wind and solar, which are increasingly connected
to the distribution network, including at the
household level. Demand response is the flexible
operation of electrical equipment in response to
system conditions; electric vehicles are expected
to significantly increase this potential as they
may be able to charge at times of high electricity
generation and low demand. Decentralised storage may also increase, potentially even at the
household level.
To unlock decentralised electricity resources
requires a shift to a smart grid. A smart grid is
characterised by dominance of controllable
electricity resources (generators, storage, appliances) throughout the electricity system, the
ability of users to express preferences for use of
their devices, the development of operating
standards to allow resources to be operated in a
coordinated way, sufficient development of
information and communications technology
(specifically, communications bandwidth, data
storage and computing power), and adequate
data security and privacy protocols.
Decentralisation exacerbates both the planning and delivery, and operation challenges:
• A coordination problem may arise between
the transmission system and the various distribution systems. In current electricity systems, the bulk of new investment occurs in the
transmission system, where adequate information is available on current and planned
resources to inform new investment decisions.
A shift in resources to the distribution network, where adequate information is not typically available, will create a coordination
problem, where investors will not have a clear
understanding of system needs, nor consequently of potential returns on investment.
This could result in overinvestment, underinvestment, a poor technology mix or a poor
spatial distribution of resources.
• The computational requirements of balancing
a decentralised system will increase significantly. Optimising the operation of the entire
system requires determining the optimal volume of output and consumption of every
resource in the system. As the number of
controllable resources increases from the
limited set of large resources in a transmission system to the total set of resources across
all distribution systems, the computational
demands of this optimisation calculation also
increase. If computing technology is not able
to meet these computational demands, then
intermediate levels of control are required,
and only partial optimisation is possible.
Finally, decentralisation will require risks of
data privacy and cybersecurity to be effectively
managed. Decentralisation will be accompanied
by a very significant extension of information
and communications technology across all distributed resources and will create risks of data
privacy and cybersecurity. Protocols to manage
data use and control these risks can be developed
and implemented.
9.1.4 Network Arrangements
to Address Current
Challenges
To address the challenges arising from decarbonisation and decentralisation, grid companies
need to take effective measures to ensure efficient
network arrangement. The international experience in previous electricity market reform provides some best practice arrangements that China
can draw from:
• an institutional model to align incentives with
public policy objectives: an institutional
model is needed that mitigates monopolistic
behaviour and provides networks with
incentives to invest in appropriate network
infrastructure and to operate infrastructure
efficiently;
• strategic transmission planning: determining
the appropriate profile of new transmission
investment is a complex process and requires
strategic planning;
• the appropriate level of locational pricing:
investing in and operating networks efficiently requires an understanding of current
network congestion; and
• a regime for merchant investments: entry of
merchant investors has the potential to deliver
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to the distribution network, including at the
household level. Demand response is the flexible
operation of electrical equipment in response to
system conditions; electric vehicles are expected
to significantly increase this potential as they
may be able to charge at times of high electricity
generation and low demand. Decentralised storage may also increase, potentially even at the
household level.
To unlock decentralised electricity resources
requires a shift to a smart grid. A smart grid is
characterised by dominance of controllable
electricity resources (generators, storage, appliances) throughout the electricity system, the
ability of users to express preferences for use of
their devices, the development of operating
standards to allow resources to be operated in a
coordinated way, sufficient development of
information and communications technology
(specifically, communications bandwidth, data
storage and computing power), and adequate
data security and privacy protocols.
Decentralisation exacerbates both the planning and delivery, and operation challenges:
• A coordination problem may arise between
the transmission system and the various distribution systems. In current electricity systems, the bulk of new investment occurs in the
transmission system, where adequate information is available on current and planned
resources to inform new investment decisions.
A shift in resources to the distribution network, where adequate information is not typically available, will create a coordination
problem, where investors will not have a clear
understanding of system needs, nor consequently of potential returns on investment.
This could result in overinvestment, underinvestment, a poor technology mix or a poor
spatial distribution of resources.
• The computational requirements of balancing
a decentralised system will increase significantly. Optimising the operation of the entire
system requires determining the optimal volume of output and consumption of every
resource in the system. As the number of
controllable resources increases from the
limited set of large resources in a transmission system to the total set of resources across
all distribution systems, the computational
demands of this optimisation calculation also
increase. If computing technology is not able
to meet these computational demands, then
intermediate levels of control are required,
and only partial optimisation is possible.
Finally, decentralisation will require risks of
data privacy and cybersecurity to be effectively
managed. Decentralisation will be accompanied
by a very significant extension of information
and communications technology across all distributed resources and will create risks of data
privacy and cybersecurity. Protocols to manage
data use and control these risks can be developed
and implemented.
9.1.4 Network Arrangements
to Address Current
Challenges
To address the challenges arising from decarbonisation and decentralisation, grid companies
need to take effective measures to ensure efficient
network arrangement. The international experience in previous electricity market reform provides some best practice arrangements that China
can draw from:
• an institutional model to align incentives with
public policy objectives: an institutional
model is needed that mitigates monopolistic
behaviour and provides networks with
incentives to invest in appropriate network
infrastructure and to operate infrastructure
efficiently;
• strategic transmission planning: determining
the appropriate profile of new transmission
investment is a complex process and requires
strategic planning;
• the appropriate level of locational pricing:
investing in and operating networks efficiently requires an understanding of current
network congestion; and
• a regime for merchant investments: entry of
merchant investors has the potential to deliver
562
S. Yaodong and A. Gillespie