China's power companies mull gameplan for next phase of energy transition

Building market mechanisms to absorb more renewables in domestic energy consumption and shrinking global market share for their products due to geopolitical tensions were two major themes among China's largest power and electricity companies at the just-concluded Clean Energy Expo in Beijing in the week ended April 1.

The event was notable as it was one of the largest gatherings in China's clean energy space since the implementation of its zero-COVID policy, President Xi Jinping's third five-year term and the start of a global effort to decouple from the country's control over clean energy supply chains.

Over 400 companies, across China's power generation, transmission and distribution and clean energy equipment manufacturing, including solar, wind and hydrogen, met in a drastically changed global environment for energy transition, necessitating a new set of strategies for the next wave of growth.

For the electricity companies, the key concern was finding ways to pass on higher decarbonization costs in end-user electricity prices which is still developing into an efficient marketplace. For the equipment manufacturers, diversifying and de-risking amid geopolitical headwinds was the dominant theme.

"Market forces are key to solving today's problems, especially creating effective price signals," Ma Li, deputy chief engineer of State Grid Energy Research Institute, said at the event.

Ma said an effective power market should enable more renewable electricity to trade freely and enable coal-fired utilities to earn profits by providing flexibility to tackle renewables' intermittency. She said coal-based power companies face significant financial losses due to high fuel prices, which is detrimental to the development of the power system.

State Grid Corp of China, the world's largest power utility by revenue, was created after reforms in the early 2000s to separate generation assets from transmission infrastructure. Its power grid supplies electricity to billions, and like much of Asia, is one of the government owned enterprises shouldering the financial and technological burden of energy transition.

In January, State Grid announced a 4% increase in investment in power grid construction to hit a record high Yuan 520 billion ($76.81) in 2023, equivalent to the annual GDP of a small country.

Energy storage

Such investments flow to sectors like energy storage which is desperately needed as China's total solar and wind installed capacity approaches 1,000 GW. But companies are struggling to convert storage investments into returns as the tariffs for feeding power from storage into the grid are still being developed.

"The market mechanism for energy storage is still in its infancy. How energy storage providers will participate in the spot power market and ancillary service market needs to be further clarified," Li Leqing, deputy dean of China Southern Power Grid's Energy Storage Research Institute, said.

China's 'Big 5' state generation utilities invested in 2,333 MW of utility-scale battery storage, out of which 1,248 MW was added in 2022 alone, according to industry data. Grid operators installed another 747.91 MW of battery storage. The Big 5 are China's five largest independent power producers, namely Huaneng Group, Huadian Group, China Energy Investment Corp (CEIC), State Power Investment Corp (SPIC) and Datang Group, account for around 44% of China's generating capacity.

"Participating in spot and ancillary service markets require high optimization and scheduling capabilities, which is challenging for the generation utilities to manage," according to Lu Chenguang, Vice President of New Energy Science and Technology Research Institute under the Datang Group.

The SOEs are also piloting investment in capital-intensive technologies yet to be commercialized. CEIC invested $22 million in large-scale carbon capture, utilization and storage for coal-fired plants to capture 150,000 mtCO2e/year of CO2 that can be used on other sectors.

"We can build even bigger CCUS projects in more areas, but what's still challenging is how to utilize the captured CO2 and get steady profit streams," a CCUS researcher with CEIC said, adding that some financial support can come from carbon trading in the future.

SPIC is promoting FCEVs, which are still experimental in China, including fuel cell manufacturing and car rentals. It plans to deliver 2000 commercial passenger FCEVs and 3,000 logistic and sanitation FCEVs to the market by 2025, Liu Guozhu, director of SPIC's FCEV subsidiary, said.

"Our mission is to bear the unbearable burden, and achieve the unachievable task," Liu said, referring to the role of SOEs in energy transition.

Share of made-in-China shrinking

"The share of 'made-in-China' clean energy products is expected to decrease on a global scale," Yang Bao, Trina Solar's China President, said at the forum. Trina Solar is one of China's and the world's biggest solar PV manufacturers.

Yang said, out of geopolitical security concerns, the US and Europe are determined to localize production of clean energy products despite much higher costs. "Our global market share may drop from above 70% to below 50%. This is very likely to happen."

Solar and wind products are "clean energy products 1.0", and as a diversification strategy Trina is exploring the 2.0 and 3.0 markets, which are energy storage and hydrogen, which have great potential, Yang said.

LONGi Group, another large solar PV manufacturer, also started to diversify into hydrogen electrolyzers and utilizing solar to generate green hydrogen.

CEC's deputy director Wang Zhixuan said mixing low-carbon hydrogen and coal for power generation is potentially a way to decarbonize coal-fired plants and boost renewables' utilization rates, despite ongoing technical challenges.

China's battery giant Contemporary Amperex Technology Co. Ltd faces similar geopolitical challenges in global markets. It is instead choosing to face the extreme weather conditions that pose the biggest challenge to building utility-scale battery storage in China's mega solar and wind projects in remote regions like Inner Mongolia and Tibet.