areas where it is scarce, due to limited transmission capacity. As a result, while China has
significant renewable generation capacity, large
volumes of renewable energy are curtailed,
increasing overall electricity costs and carbon
emissions.
20
According to Vivid Economics, the transition
of China’s energy system to a low-carbon and
decentralised system is likely to exacerbate these
inefficiencies and create new challenges. As the
Chinese economy and energy sector decarbonises, it will be increasingly difficult to maintain a high level of grid reliability at an affordable
cost. Moreover, decentralisation of electricity
resources requires significant investment in smart
capabilities and creates challenges for efficient
planning and delivery of infrastructure across
different networks.
21
7.4.2 Differences in the New Round
of Electricity System
Reform
When different stakeholders reach a consensus
on the problems in the power industry and the
necessity of reform, differences arise regarding
the reform path to be selected, mainly due to the
positioning of grid companies in the power
market.
One view is that the new round of power
system reform should follow the same path as the
last round in 2002 to complete unaccomplished
reform tasks. These tasks include separating
transmission from distribution, making dispatching organisations and trading institutions
independent from grid companies, enabling the
market to determine transmission and distribution prices, building regional power markets and
creating a power spot market.
People who hold this view generally believe
that integrated grid companies that operate
transmission, distribution and sales hinder competition due to their control of the grid and large
size, making effective regulation impossible. In
their opinion, the precondition for a competitive
power market is to restructure these companies.
The basic approaches to restructuring in a Chinese context are:
• separate grid assets from non-grid assets, and
transmission assets from distribution assets;
• make dispatching an independent, neutral
organisation regulated by government
because dispatching is a public service, not a
grid company asset;
• build power exchanges involving various
stakeholders and explore integrating power
dispatching centres with power exchanges;
• create a power market dominated by regional
power markets to avoid trans-provincial barriers and provincial oligopolies; and
• build power spot markets as soon as possible,
based on the principle of “no spot, no
market”.
Another view is that the new round of power
system reform should develop a practical and
effective solution to the problems facing the
Chinese power industry. The people holding this
view believe that power reform is a long-term
and progressive process, and that radical reforms
like separation and restructuring will not solve
the problems but will impact supply safety and
grid stability. They suggest the following reform
approaches:
• maintain control of the power grid but
deregulate power generation and sales: gradually introduce competition into power generation and sales to develop diversified
market participants and create a fair, competitive environment;
• stick to the principle that the power grid is a
natural monopoly: maintain integrated management of transmission, distribution, dispatching and trading; strengthen government
regulations and provide fair and efficient
network services; and
• create a unified, open, competitive and
orderly power market in which resource
allocation and macro-control are combined
organically: forge a sound legal system,
20
Vivid Economics, Electricity Grids in Transition, Final
Report. Prepared for the DRC-Shell Markets Revolution
Work Stream, October 2017.
21
Ibid.
502
S. Yaodong and A. Gillespie
significant renewable generation capacity, large
volumes of renewable energy are curtailed,
increasing overall electricity costs and carbon
emissions.
20
According to Vivid Economics, the transition
of China’s energy system to a low-carbon and
decentralised system is likely to exacerbate these
inefficiencies and create new challenges. As the
Chinese economy and energy sector decarbonises, it will be increasingly difficult to maintain a high level of grid reliability at an affordable
cost. Moreover, decentralisation of electricity
resources requires significant investment in smart
capabilities and creates challenges for efficient
planning and delivery of infrastructure across
different networks.
21
7.4.2 Differences in the New Round
of Electricity System
Reform
When different stakeholders reach a consensus
on the problems in the power industry and the
necessity of reform, differences arise regarding
the reform path to be selected, mainly due to the
positioning of grid companies in the power
market.
One view is that the new round of power
system reform should follow the same path as the
last round in 2002 to complete unaccomplished
reform tasks. These tasks include separating
transmission from distribution, making dispatching organisations and trading institutions
independent from grid companies, enabling the
market to determine transmission and distribution prices, building regional power markets and
creating a power spot market.
People who hold this view generally believe
that integrated grid companies that operate
transmission, distribution and sales hinder competition due to their control of the grid and large
size, making effective regulation impossible. In
their opinion, the precondition for a competitive
power market is to restructure these companies.
The basic approaches to restructuring in a Chinese context are:
• separate grid assets from non-grid assets, and
transmission assets from distribution assets;
• make dispatching an independent, neutral
organisation regulated by government
because dispatching is a public service, not a
grid company asset;
• build power exchanges involving various
stakeholders and explore integrating power
dispatching centres with power exchanges;
• create a power market dominated by regional
power markets to avoid trans-provincial barriers and provincial oligopolies; and
• build power spot markets as soon as possible,
based on the principle of “no spot, no
market”.
Another view is that the new round of power
system reform should develop a practical and
effective solution to the problems facing the
Chinese power industry. The people holding this
view believe that power reform is a long-term
and progressive process, and that radical reforms
like separation and restructuring will not solve
the problems but will impact supply safety and
grid stability. They suggest the following reform
approaches:
• maintain control of the power grid but
deregulate power generation and sales: gradually introduce competition into power generation and sales to develop diversified
market participants and create a fair, competitive environment;
• stick to the principle that the power grid is a
natural monopoly: maintain integrated management of transmission, distribution, dispatching and trading; strengthen government
regulations and provide fair and efficient
network services; and
• create a unified, open, competitive and
orderly power market in which resource
allocation and macro-control are combined
organically: forge a sound legal system,
20
Vivid Economics, Electricity Grids in Transition, Final
Report. Prepared for the DRC-Shell Markets Revolution
Work Stream, October 2017.
21
Ibid.
502
S. Yaodong and A. Gillespie