Use Cases of Demand Response and Application to China

Abstract

Since instituting market reforms in 1978, China has undergone rapid economic growth through transitioning from a centrally-planned economy to a market-based economy. The gross domestic product (GDP) growth rate of China has averaged 10% in the past two decades, and China has become the world’s second largest economy. China is also the most populous country on the planet, reaching 1.4 billion in 2017. With the growth in both economic activities and population, China’s electricity usage has surpassed that of the United States as the world largest electricity market.1 In 2016, China’s electricity consumption has risen to 5920 TWh with 72% generated by coal. On the other hand, the average utilization of thermal generators declined by 200 hours to 4165 hours per year while an additional 125GW of capacity was added in 2016, amounting to 1646 total installed capacity. In 2014, President Obama met with President Xi of China and agreed that China will peak its carbon emission by 2030. The following-up 13th five-year plan (FYP) sets an ambitious goal of having 20% renewable energy source and less than 60% coal generation in China. In line with rapid economic and energy development, China has serious environmental problems caused by coal burning and an electricity system that cannot meet rising demand. In most provinces of China, the need for electricity continues to increase every year. However, the available local generation resources have already been fully utilized and insufficient transmission capacity makes drawing up electricity generation from other areas infeasible in the short-run.7 The new electricity reform measures in China aim to address the above-mentioned problems through both demand- and supply-side management. Demand response (DR), a sub-category of demand-side management (DSM), is a mature and well-developed program in foreign electricity markets to provide services for the system and save net system costs. China has implemented some pilot projects in Jiangsu, Shanghai and Guangdong, but through the analyses below, we will learn that there are better ways and conditions to make DR a more effective tool in addressing China’s problems. The structure of this report is divided into the following sections. The first and opening section will give a clear definition of DR and other categories of DSM, such as energy efficiency, since DR is a relatively new concept in China. It will also explore the two pre-requisites for a successful DR program: aggregators and availability/capacity payment. The second section focuses on three of DR’s main benefits: peak load shifting/reduction, frequency control and load following. Case studies from PJM (a regional transmission organization in the United States that serves Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia, and the District of Columbia) , Korea, Taiwan, Japan and other markets will be utilized to demonstrate the benefits of DR and feasible models for implementing DR. The third section provides a roadmap to DR’s current status in China in terms of pilots, policies, stakeholders and drawbacks. The last section provides specific policy recommendations for China to better incorporate DR into its new electricity reform, in order to bring benefits to the electricity system.