framework enables coordinated planning of
generation and network investment, harnessing both strategic decisions and market
enterprise. For example, the framework might
set out the role of generation zones for
large-scale renewables alongside alternatives
like small-scale distributed generation.
• Implement smart system architecture. Smart
distributed resources are crucial to affordable
decarbonisation. Before building the distributed resources, the system architecture to
manage it should be laid down. At a minimum, this includes: deployment of smart
meters to introduce time-of-use pricing to
consumers in the distribution network;
upstream information and communications
architecture; and R&D to develop technical
solutions for the smart grid.
(2) Move towards efficient pricing
• Deregulate prices. Cost-reflective pricing can
signal investment and operational efficiency
to decision makers. The deregulation of prices
can proceed sequentially, with further price
reform contingent on the success of previous
reforms. Price reform could commence
upstream and progress downstream, beginning with input fuels and progressing through
generation, network access and ending with
retail, with provision to protect retailers if
wholesale prices rise above retail prices
before deregulation
• is completed.
• Create harmonised trading arrangements
between transmission systems. Use prices to
determine interconnector flows between
provincial and regional transmission systems,
signalling which provinces or regions could
benefit from new investment. The prices
would stimulate lower-cost generators to
respond to demand.
• Implement time-of-use pricing. Time-of-use
pricing allows consumers and flexible
resources to respond to variation in generation costs and demand. Again, it can proceed
sequentially, starting with larger consumers,
such as industrial facilities with flexible
production schedules, and ending with smart
household appliances.
• Consider locational pricing. Similarly, locational pricing can signal investment and
operational efficiency, but it brings disadvantages as well as advantages. China may
consider locational pricing, after it has
implemented time-of-use pricing, to signal
geographical network constraints once
demand peaks have been shaved. Zonal
pricing is a potential intermediate step
between uniform and full nodal pricing.
• Protect end users. The deregulation of retail
electricity may result in rent-seeking by
retailers, raising consumer prices. This can
happen if consumers do not switch suppliers
readily or for other reasons if competition is
not effective. Policies to protect consumers
could be developed alongside any deregulation of retail electricity prices.
(3) Begin market trials
• Create small-scale trials. Create small-scale
trials to competitively procure new transmission investments, non-network alternatives to
new transmission assets, ancillary services
and so on. Use competitive tenders or auctions for the trials. These may provide
proof-of-concept and experience with innovative, cost-effective solutions. To be successful, procurement must be open-access and
transparent.
• Progressively introduce market procurement.
If the competitive procurement trials are
successful, they can be scaled up and wider
market procurement progressively introduced, where appropriate, across each transmission system. Market procurement can
reveal information about the relative cost and
benefits of a range of technologies.
(4) Make institutional choices
• Develop transmission network institutions.
Options include the status quo, an enhanced
role for market procurement, and a regulated
transmission system operator (TSO) or
Special Report 1: A Study of China’s Energy Supply Revolution
83
generation and network investment, harnessing both strategic decisions and market
enterprise. For example, the framework might
set out the role of generation zones for
large-scale renewables alongside alternatives
like small-scale distributed generation.
• Implement smart system architecture. Smart
distributed resources are crucial to affordable
decarbonisation. Before building the distributed resources, the system architecture to
manage it should be laid down. At a minimum, this includes: deployment of smart
meters to introduce time-of-use pricing to
consumers in the distribution network;
upstream information and communications
architecture; and R&D to develop technical
solutions for the smart grid.
(2) Move towards efficient pricing
• Deregulate prices. Cost-reflective pricing can
signal investment and operational efficiency
to decision makers. The deregulation of prices
can proceed sequentially, with further price
reform contingent on the success of previous
reforms. Price reform could commence
upstream and progress downstream, beginning with input fuels and progressing through
generation, network access and ending with
retail, with provision to protect retailers if
wholesale prices rise above retail prices
before deregulation
• is completed.
• Create harmonised trading arrangements
between transmission systems. Use prices to
determine interconnector flows between
provincial and regional transmission systems,
signalling which provinces or regions could
benefit from new investment. The prices
would stimulate lower-cost generators to
respond to demand.
• Implement time-of-use pricing. Time-of-use
pricing allows consumers and flexible
resources to respond to variation in generation costs and demand. Again, it can proceed
sequentially, starting with larger consumers,
such as industrial facilities with flexible
production schedules, and ending with smart
household appliances.
• Consider locational pricing. Similarly, locational pricing can signal investment and
operational efficiency, but it brings disadvantages as well as advantages. China may
consider locational pricing, after it has
implemented time-of-use pricing, to signal
geographical network constraints once
demand peaks have been shaved. Zonal
pricing is a potential intermediate step
between uniform and full nodal pricing.
• Protect end users. The deregulation of retail
electricity may result in rent-seeking by
retailers, raising consumer prices. This can
happen if consumers do not switch suppliers
readily or for other reasons if competition is
not effective. Policies to protect consumers
could be developed alongside any deregulation of retail electricity prices.
(3) Begin market trials
• Create small-scale trials. Create small-scale
trials to competitively procure new transmission investments, non-network alternatives to
new transmission assets, ancillary services
and so on. Use competitive tenders or auctions for the trials. These may provide
proof-of-concept and experience with innovative, cost-effective solutions. To be successful, procurement must be open-access and
transparent.
• Progressively introduce market procurement.
If the competitive procurement trials are
successful, they can be scaled up and wider
market procurement progressively introduced, where appropriate, across each transmission system. Market procurement can
reveal information about the relative cost and
benefits of a range of technologies.
(4) Make institutional choices
• Develop transmission network institutions.
Options include the status quo, an enhanced
role for market procurement, and a regulated
transmission system operator (TSO) or
Special Report 1: A Study of China’s Energy Supply Revolution
83