fully integrated in the energy market. New
energy subsidy policies are indispensable, but
they should be proper and reasonable, thus
encouraging technological innovation and the
sound development of the new energy sector.
6 Electrification of Energy Demand
International experience suggests there are three
key factors that have historically driven electrification rates: technological progress, increased
income and structural change.
Technological progress has been the most
important driver of electrification, particularly in
buildings. Assuming a continuation of historical
technology trends, this driver could increase
China’s electrification rate by 6 percentage points
by 2050.
Income increases could raise China’s electrification rate by more than 5 percentage points by
2050, as consumers demand a higher quality
energy carrier in terms of flexibility and
cleanliness.
Given structural change affects electrification,
a move to less power-intensive sectors implies
lower electrification rates: an increased share of
transport in energy use in China is expected to
reduce the electrification rate by 3 percentage
points by 2050.
In the future, decarbonisation will be a key
driver of electrification, as the power sector can
be decarbonised relatively easily and electricity
used across end uses. Decarbonisation will
increase electrification of the transport and
buildings sectors, principally due to the uptake of
electric vehicles and heat pumps. However, further electrification of industry is challenging due
to technical constraints (Fig. 50).
China’s electrification rate could increase from
23% today to 32% by 2050 on the basis of historical experience of macroeconomic drivers, or
to 40–48% indicatively as a result of future trends
in decarbonisation. To achieve these high rates of
electrification, policymakers may wish to implement a range of policy packages to overcome
increased peak load variability, underdeveloped
networks, investment and behavioural barriers,
and innovation constraints.
6.1 Macroeconomic Drivers
of Electrification
Technology, income and economic structure
drive changes in electrification rates.
Technology effect: Common technology
trends across countries over time have led to
increased levels of electrification. A country
today will be more electrified than a country in
the 1990s with the same level of income. Technology could contribute 6 percentage points to
China’s electrification rate by 2050.
Income effect: Level of electrification increases with income. A country with a higher income
level will be more electrified than a country with
a lower income level in the same period, all
things being equal. Income could contribute 5
percentage points to China’s electrification rate
by 2050.
Structural change: Differences in economic
structure lead to different levels of electrification.
A country with more energy use in an
electricity-intensive sector, such as buildings,
will have greater levels of electrification. Structural change will lower China’s electrification
rate by 3 percentage points by 2050.
To estimate this, we use a fixed effect (within)
model. This uses the panel dimension of the
dataset to account for both entity and time fixed
effects. Geology is an example of an entity fixed
effect that varies across countries but not across
time; and general electrification due to technological progress is an example of a time fixed
effect that varies across time but not across
countries. The time trend chart is generated by
storing and plotting the time fixed effects. It
shows the common electrification trend across
time, controlling for income and entity fixed
effects (i.e. country-specific factors such as latitude and geology).
Technological progress includes the introduction of new electricity-powered services, as
well as the substitution of electricity for other
Special Report 2: Research on China’s Energy Demand Revolution
277
energy subsidy policies are indispensable, but
they should be proper and reasonable, thus
encouraging technological innovation and the
sound development of the new energy sector.
6 Electrification of Energy Demand
International experience suggests there are three
key factors that have historically driven electrification rates: technological progress, increased
income and structural change.
Technological progress has been the most
important driver of electrification, particularly in
buildings. Assuming a continuation of historical
technology trends, this driver could increase
China’s electrification rate by 6 percentage points
by 2050.
Income increases could raise China’s electrification rate by more than 5 percentage points by
2050, as consumers demand a higher quality
energy carrier in terms of flexibility and
cleanliness.
Given structural change affects electrification,
a move to less power-intensive sectors implies
lower electrification rates: an increased share of
transport in energy use in China is expected to
reduce the electrification rate by 3 percentage
points by 2050.
In the future, decarbonisation will be a key
driver of electrification, as the power sector can
be decarbonised relatively easily and electricity
used across end uses. Decarbonisation will
increase electrification of the transport and
buildings sectors, principally due to the uptake of
electric vehicles and heat pumps. However, further electrification of industry is challenging due
to technical constraints (Fig. 50).
China’s electrification rate could increase from
23% today to 32% by 2050 on the basis of historical experience of macroeconomic drivers, or
to 40–48% indicatively as a result of future trends
in decarbonisation. To achieve these high rates of
electrification, policymakers may wish to implement a range of policy packages to overcome
increased peak load variability, underdeveloped
networks, investment and behavioural barriers,
and innovation constraints.
6.1 Macroeconomic Drivers
of Electrification
Technology, income and economic structure
drive changes in electrification rates.
Technology effect: Common technology
trends across countries over time have led to
increased levels of electrification. A country
today will be more electrified than a country in
the 1990s with the same level of income. Technology could contribute 6 percentage points to
China’s electrification rate by 2050.
Income effect: Level of electrification increases with income. A country with a higher income
level will be more electrified than a country with
a lower income level in the same period, all
things being equal. Income could contribute 5
percentage points to China’s electrification rate
by 2050.
Structural change: Differences in economic
structure lead to different levels of electrification.
A country with more energy use in an
electricity-intensive sector, such as buildings,
will have greater levels of electrification. Structural change will lower China’s electrification
rate by 3 percentage points by 2050.
To estimate this, we use a fixed effect (within)
model. This uses the panel dimension of the
dataset to account for both entity and time fixed
effects. Geology is an example of an entity fixed
effect that varies across countries but not across
time; and general electrification due to technological progress is an example of a time fixed
effect that varies across time but not across
countries. The time trend chart is generated by
storing and plotting the time fixed effects. It
shows the common electrification trend across
time, controlling for income and entity fixed
effects (i.e. country-specific factors such as latitude and geology).
Technological progress includes the introduction of new electricity-powered services, as
well as the substitution of electricity for other
Special Report 2: Research on China’s Energy Demand Revolution
277