Wind is China’s fastest growing renewable energy resource. In 2012, 13 gigawatts (GW) were added to the system, and incremental wind electricity production exceeded coal growth for the first time ever. In the same year, unused wind electricity hit record highs while wind not connected to the grid was roughly half the size of Germany’s fleet. China’s is perhaps the largest yet most inefficient wind power system in the world.
As a variable, diffuse and spatially segregated energy resource, wind has a number of disadvantages compared to centralized fossil stations. These unavoidable limitations are not unique to China, though they are magnified by its geography. In addition, as I outlined in a previous post, coal has uniquely shaped China’s power sector development and operation; these also play a role in limiting wind’s utilization. Eyeing ambitious 2020 renewable energy targets and beyond, policy-makers and grid operators are confronting a vexing decision: continue the status quo of rapidly expanding wind deployment while swallowing diminished capacity factors, or focus more on greater integration through targeted reforms.
Getting the Power to Market
Unlike other countries with varying political support for renewable energy, wind in China enjoys a privileged status. A well-funded feed-in-tariff (FIT) and other government support since 2006 encouraged an annual doubling of wind capacity for four consecutive years, followed by 10-15 GW additions thereafter. Wind projects are typically far from city and industrial centers where electricity is needed, however, and transmission investments to connect to the grid did not keep up pace. This remarkable gap left turbines – as many as a third of them in 2010 – languishing unconnected, unable to sell their electricity (see graph).
From Brazil to Germany, grid connection delays – primarily transformer and line right-of-way siting, permitting and construction – have occurred where there is rapid wind power development. China, however, had until mid-2011 a unique policy that exacerbated the wind-grid mismatch: all projects smaller than 50 MW could be approved directly by local governments, bypassing more rigorous feasibility analyses, in particular, related to grid access. The delay of central government reimbursement to overburdened local grids for construction may also be responsible. The level of non-grid connected capacity is hovering around 15 GW as of the end of 2012.
If you are a wind farm owner and have successfully connected to the grid, you might still face hurdles when trying to transmit your power to load centers. Grid operators make decisions a day ahead on which thermal plants to turn on, so if wind is significantly higher than forecasted 24 hours before, the difference may be curtailed (or “spilled”) to maintain grid stability. If wind is at the end of a congested transmission line, the grid operator may also have to curtail, as happens in ERCOT (Texas’ grid) and northwest China. Finally, to manage hourly variation, grid operators will accept wind as much as they can ramp up and down other generators to maintain supply and demand balance. The thermodynamics of fossil fuel plants place limits on this flexibility.
As with grid connection, China’s curtailment problems are much more severe than for its peers (see graph). The latest provincial figures, for 2011, pegged this at between 10~20%, and reports on 2012 show this skyrocketing to as high as 50% in some regions. By comparison, ERCOT peaked at 17% in 2009 and was 3.7% last year. This difference is largely, though not exclusively, attributable to two factors: China’s mix is coal-heavy which is more sluggish when changing output than, for example, natural gas. As I described before, the increased size of coal plants makes this effect more pronounced.
Secondly, since the Small Plant Closure Program began in 2006, new coal plants built to replace the aging fleet were preferentially designed as combined heat and power (CHP) to provide residential heating and industrial inputs where available, with the northeast seeing the highest penetration. Keeping homes warm during winter nights when wind blows the strongest effectively raises the minimum output on coal plants and reduces the space for wind. Following particularly high winter curtailment in 2012, China’s central planning agency, the National Development and Reform Commission (NDRC), began encouraging projects to divert excess wind to electric water heaters and displace some fraction of coal CHP. Given the capital investments required and the losses in conversion from electricity to heat, it is not clear how economical these pilots will be.
The Politics of Power
Besides the inflexibilities in the power grid described above, several idiosyncrasies of China’s power sector governance likely have a hand in spilled wind. A product of the partial deregulation that occurred between 1997 and 2002 was the establishment of “generation quotas” for coal plants: minimum annual generation outputs fixed by province loosely to recover costs and ensure a profit. Since China no longer has vertically integrated utilities, these are not true “cost-of-service” arrangements. There may be messy politics if wind cuts into the quotas of existing plants.
On top of this, decisions to turn on, up, down or off generators on the grid (collectively referred to as “dispatch”) are fragmented by region, province and locality (read here and here for excellent primers). To bring order to these competing demands, dispatch is fairly rigid and a set of bilateral contracts between provinces have been institutionalized stipulating how much electricity can be transmitted across boundaries. The primary reason for creating a wide, interconnected grid is the ability to flexibly smooth out generation and load over a large number of units, but this kind of optimization is nigh impossible without centralization of dispatch and transmission.
Targeted reforms could help deal with these hurdles to accommodating more wind. In fact, the guiding document for power sector reform published in 2002 (State Council  No. 5) lays out many of them: establish a wholesale market in each dispatch region to encourage competition in generation; open up inter-regional electricity markets; and allow for retail price competition and direct electricity contracts between producers and large consumers, among others. Former head of the National Energy Administration and key arbiter during the reform process, Zhang Guobao, vividly recounts the heated discussions [Chinese] that led to this compromise.
Ten years later, most of the challenges are well-known: separately regulated retail and wholesale prices, a semi-regulated coal sector, and political fragmentation. Recently, there may be renewed interest in tackling these remaining reform objectives. Electricity price reform was listed in a prominent State Council document on deepening economic reforms in May, and NDRC has taken steps to rectify the coal-electricity price irregularities. Still broader changes will require strong leadership.
Managing the Unpredictable
Record curtailment in 2012 prompted a strong central government backlash: a suite of reports, policy notices and pilots soon followed. These were targeted at better implementation of existing regulations (such as a mandate that grids give precedence to renewables over thermal plants), additional requirements on wind forecasting and automated turbine control, and compensation schemes of coal generators for ramping services. These policies and central government pressure to better accommodate renewables appear to have had an impact: all provinces except Hebei saw an increase in utilization hours in the first half of 2013 [Chinese].
Due to the unique mix of power plants and regulation in China, typical wind integration approaches such as increased transmission are important but not sufficient. China aims to generate at least 390 TWh of electricity from wind in 2020, which is roughly 5% of total production under business-as-usual, over twice in percentage terms of current levels. This will put additional stresses on the nation’s purse and power grid. How China chooses to face these conflicts and grow its wind sector – through a combination of more investment and targeted reforms – will have unavoidable implications for the long-term viability of wind energy in the country.
Read Parts 1 and 2 in the “Transforming China’s Grid” series: “Obstacles on the Path to a National Carbon Trading System” and “Will Coal Remain King in China’s Energy Mix?”
Graphic by Jesse Wells: www.JesseWellsArt.com