A transition from planned fair dispatch rule where generators produce an allocated energy volume to economic dispatch which enables resources to compete based on their short-run marginal costs and thus, reflects economic optimization will result in lower power system operational costs, increase efficiency, reduce capacity underutilization and renewable energy curtailment. Market reforms to the power sector can increase the efficiency and reliability of power generation. As laid out in greater detail below, more market-based reforms to the power sector can enhance the effectiveness of power generation and reduce the tradeoffs between climate ambitions and energy security. Despite some efforts to construct ultra-high-voltage lines between select provinces, the current power market has not created adequate incentives for China’s grid companies to construct new grid networks to connect large renewable energy-producing regions to the populous coastal regions, resulting in curtailment.Ĥ. Furthermore, inadequate inter-provincial power trading platforms and incentives have prevented provinces from purchasing and dispatching power efficiently. The power system’s regulatory framework also lacked incentives to decrease total energy consumption, the development of renewable energy, and the provisions of related products other than energy, such as ancillary services that are required to maintain grid stability and security (Supponen and others, 2021). While the latter ensured cost recovery for coal plant investments, the inflexibility of the planned operation hours contracts and lack of wholesale power market made renewable energy artificially less economical. Moreover, the increasing importance of environmental welfare was at odds with the power system and its command-and-control pricing framework. The challenges included low generation asset utilization, low energy efficiency, high pollutant emissions, and wastage (curtailment) in renewable energy generation. As growth moderated and objectives shifted towards emissions reduction, China’s traditional power system has become less compatible with the changing needs. This “fair dispatch” rule effectively isolated generators from explicit market competition and led to suboptimal expansion and utilization of generation fleet.ģ. Under this setup, coal power plants, regardless of their age, size, efficiency, or emissions levels, would all be allocated the same numbers of generation hours. The annual administrative procedure for power generation planning converted forecast electricity demand into generation quotas, and then evenly allocated the quotas to the generators. As a result, electricity dispatch and pricing were predominantly administrated with the primary goal to stimulate generation and transmission investments rather than economic efficiency (Guo and others, 2021). To meet the extraordinary electricity demand, the regulation framework was designed to ensure sufficient investment.
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