Divining China's Energy Future

Reading the “Internet+” Smart Energy Development Guidelines 

On February 29th, 2016, the NDRC, NEA, and Ministry of Industry and Information Technology released Guiding Opinions on “Internet+” Smart Energy Development.

This policy document focuses on the Energy Internet, a concept which has engulfed Chinese energy and grid circles for more than a year.

With the release of this document, we have an official take on the future of China’s grid.

The Opinions established a definition for this Energy Internet concept: “a new industry development model based on a deeply integrated network of energy production, transmission, storage, consumption and markets. It is characterized by device intelligence, energy diversity, information symmetry, distributed generation and demand, a flat structure, and open exchange.”

Until now, energy storage in China has been perceived as a set of technologies or devices used in certain links in the grid. But the Opinions take a different approach, describing energy storage as a standalone link in the energy chain, alongside production, transmission, and consumption. This is the first time that national government bodies have recognized energy storage as a separate and critical part of the future energy system.

The Energy Internet covers power, heat, oil and gas, and transportation. By highlighting energy storage as an independent link in the energy chain, policymakers are laying a foundation for the beneficial use of energy storage across the board.

The Opinions take a broad look at energy storage, calling for the development of “high-capacity, low-cost, high-efficiency and long-lived energy storage products and systems in electricity, thermal, and clean fuel storage.” This inclusive approach places energy storage at the center of the interconnections between power, heat, transportation and gas networks.

Bulk Energy Storage and Renewables Integration

The Opinions argue “suitably-sized energy storage facilities should be located in energy production centers to optimize grid and energy system operation."

At present, energy storage facilities used for renewables integration are generation-side resources, co-located with particular power stations. The Opinions call on years of operational experience and institutional input to suggest that energy storage functions better as a shared resource located in areas with high energy production. This maximizes the value of expensive storage installations by serving multiple stations at once.

Better sited energy storage would also gain value by giving grid operators the ability to tap into other operational benefits of the technology.

Some experts estimate that energy storage installations equaling 5-10% of the generation capacity in a renewable energy producing region would be sufficient to address intermittency issues. With China’s 12th Five-Year Plan calling for 200 gigawatts of wind by 2020, the grid would benefit from an additional 10-20 gigawatts of energy storage – an enormous opportunity.

Distributed Energy Storage – the Future of the Industry

The Opinions also promote the deployment of “distributed energy resources in communities, rooftops, and homes through the use of grid-friendly, effective and distributed energy storage.”

Distributed energy storage has attracted a lot of attention for its flexibility, low capital requirements, and value to the consumer by supporting on-site solar generation, demand response, and bill management.

The Opinions also bring up networked management of energy storage devices, calling for energy storage device databases, remote operation and control of distributed storage devices, and energy storage cloud platforms. It encourages modular system design, standardization, networked control over second-life batteries, and support for unhindered and flexible energy exchange. The document also promotes energy storage as a provider of backup power, peak shaving, frequency regulation, and other services.

But because China’s residential electricity rates are so low, residential energy storage is not yet profitable. However, in some industrial parks and among some high-energy consuming businesses, users are beginning to consider solar-plus-storage as a way to reduce electricity bills.

While the present opportunities for energy storage are limited, China remains committed to revolutionizing its energy system. This means that demand response, time-of-use rates and demand charges are likely to grow. As these policies spread and mature, distributed energy storage may well become an attractive market.

The Opinions also mention electric vehicles: “Promote the use of used EV batteries in stationary energy storage. Build an operational EV cloud platform based on elements of the grid, energy storage and distributed energy consumption. Explore the use of electric vehicles in networked platforms to participate in direct energy trading, demand response, and other models.”

According to official targets, China aims to bring five million electric vehicles to the road by 2020. Electric vehicle charging can have a serious impact on the grid, and so having effective control over distributed EV batteries to provide peak shaving, frequency regulation, or engage in demand response could help maximize the value of electric vehicles.

According to the Opinions, the rollout of the Energy Internet model is set to take place in two phases. From 2016 to 2018, the government will support pilot demonstration projects of different types and scales. From 2019-2025, the emphasis will be on diversification and scaled-up development, and establishing the Energy Internet as a driver of GDP growth. 

While its clear that China is a long way from achieving these goals, its telling that national decision-making bodies are endorsing such powerful language to describe their vision of the grid to come. What's most uncertain is how China's vested grid interests will adapt to -- or resist -- these changes. 

Power Retail Pilots Open in Guangzhou, Chongqing

Citic Tower, Guangzhou, Credit: wyliepoon / Flickr

This February, two major Chinese cities announced the launch of new electricity distribution pilot projects. In these projects, private electricity retailers will provide electricity services directly to consumers, representing a major step forward in China’s eagerly awaited power sector reforms.

The Guangzhou Development District

The first of these reforms takes place in Guangzhou. According to a policy released by the Guangdong Economy and Information Technology Commission, the Notice on Launching Retail Reforms in the Guangzhou Development District, entities within the Guangzhou Development District that consume at least 10 gigawatt-hours of electricity per year may participate in a direct electricity purchasing program. These entities may either purchase electricity in a bilateral agreement with generators or choose an electricity retailer.

As a result of these reforms, power plant owner Hengyun and Guangzhou Economic Technology Development Zone State-Owned Asset Investment Company, formed an electricity retailer, Guangzhou Suikai Electric Services. It’s important to note that the distribution grid is owned by the development district. As Hengyun owns generators that can serve the District and because the district itself – rather than China’s giant state-owned grid company -- owns the distribution grid, the entire value chain from generation to distribution is controlled by this newly-formed utility.

Although on paper it looks as if only consumers meeting a minimum consumption of 10 GWh will be able to participate in the retail market, it’s likely that smaller users will be able to participate by aggregating their loads.

Reforms in Chongqing

Retail reforms are also taking effect at an industrial park in Chongqing. On February 3rd, the Chongqing Liangjiang Changxing Electric Co. signed agreements with twelve businesses located at the Liangjiang New Area. Electricity sales to the first of these companies will begin this March.

This electric retailer was formed by four companies: Chongqing Liangjiang Group, Yangtze Power, Fuling Julong Electric, and Zhongfu Thermoelectric. Chongqing Liangjiang Group is a state-owned distribution grid developer responsible for the Liangjiang New Area. Yangtze Power, the country’s largest listed hydropower company, owns a number of large power stations including the Gezhouba and Three Gorges Dams. Fuling Julong is a state-owned enterprise primarily involved in power generation and retail, electrical equipment and transmission maintenance. Zhongfu Thermoelectric is a thermal generation owner.

The retailer formed by these companies covers each link in the power chain, from generation to retail. Although the distribution grid at the Liangjiang New Area is partly owned by the grid, any new additions will be built and owned by the retail utility.

The Role of Industrial Parks in Retail Reform

One reason that retail pilot projects are taking off in these two industrial parks first is the fact that the retailers in these cases are vertically integrated from generation to distribution. It’s important that in each case, the industrial park owner is a part owner of the utility, allowing the utility to gain control over the park’s assets – such as the distribution grid. Moreover, the utility is guaranteed to have customers in the companies that operate in the park. This vertical integration is expected to result in savings of 26 million yuan (US$4 million) in 2016.

It’s unusual for business and industrial parks to own their own distribution grids, which makes the Guangzhou Development District a special case. Though now that electricity retail is now opening up, yet-to-be-built industrial parks are likely to become a focus point in retail reform.

Where does energy storage sit in all of this?

For industrial parks with access to their own generation, retail reforms are likely to vastly reduce electricity prices. These reforms also open up possibilities for distributed generation and microgrid development, both of which do well when combined with energy storage technologies.

Additionally, now that retail companies are directly serving industrial parks, there is likelihood that consumers will have access to a wider range of services, including energy efficiency, energy management, and demand response. Freed from the shackles of the traditional grid system, energy storage has new opportunities ahead.

A Look Ahead at 2016: A Message from CNESA Secretary-General Tina Zhang

2015 was a landmark year for energy storage in China.

Season's greetings from the China Energy Storage Alliance.

In March, the government announced long-awaited power sector reforms that promise new opportunities for energy storage in an increasingly market-based power system.

Policymakers prepared the country’s next Five-Year Plan, the policy lodestone which will guide China’s development through 2020. This carefully crafted document is the key to meeting China’s ambitious energy and environmental targets.

And in the Paris COP21 talks, China emerged as a world leader by arguing that clean energy can be a tool to simultaneously address climate change and meet development goals.

Looking ahead, all indicators point to continued strong growth in clean energy and a greater role for markets and innovation in China’s transition to a more sustainable economy.

Of course, this transition is already well underway. As of September, China has installed 38 gigawatts of grid-connected solar, and the country reached 100 gigawatts of wind capacity earlier this year.

Now it’s our turn.

Energy storage is going to be a big part of China’s energy revolution, and policymakers know it. Last month, China’s national governing body called for increased deployments of energy storage and smart grids, higher penetrations of distributed generation, a greater share of renewables in China’s energy mix, more efficient and low-carbon dispatch, and greater numbers of electric vehicles on the road.

For now, China’s energy storage market remains dominated by pumped hydro: only 106 megawatts of China’s 21.9 gigawatts of energy storage capacity come from battery storage, according to CNESA’s Energy Storage Project Database. Nevertheless, this number still puts China among the top five countries in terms of grid-connected battery capacity, and installations are rising fast. On average, China’s battery storage capacity has more than doubled each year since 2010.

But it’s not just batteries making the news. In October, China’s top energy ministry collected bids for concentrating solar power generation demonstration projects -- most of which included molten salt energy storage. Several more gigawatts of CSP projects are in the pipeline, suggesting that thermal energy storage in China is finally starting to turn the corner. 

Where do we see the industry going in 2016 and beyond?

Microgrids and Distributed Generation

About half of China’s non-hydro energy storage capacity is paired with microgrids or distributed generation, and we foresee that these will remain strong growth areas in the coming year. Successful demonstration projects have proven that China’s islands and remote western regions are prime targets for energy storage deployments, while industrial parks, hospitals, data centers, and other urban buildings are now coming into the spotlight. And last July, the government announced a plan to promote renewable energy-based microgrids nationwide, a great sign for the development of solar-plus-storage in China.

Demand-side Management

There is enormous potential for energy storage in demand side management, thanks to policy commitments from the highest levels of government. Last year, Chairman Xi Jinping announced a campaign to promote efficient energy use in order to meet the country’s carbon emissions and air pollution targets. This drive – as well as our industry connections and technical knowledge – is why CNESA was selected by the Beijing municipal government to lead a demand response pilot program in Beijing. This past August, we helped reduce peak load by 70 megawatts just as demand was set to reach a new nationwide record.

Electric Vehicles

We’re also excited by the future of electric vehicle grid integration. It’s no secret that China’s EV market is booming; automakers sold over 130,000 plug-in electric vehicles in the first three quarters of 2015, double the number sold in the same period last year. This is a great step forward in the electrification of China’s transportation sector, but it also represents a huge challenge for Chinese grid operators – a challenge that energy storage and smart grid technology companies are well-positioned to solve.

While China's energy storage market is primed for growth, challenges still remain. 

China is still an emerging market, with all the risks that can bring. Regulatory changes are forthcoming, but there is still a great deal of uncertainty and a lack of well-defined value streams. That’s why our team works hard to keep you informed via our monthly newsletter, annual white paper, and customized market and policy insights.

Strong partnerships are also a must, which is one reason we organize China’s premier energy storage conference each year. In June, we held our fourth annual Energy Storage China Conference and Expo, our largest to date with over 700 attendees and 60 presentations from top policymakers, industry leaders, and energy researchers. The event is a great opportunity to learn more about China’s energy storage ecosystem and to make lasting partnerships in the world’s largest emerging market. I invite you to join us for next year’s event, to be held May 10-12th in Beijing.

Since 2010, CNESA has brought you the latest developments and opportunities for partnerships in energy storage. In 2016, I hope you’ll join us as we lead the way towards building a cleaner, smarter and stronger world. 

China's Grid and the Electric Car

Courtesy: BYD

Thanks to generous subsidies and incentive programs, electric vehicle sales in China are booming. Chinese EV drivers enjoy a number of perks, including tax incentives when purchasing a vehicle and exemptions from restrictions designed to reduce traffic congestion.

In part due to these measures, sales of plug-in electric vehicles have soared. In the first nine months of 2015, automakers sold 136,733 units – twice the amount sold in the same period last year, according to Wards Auto.

These policies are part of a drive to put 5 million new energy vehicles (NEVs) on Chinese roads by 2020. Although it’s unclear whether or not this target will be met, it is certain that the grid will be faced with new challenges and opportunities as more plug-in electric vehicles hit the road.

In particular, Chinese regulators will need to begin examining how electric vehicle demand response can help address grid instability and support China’s transition to a low-carbon power system.

Electric vehicles and demand response

As the transportation sector electrifies, electricity consumption patterns will change. In order to meet demand, utilities need capacity and incentive mechanisms to address potential spikes in consumption. A study commissioned by the Regulatory Assistance Project and the International Council for Clean Transportation compared the expected impact on peak load in various countries as the number of plug-in electric vehicles rises. The report found that China’s grid was particularly susceptible to disruption in cases of high EV penetration.

To avoid power shortages, Chinese regulators will need to adopt measures to minimize the impact of electric vehicle charging on the grid. Policymakers have several options on the demand side to do this.

Programmable charging

Programmed charging allows grid operators to control EV load. In this model, EVs receive signals from the grid to optimize efficiency and reduce grid impact, while also factoring in battery constraints and the user's charging requirements.              

EV programmable charging can be regarded as a flexible demand response resource, providing a certain amount of peak shaving functionality. Via smart grid signals and time-of-use pricing incentives, EV owners can be encouraged to charge their vehicles when wholesale electricity prices are low. Entities like charging facility operators and vehicle companies can act as load aggregators, earning subsidies and lowering EV lifetime ownership costs via participation in such demand response programs.

Large scale implementation of programmable charging faces several problems: chargers and charging stations do not all support remotely programmed control, there are issues with ITC standards and data compatibility issues, and there is a lack of attractive pricing mechanisms and business models.

Vehicle-grid integration (V2G)

Vehicle-to-grid integration (V2G) takes the role of EVs a step further by using the vehicle battery to provide grid services, including peak shaving, frequency regulation, renewables smoothing, and non-power supporting functions. An NRDC study, Electric Vehicles, Demand Response and Renewable Energy – Jointly Advancing Low Carbon Development, estimated that vehicle-to-grid integration could yield billions of yuan in cost savings each year by using electric vehicles for flexible capacity.

But V2G, while technologically feasible, still requires a great deal of standardization and business model development. Most EVs and charging infrastructure do not support output to the grid, ancillary service markets are not open to such participants, and the extra wear and tear on vehicle batteries will be a disincentive unless proper compensation is provided to vehicle owners. These challenges are compounded in China due to a regulatory framework that makes market-driven demand response particularly challenging.

Demand Response with Chinese Characteristics

China’s current load management mechanisms are, to a large degree, vestiges of the planned economy era. Chinese grid operators typically rely on administrative rationing during electricity shortages, rather than market-based demand response.

Nonetheless, China is implementing a small number of demand response pilot programs, including one in Beijing, which are helping set the stage for policy reforms expected to be released soon. In March 2015, the government introduced power sector reforms addressing issues that will affect demand response: pricing reforms, ancillary services markets, and the opening up of wholesale electricity markets. Those reforms will be followed by more specific policy measures later this year.

In the meantime, more demonstration projects integrating electric vehicles and grid operations are needed. Internationally, there are a number of demonstration projects which may serve as good models. 

At the time of writing, we are unaware of any electric vehicle demand response programs in mainland China. But with record-breaking electric vehicle sales unlikely to slow down, we fully expect to see these programs coming soon.

Original article by Daixin Li, translation by Matt Stein, editing by Charlie Vest.

CNESA Demand Response Pilot Goes Online

Summer heat in Beijing. Credit: timquijano

On August 12th, 2015, the Beijing Demand Response Pilot program went online for the first time, as peak load in Beijing reached 18,430 megawatts – a new record. The round of demand response reduced load by about 70 megawatts, helping to ease pressure on the grid.

High summer temperatures led to another record-breaking load on the following day, reaching 18,560 gigawatts. To relieve grid stress, the Beijing Development and Reform Commission (BDRC) and the Beijing Energy Conservation and Environmental Protection Center (BEEC) issued an order to mobilize load integrators to begin reducing load. In the end, load was reduced by about 66 megawatts.

CNESA was the first organization to be recognized as a load integrator in Beijing, so when the dispatch order was given, we helped users engage in demand response. This instance of demand response came through the city’s Demand-Side Comprehensive Management Service Platform, which announced the response action in advance. Our load integration platform received the order and confirmed receipt. This instance demonstrated the capability of CNESA’s demand response platform to seamlessly receive top-down orders, and then divide responsibility and delegate to users. The system also successfully collected data and conducted analysis on user performance.

CNESA is working with the BDRC and BEEC to further improve this pilot program and make the most of our platform. We will learn from the experience of other integrators and improve the platform’s functionality to provide a convenient experience for a growing number of users. We’re also actively exploring how to establish long-term demand response mechanisms so that we can do our part in improving demand response in Beijing.

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User demand curve shown on CNESA demand response platform interface

Beijing Demand Response Pilot Program

CNESA is helping the government achieve lower peak loads. Here's how.

Photo: robert anders

Since the promulgation of the Beijing Demand-side Management Pilot Program Financial Incentive Fund Management Guidelines in 2013, demand response programs have been subsidized by the Beijing Ministry of Finance. By the end of 2015, these programs are expected to bring about a total demand reduction of 150 MW from peak loads. The government has chosen to play a leading role in forming supporting pilot institutions that include both energy services companies and consumers.

Our Role

The Beijing development commission has entrusted CNESA to implement a demand response pilot program. As the first organization authorized to manage load integration, CNESA is responsible for developing a demand-side management platform and encouraging qualified consumers to participate. The Commission will provide subsidies to participating organizations.

CNESA has made progress towards achieving improved demand response by:

1. Exploring the peak shifting potential among electricity consumers
2. Guiding consumers on how to reduce consumption through behavioral changes
3. Establishing a demand response platform

CNESA is currently in the process of attracting qualified consumers to join this DSM platform and creating a DSM data infrastructure to manage peak loads.

The demand response platform is critical to achieving demand-side management in the Chinese electricity market. It will help promote demand response across the grid and help establish DSM implementation mechanisms throughout the country. The platform will also demonstrate how consumers can benefit from the market by changing their usage behavior.

CNESA has partnered with ENERBOS, an energy software service provider, to design the platform’s back-end database and develop web applications to link with existing platforms (grid platforms, the CNESA network, and energy consumer platforms), and test functionality.

How it Works

The platform aggregates demand reduction goals from the grid dispatcher and publishes a reduction plan for consumers – including key information such as reduction amount, date and time, relevant areas, subsidy payments, etc. – so that consumers can decide how to reduce demand based on their capabilities and needs. The platform will then confirm which electricity providers and consumers will participate. The platform will monitor the load curve during implementation to evaluate participant performance and calculate subsidies. Lastly, the platform will use this data to guide and improve future actions.

CNESA has also developed a series of automated demand reduction packages to meet the needs of different consumers. This framework uses a distributed network to integrate different sub-systems into a single computerized and centralized structure, through which managers can quickly and conveniently monitor and control the network via a comprehensive graphical user interface. This platform improves grid stability and performance, all while bringing profit to participants.