• Balance data transparency with security. As
information and communications technology
infrastructure expands, the amount of data
from the electricity system grows. The data
systems need their own infrastructure, with
public access to facilitate competition and
optimise operations. Meanwhile, the distribution of data across resources creates new
risks of cyberattack and privacy loss, solved
through adequate protocols.
7.5.3 Reform Roadmap
Vivid Economics and Shell’s international
experts proposed a roadmap for the development
of future network arrangements in China. The
roadmap is based on the following guiding
principles:
• Strong markets need strong government.
Market-based solutions have the potential to
identify and deliver cost-effective investment
and operation of electricity systems. However, both markets and natural monopoly
networks benefit from a strong government to
take an active role in ensuring that institutional incentives are aligned with public policy objectives. Network incentives can be
aligned through separation of roles (unbundling) or strong regulation.
• The institutional framework can be developed
progressively. Wholesale institutional reform
is challenging and disruptive. At the outset,
small changes in current practice and
small-scale pilots may provide proof-ofconcept sufficient to build consensus for
larger-scale reforms.
The main points of the proposed roadmap are
as follows:
(1) Immediate actions
• Continue the market liberalisation programme. Phase 1 of the DRC-Shell cooperation proposed a programme of power market
liberalisation; consistent with this, China’s
13th Five-Year Plan (2016–20) aims to
improve the systems by which markets play
the decisive role in resource allocation. It will
be important to continue with the market
liberalisation programme to deliver a more
advanced and efficient power system.
• Rationalise investment planning. Clearly
defined metrics for reliability and economic
efficiency help network planners to identify
efficient investments. Meanwhile, the application of the beneficiary pays principle
encourages investment that increases productivity and avoids diverting national
resources to stimulate regional output. Together, these approaches, when applied at
national and regional level, facilitate greater
interconnection and sharing of generation
services.
• Implement a coordinated approach to
investment. The use of a common investment
framework enables generation and network
investment planning to be coordinated, harnessing strategic decisions and market enterprise. For example, the framework might set
out the role of generation zones for
large-scale renewables alongside alternatives
such as 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 determined. At a minimum, this includes deploying smart meters to
introduce time-of-use pricing to consumers
on the distribution network; creating
upstream information and communications
architecture; and carrying out R&D to
develop technical solutions for the smart grid.
(2) Move towards an efficient pricing
mechanism
• Deregulate prices. Cost-reflective pricing can
signal efficient investments and operations 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
Special Report 4: China’s Energy System Revolution
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information and communications technology
infrastructure expands, the amount of data
from the electricity system grows. The data
systems need their own infrastructure, with
public access to facilitate competition and
optimise operations. Meanwhile, the distribution of data across resources creates new
risks of cyberattack and privacy loss, solved
through adequate protocols.
7.5.3 Reform Roadmap
Vivid Economics and Shell’s international
experts proposed a roadmap for the development
of future network arrangements in China. The
roadmap is based on the following guiding
principles:
• Strong markets need strong government.
Market-based solutions have the potential to
identify and deliver cost-effective investment
and operation of electricity systems. However, both markets and natural monopoly
networks benefit from a strong government to
take an active role in ensuring that institutional incentives are aligned with public policy objectives. Network incentives can be
aligned through separation of roles (unbundling) or strong regulation.
• The institutional framework can be developed
progressively. Wholesale institutional reform
is challenging and disruptive. At the outset,
small changes in current practice and
small-scale pilots may provide proof-ofconcept sufficient to build consensus for
larger-scale reforms.
The main points of the proposed roadmap are
as follows:
(1) Immediate actions
• Continue the market liberalisation programme. Phase 1 of the DRC-Shell cooperation proposed a programme of power market
liberalisation; consistent with this, China’s
13th Five-Year Plan (2016–20) aims to
improve the systems by which markets play
the decisive role in resource allocation. It will
be important to continue with the market
liberalisation programme to deliver a more
advanced and efficient power system.
• Rationalise investment planning. Clearly
defined metrics for reliability and economic
efficiency help network planners to identify
efficient investments. Meanwhile, the application of the beneficiary pays principle
encourages investment that increases productivity and avoids diverting national
resources to stimulate regional output. Together, these approaches, when applied at
national and regional level, facilitate greater
interconnection and sharing of generation
services.
• Implement a coordinated approach to
investment. The use of a common investment
framework enables generation and network
investment planning to be coordinated, harnessing strategic decisions and market enterprise. For example, the framework might set
out the role of generation zones for
large-scale renewables alongside alternatives
such as 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 determined. At a minimum, this includes deploying smart meters to
introduce time-of-use pricing to consumers
on the distribution network; creating
upstream information and communications
architecture; and carrying out R&D to
develop technical solutions for the smart grid.
(2) Move towards an efficient pricing
mechanism
• Deregulate prices. Cost-reflective pricing can
signal efficient investments and operations 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
Special Report 4: China’s Energy System Revolution
517