always be accommodated. That leads to suboptimal generation profiles. Due to central planning targets some provinces make sure they have their coal-fired power plants up and running instead of relying on outside supply. In particular, the electricity shortages last summer could reinforce such behavior and processes (source: China Dialogue).

The integration of power system planning and power market development will consequently be a very relevant topic for China. Europe with its many countries and interconnected electricity system could prove a very valuable example. Under the EU-China Energy Cooperation Platform (ECECP), a joint project of ENTSO-e (made up of the transmission system operators of the European countries) and Chinese partners investigated planning approaches for China’s grid development under different energy transition scenarios (source: ECECP).

Electricity markets: matching supply and demand

From 2015 onwards China’s regulators started slowly but surely to implement market pricing mechanisms in the electricity sector. Since then a host of different provincial, cross-provincial and national power market pilots have started to operate. Some long- and medium-term market mechanism are already in place for trading excess renewables across provinces.

An integrated spot market that allows for the most efficient dispatch of power sources for the entire country has yet to be developed (source: China Dialogue). Especially in regard to the increasing amounts of fluctuating renewable electricity generation such a mechanism could give important price signals and help to reduce the generation from coal. New policies on electricity market developments in China have just been announced earlier in 2022 (source: Carbon Brief). Here the experiences of Europe’s integrated power market design could come in handy.

Innovation transfer through increased cooperation

Aside from developing markets, several large European energy companies have a stake in China already, ranging across a number of activities. For example, German RWE’s subsidiary RWE Supply & Trading (Shanghai) is actively trading commodities in the Chinese market, while French ENGIE even fosters and supports energy transition innovations with its own network in China. Also on the technical side European companies are active: Shell (China) started a large hydrogen electrolyser unit with 20 MW in Hebei Province during early February 2022.

China’s energy transformation and the accompanying “dual carbon” targets are pivotal for keeping global warming below 2 degrees. Therefore and despite geopolitical differences, enhanced cooperation between EU actors and China is necessary. Technology transfer and specifically learning from the experiences of policy mechanisms and their introduction should be a high priority for both sides.

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Simon Göss is an energy analyst and co-founder of cr.hub