Rocky Mountain Institute Releases Report on China Power Markets

Beijing, China (July 24, 2019) — Rocky Mountain Institute (RMI) today released a report which analyzes the impacts of implementing electricity markets in China and quantifies the benefits, which will help regulators identify which electricity power plants are at risk of closure due to market reforms and determine the best ways to handle challenges in the reform process.

According to the Implementations of Energy Spot Markets in China report, proper market design could reduce costs and carbon emissions by 3.6 percent and 4.4 percent respectively in the analyzed test province, largely driven by integrating more renewables and using more efficient power plants. Even if inefficient coal plants are forced to leave the market, China can still reliably operate its electricity system while integrating a high penetration of renewables.

China initiated power market reforms in 2015 to help reduce the cost to supply energy, and spot markets are key to help find the cheapest sources of generation to use in real-time to meet demand. Moving from China’s centrally planned economy to markets is a big change. Currently all generators, regardless of efficiency and operation cost, are equally dispatched and paid roughly the same for their energy. However, moving to markets shifts operation to the most efficient power plants and renewables, and it will jeopardize less efficient plants’ consistent revenues. Incumbent generator
companies could resist these reforms if they expect to lose out in the process, but losses can be lessened by identifying reasonable compromises. RMI, along with experts from China’s electric utility think tanks, codeveloped an economic dispatch model which showcases different results under different market design scenarios, aiming to help provinces in China design and implement their power spot markets to maximize cost savings and better manage challenges.

“Designing electricity markets is not a new problem, but finding the right ways to address political challenges without sacrificing market performance is a huge one. Markets around the world are still struggling with this problem, and each country has taken a different approach.” said Dan Wetzel, lead author and manager at Rocky Mountain Institute. “Finding an approach that works for China’s power reforms is one of the most important regulatory challenges in the world right now. Figures from the National Bureau of Statistics of China and the European Commission indicate that China’s power sector represents almost 10 percent of global emissions. Considering its contribution to carbon emissions, even a small improvement in market implementation of China’s power sector could lead to a significant reduction of global emissions.”

This approach to designing markets can also be applicable across regions like India and Southeast Asia, where market reforms are underway as well and could bring an additional 36 percent of global electricity demand into markets, according to the International Energy Agency. Many of these regions will possibly face similar challenges, and the findings of this report help highlight the “musts” of market reform, including market exit of inefficient plants and the compromises needed to manage affected generators.