• Ensure there are revenues available to
encourage flexible resources to offer a full
range of system services. The flexible resources needed for decarbonisation contribute
several system services, such as balancing and
frequency response, but there may be underinvestment if markets do not exist for these
services. Several electricity markets in the
West run demand curtailment markets, allowing flexible resources to generate revenues.
(4) Prepare for the development of a decentralised electricity system and its associated digitalisation by investing in the
coordination of decentralised resources—
their control, balancing, security and data
flows
• Coordinate investment in decentralised
resources. A coordination problem arises
where independent developers that lack information about the plans of other developers may
make similar investments, creating overinvestment or, if the developers are risk-averse,
underinvestment. Either way, the result can be
inefficient. Solutions include formal processes
for multilateral resource planning and the
publication of current and consented resources,
as used by the transmission and distribution
system operators of Spain and Ireland.
• Determine how decentralised resources will
be controlled. While distribution networks
today are largely passive, an active network is
capable of accommodating distributed
resources. As the electricity system becomes
more active and complex, a single system
operator may start to rely on intermediaries,
such as virtual power plants and partners such
as distribution system operators, to assist with
system balance. New systems of control, with
new computational requirements, administrative rules and institutional characteristics,
may then be employed, reflecting new operational vulnerabilities.
• Balance data transparency with security. As
information communications technology
(ICT) 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.
9.1.2 Roadmap for Efficient Network
Arrangements
This section suggests a roadmap for the development of network arrangements in China, as the
country simultaneously carries out large-scale
investment, market reforms and decarbonisation
of its electricity system. These options are based
on international best practice and leading thinking on future arrangements.
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 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 roadmap suggests the following:
(1) Immediate actions
• Continue the market liberalisation programme. Phase 1 of the DRC-Shell cooperation suggested a programme of electricity
market liberalisation consistent with this.
China’s 13th Five-Year Plan (2016–20) aims
Special Report 4: China’s Energy System Revolution
557
encourage flexible resources to offer a full
range of system services. The flexible resources needed for decarbonisation contribute
several system services, such as balancing and
frequency response, but there may be underinvestment if markets do not exist for these
services. Several electricity markets in the
West run demand curtailment markets, allowing flexible resources to generate revenues.
(4) Prepare for the development of a decentralised electricity system and its associated digitalisation by investing in the
coordination of decentralised resources—
their control, balancing, security and data
flows
• Coordinate investment in decentralised
resources. A coordination problem arises
where independent developers that lack information about the plans of other developers may
make similar investments, creating overinvestment or, if the developers are risk-averse,
underinvestment. Either way, the result can be
inefficient. Solutions include formal processes
for multilateral resource planning and the
publication of current and consented resources,
as used by the transmission and distribution
system operators of Spain and Ireland.
• Determine how decentralised resources will
be controlled. While distribution networks
today are largely passive, an active network is
capable of accommodating distributed
resources. As the electricity system becomes
more active and complex, a single system
operator may start to rely on intermediaries,
such as virtual power plants and partners such
as distribution system operators, to assist with
system balance. New systems of control, with
new computational requirements, administrative rules and institutional characteristics,
may then be employed, reflecting new operational vulnerabilities.
• Balance data transparency with security. As
information communications technology
(ICT) 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.
9.1.2 Roadmap for Efficient Network
Arrangements
This section suggests a roadmap for the development of network arrangements in China, as the
country simultaneously carries out large-scale
investment, market reforms and decarbonisation
of its electricity system. These options are based
on international best practice and leading thinking on future arrangements.
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 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 roadmap suggests the following:
(1) Immediate actions
• Continue the market liberalisation programme. Phase 1 of the DRC-Shell cooperation suggested a programme of electricity
market liberalisation consistent with this.
China’s 13th Five-Year Plan (2016–20) aims
Special Report 4: China’s Energy System Revolution
557