China can learn from the EU about power market design and infrastructure build-out – GWC Mag

How will China integrate its growing Variable Renewable Energy generation and create a nationwide energy system that avoids the risks of curtailment, stranded assets and blackouts? A good place to start is to learn from Europe. Helen Farrell at ECECP summarises their report that uses the European experience to model scenarios for China. China’s key challenges is that its power market lacks an effective auxiliary service market, a capacity market, a transmission rights market and other supporting mechanisms. Meanwhile, its energy production is failing to keep pace with demand. In Europe, decades of market design have given the EU the ability to ensure security of supply even as it makes rapid adjustments to its long-term plans in response to energy crises. The report’s scenarios should allow China’s experts to develop and optimise its power market while building out the right infrastructure to meet demand and net zero targets.

As the world contemplates the switch away from fossil fuels and towards electrification and renewable energy sources, energy planners now need to find ways to plan for a revised infrastructure that can integrate renewable energy sources into a nationwide energy system while avoiding the risks of curtailment, stranded assets and blackouts.

The EU is ahead of China in this regard: since 1996, it has worked to develop an energy market that is able to respond rapidly to changing geopolitical conditions and to ensure security of supply. China, on the other hand, is still developing strategies to integrate fluctuating Variable Renewable Energy (VRE) resources and has yet to develop effective market systems to support a transition away from fossil fuels.

A report to be published in October 2023, ‘Investment and Technologies for Net-Zero Carbon Infrastructure’, is the 11th in a series of 14 EU-China projects overseen by the EU-China Energy Cooperation Platform. The reports evidence a sharing of expertise and knowledge that is intended to help both China and the EU to achieve their ambitious targets for climate neutrality.

This latest report is the result of three years of work by energy analysts from China’s State Grid Energy Research Institute (SGERI), China Electricity Council (CEC), Energy Research Institute (ERI) and Ea Energy Analyses, who have continued to work together even after being forced online during the Covid-19 pandemic. It offers a detailed analysis of the modelling required to ensure that energy planners can make maximum use of existing infrastructure even as the use of fossil fuels is gradually phased down.

New energy infrastructure, which includes pipelines, power plants and carbon capture facilities, needs to be planned years, if not decades, ahead and requires huge investments from both private and public sources. How should those planning the transition to clean energy predict demand and consumption and at the same time factor in variable energy generation which relies on highly unpredictable weather patterns? What storage options and mitigation measures should be planned for, and at what scale?

China’s key challenges

Two key challenges in planning for the net-zero scenario have been identified in China. Firstly, the fluctuating VRE resources are hard to integrate and will bring risks to the safe operation of the power system; secondly, a high proportion of renewable energy imposes more requirements on the market. China’s power market currently lacks an effective auxiliary service market, a capacity market, a transmission rights market and other supporting mechanisms. Meanwhile, energy production is failing to keep pace with energy demand, imposing constraints on the supply side.

Learning from Europe

Since 1996, Europe has adopted measures to address market access, transparency and regulation, consumer protection, supporting interconnection and adequate levels of supply. Its most recent measures – Fit for 55 (designed to accelerate the move to climate neutrality) and REPowerEU (in response to the escalation in hostilities between Russia and Ukraine) – have demonstrated the EU’s ability to ensure security of supply even as it makes rapid adjustments to its long-term plans in response to the energy challenges facing its 27 Member States.

The EU’s energy planning systems explicitly take account of the variability of weather conditions and the impact on both VRE generation and demand. Europe’s power sector has been unbundled and liberalised, creating open markets for generation, with transmission and generation handled separately. In terms of planning, each Member State establishes a reliability standard and performs a national assessment. At the EU level, it is the responsibility of the European Association of Transmission System Operators (ENTSO-E) to prepare the adequacy assessment report, while it is the duty of the EU’s Agency for the Cooperation of Energy Regulators (ACER) to approve the report or request amendments. The assessment informs policy decisions aimed at solving capacity adequacy issues.

It is only logical, therefore, for the EU to share with China its methods and strategies for modelling so that the different challenges facing the energy industry, against a background of rising global temperatures and extreme weather events, can be taken into account.

Designing an integrated energy system

This latest report provides an overview of modelling in the Chinese and EU energy industries, and then goes on to present a series of models of the Chinese energy system under liberalised market conditions. These models allow industry experts to work out which will yield the most accurate forecasts for how to mitigate against the risks associated with VRE.

Its initial finding is that an integrated energy system approach can enhance efficiency, promote renewable energy integration, improve flexibility and resilience, enable sector coupling and electrification, optimise costs, and support coordinated policy and planning efforts, all of which contribute to achieving decarbonisation targets more effectively.

The benefits of an integrated modelling approach are highlighted by a series of scenarios that take account of the physical transmission infrastructure, which are then compared to a scenario that does not take account of the physical gas and X-pipelines.

The report clarifies that alternative forms of energy commodity transportation need to be considered as part of the modelling. For example, more hydrogen pipeline capacity is likely to be constructed in provinces with high VRE potential to ship to provinces with high energy consumption.

Furthermore, when the gas pipeline infrastructure is factored in to the modelling, the usage of natural gas for power generation is higher, since the gas infrastructure has been already built and is used as long as it is economically the better option and within the emissions constraint.

With regard to Power-to-X (P2X) infrastructure additions, the results show that the utilisation rate of the X-pipelines is significantly higher in the scenarios that take account of the existing physical transmission infrastructure. This is because once a pipeline has been built it can be used virtually cost-free.

In all the scenarios, CO₂ capture and storage facilities are installed primarily in regions which have heavy industries that continue to emit CO₂ in 2060. Also, carbon capture is mounted on power plants where biomass can be sourced, so that the CO₂ can be captured and used or stored to generate negative CO₂ emissions. Pipeline investments connect the captured CO₂ with areas which hold carbon sequestration potential.

In general, provinces showing high volumes of carbon import and capture have high potential for carbon sequestration. The report demonstrates that high load provinces in the centre, north and south are importing CO₂, while provinces in the north-east and north-west are more export-oriented. It offers further evidence that an integrated system approach better represents the existing resources and ensures that they are used. This can be applied to help ensure a cost-efficient transition towards the net zero target.

Energy modelling is often focused on the power sector when seeking to achieve net zero targets: knowledge of how to decarbonise the power system already exists and the costs and challenges are understood. However, solutions for ‘hard-to-abate’ emissions require an integrated focus on the energy supply chain, resources, technologies, system efficiency and sector coupling.

By showcasing an integrated modelling approach of China’s electricity, gas and P2X sector, the project has strengthened analysts’ understanding of the need for more coordinated approaches towards energy infrastructure investment and operational planning and regulation.

This final report not only demonstrates the advantages of integrated energy system modelling, but also represents a hugely beneficial instance of cooperation between European and Chinese teams.

The report’s authors are clear: cooperation is key if the world is to step away from the looming climate catastrophe. Their avowed hope is that China’s energy experts are able to make use of the hard-won knowledge and experience of their EU counterparts to plan for maximum energy efficiency within the country’s energy infrastructure. ‘The time to achieve a net zero energy system is very limited,’ they write. ‘If each country develops technology on their own, it will be difficult to reach the target. The EU will not be able to reach its climate targets without China, and China will not be able to reach its climate targets in isolation from the rest of the world.’

The English language version of the report will be published later this month. Visit https://www.ececp.eu/en/flagship-series-en/ to download a copy. The Chinese language version will be published at the beginning of December.

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Helen Farrell is the Editor of the EU China Energy Magazine, at the ECECP

This article was first published in the EU-China Energy Magazine – October Issue, available in English and Chinese, and is published here with permission