power sector reform

China's Energy Internet

Photo:  Jeremy Rifkin

Interest in the energy Internet is growing in China. Following the release of some big reforms, China is moving towards a next-generation grid -- which holds promise for those in energy storage. Here we're looking at the basics of the energy Internet, and discuss what role energy storage has to play.

What is the Energy Internet?

The Third Industrial Revolution, written by Jeremy Rifkin, presents a vision of the energy Internet. He envisions a shared, two-way energy and information network that integrates the electrical grid with natural gas, thermal power, and transportation networks via information communication technology. It relies primarily on renewable energy, and includes distributed elements, information components, and energy storage devices.

  1. Energy networks are the physical foundation of the energy Internet. The electrical grid is the heart of the system. It closely integrates thermal, gas, oil, and transportation systems via electricity storage, thermal storage, and hydrogen storage technologies, as well as via vehicle charging points. High penetrations of distribution resources including distributed generation and storage helps to “flatten” the current top-down energy structure.
  2. Information networks are the nervous system of the energy Internet. Most elements in the energy grid, including generation units, consumers, and T&D substations can be structured as nodes in an information network. This allows operators to collect and analyze grid information such as energy production, usage, demand, and operating status. This helps manage resources on the energy Internet.
  3. Energy management, analysis, and trading platforms within the information network are used to dispatch local or regional energy resources and make the most out of the system. These platforms include big data analysis software, interactive exchange platforms, electric vehicle charging services, demand response platforms, etc.

China's Energy Internet

Research on the energy Internet in China is still in its early stages. According to information leaked from the NEA’s upcoming Energy Internet Action Plan, the energy Internet should rely on real-time, high-speed, two-way information exchange. It should use the electric grid as the core of the system, with a high degree of integration between multiple energy sources and transportation/logistics networks.

In 2014, President Xi Jinping called for an energy consumption revolution, including reduced energy consumption through industrial restructuring, implementation of energy savings guidelines, and the establishment of an energy saving mentality across society. With this in mind, we expect that China's first steps towards integrating energy resources and the Internet are most likely to involve distributed resources, microgrids, demand-side management, contracted resource management, and data-based energy services.

Energy Storage in the Energy Internet

In the energy Internet, energy storage not only includes electrical storage, but also hydrogen, heat, and natural gas storage.

The energy Internet will bring fundamental changes to every link in the energy chain, including production, transmission, and usage. As the "electricity consumption revolution" rolls onward, and continued reforms are made to China's power sector, we expect opportunities for energy storage in demand response, distributed generation, and microgrids.

Demand response in particular seems to be featured in the consumption revolution. It is also highlighted in the NEA's Energy Internet Action Plan. This is good news for energy storage, which can help reduce peak load without affecting consumer energy use.

Earlier this year, in fact, the Beijing municipal government authorized CNESA to operate the city's first integration pilot program. CNESA is helping businesses across the city save money using a custom-built online platform. We hope these experiences will inform future deployments across the country.

The new power sector reforms are also an important development. The reforms are opening up electricity retail, unlocking the potential for more distributed generation and microgrids in China. On 22 July 2015, the NEA followed up with  a document further specifying the role of microgrids in opening up electricity retail and distribution to society at large, titled Guidelines on Promoting the Construction of New Energy Microgrid Demonstration Projects. In line with the principles of an energy Internet, it encourages the use of internet-based and information technologies in generation and usage.

Although many of the precepts of a true energy Internet may be years away, China's policymakers are beginning to recognize the value that these ideas and technologies have. The confluence of power sector reforms and favorable regulations for distributed generation and microgrids suggest that non-hydro energy storage may soon be ready for its China debut.

Demand Response in China

In April 2015, following the Power Reform Policy No. 9,  NDRC released Notice on Improving Demand Side Management Pilots through Emergency Power Mechanisms, continuing to strengthen emphasis on demand side management and demand response. This article will analyze the status of demand response and its prospects in China.

Demand Response (DR) Overview

In 2012, FERC (Federal Energy Regulatory Commission) defined demand response as follows: Changes in electric usage by demand-side resources from their normal consumption patterns in response to changes in the price of electricity over time, or to incentive payments designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardized.

Demand response must be distinguished from demand side management (DSM). DSM refers to when the government, through policy measures, pricing mechanisms, and other measures to guide the users and change electricity usage behavior, thus lowering peak usage, improving the efficiency of the power supply, and optimizing other electricity usage aspects. DSM includes energy efficiency, permanent load reduction, and incentives for temporary load reduction. DR is a type of DSM, as shown in the figure below.

DSM Implementation Methods

The US has some of the best developed DR, and will thus be taken as an example in introducing DSM implementation methods. In the US market, DR is mainly divided into price-based DR and incentive-based DR.

Price-based DR resources are generally from residential users whose participation is completely voluntarily and thus cannot be dispatched. As it cannot be dispatched, it is difficult for the grid to accurately determine DR capacity. But as smart metering has popularized, this type of DR resource has shown new developments. With dispersed users aggregated as one, and with the allocation of ES devices, this creates an aggregate dispatchable resource which can via contracted electricity prices or other logical price signals giving direction and paying returns.

Incentive-based DR resources are generally commercial and industrial users, and can be publically transacted on electricity markets. Grid dispatchers can arrange electricity usage plans with participants in advance, and can be thusly dispatched. This type of DR resource will generally have an ES device such as a battery, thermal storage, or ice storage air conditioning.

In the above basic DR implementation measures, each power company in the US has its own particulars, equipment, and provide a great many DR projects for users to choose from to participate in. PG&E has programs for small business DR: smart air conditioning, and business and residential interconnection projects; and programs for large to medium businesses: business incentive programs, aggregate party programs, and subsidy programs.

DR in China’s electricity market

In November 2010, China's NDRC released the <Demand Side Management Methods>, formally beginning China's DSM efforts. Following, the government released related policies, such as 2011's Guidelines on Industrial Zone Demand Side Management, 2012's Interim Methods For Demand Side Management City Pilot Project Central Financial Incentive Fund Management, and 2015's Notice on Improving Demand Side Management Pilots through Emergency Power Mechanisms, promoting the development of DSM efforts.

The above documents differentiate between DSM-type permanent load reductions and temporary DR and differentiate set incentive mechanisms, but up to now, DSM has mainly been carried out via administrative means, load control devices, and energy efficiency, with non-ideal results. Meanwhile, pricing and other market mechanisms for directing users in voluntary participation DR have had quite limited development due to greatly limited peak pricing and subsidy incentive mechanisms.

 (Note: Price compensation mechanisms for DSM facilities: Energy efficient power plants and peak shifting/peak shaving technology and other permanent load reductions: 440 CNY/kWh in east China, 550 CNY/kWh in central and west China. Demand Response temporary peak load reductions: 100 CNY/kWh.)

Background of China’s DR electricity market

Although DR is very limited in China's electricity market, its importance is already taking shape in China's energy strategy and the new round of electricity reforms. Beijing, Shanghai, and other DSM pilot cities have been testing DR projects since 2014. The data shows that DR will gain great development space in China.

        More reasonable, improved peak pricing mechanisms will incentivize DR development

The newest policy published this April, makes a call "to incentivize active user participation in peak [super peak] load usage reduction and voluntary participation in DR, improved peak pricing and seasonal pricing can be set... to be set and implemented before the end of June 2015." The coverage scope and regional use of peak pricing will expand, and price-type DR will gain more incentives.

        Electric service company participation, strengthening an active market

Allowing more types of retail entities to enter the end user retail market is one of the new reforms. For DR, last April's Notice also states that it will "incentivize and support the development of electric service companies, attracting the participation of top national and even global electric service companies in pilot projects."  As the market opens, participating entities and competition will increase. This could result in the emergence of more innovative projects and products, driving DR development.

However, China's present DR market still has many barriers. Participation by grid companies is very low, grid operation data is still held closely by grid companies, and there is a lack of public channels. For non-grid companies, providing DR lacks the data for economic operation analysis. For users, as they lack real-time electricity usage data analysis, it is very difficult to build enthusiasm for DR participation.

CNESA acts as a primary integrated unit of the Beijing NDRC, actively participating in Beijing's DR pilot efforts, and is currently managing the establishment of a DR management platform, which will organize under certain conditions the participation of user groups in DR in the NDRC's pilot projects. CNESA hopes to advance the continued improvement of related policies through the efforts and coordination of many parties, creating even more space for energy storage to develop.