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Analysis: China power shortages provide lessons for sector reforms in climate push

Highlights

Power crisis signals need to fix structural flaws in power sector

Emphasis on stable energy transition without disruptions

Market-based mechanisms needed for power price to reflect energy costs

The ongoing power crisis in China provides key lessons for sector reforms to overhaul the electricity system, build a new grid based on renewables and decarbonization, and ensure stable energy transition amid shifting priorities, Chinese experts said at the launch event of International Energy Agency's report on a carbon neutrality roadmap for the country's energy sector.

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The power rationing due to fuel shortages and the enforcement of energy intensity targets has rekindled debate on how climate policy must be reconciled with real-life energy issues, and the risk of severe imbalances if the implementation is not smooth.

"I believe this is not only about a technical problem in terms of power system configuration with high proportions of renewables, but also about how we can actually construct a new sectoral ecosystem," Jiang Liping, Vice President at State Grid's Energy Research Institute, said at the event held on Sept. 29.

State Grid, China's largest state-owned power grid that provides power supply to the majority of Chinese provinces, recently organized a seminar with experts from Denmark and Germany to discuss current issues and learn about their energy transition experiences, Jiang said.

"I think the key factor that drives transition in Germany and Denmark, is that they rely heavily on the market and see the role played by the market," Jiang said, adding that China is still in the process of building an effective market, which hasn't played its desired role in the energy transition yet.

"Besides, there's also an issue of coordination between the market and the policy. We need to strengthen coordination between the two," she added.

Several Chinese provinces imposed electricity rationing to critical sectors in recent weeks to conserve fuel stocks ahead of the critical winter heating season due to high coal and gas prices limiting generation capacity, and tight energy consumption targets.

"There are a lot of complicated reasons behind the recent blackouts, but no matter what you say, blackouts shouldn't happen in our transition...In a modern society, residents cannot bear the issue of blackouts. This is the biggest challenge in front of us," Jiang said.

"China has already made significant efforts to reform its power market. We hope that there will be a system at the end of the day which meets the golden rule that the price can truly reflect the cost of services," Fatih Birol, Executive Director with IEA, told S&P Global Platts on the sidelines of the event.

Click here for our full coverage on China's power crisis

Orderly transition

Zou Ji, President of Energy Foundation China, said discussions around risk control and risk management were needed, and the cause of the blackouts shouldn't be boiled down to environmental reasons alone.

"We have to be clear that the so-called power shortage is not a shortage of the power volume. We have to optimize the commissioning capacity of power grids, and we have to strengthen the demand side management," he said.

Zou highlighted three areas to guarantee a smooth energy transition: strict control over investments on high-carbon infrastructure, guaranteeing energy supply and clear targets about renewable energy development and capacity expansions.

"IEA's report talked about the 'orderly' transformation, which is really a good word," Zhang Qiang, Associate Dean in the Department of Earth System Science from Tsinghua University, said.

He said energy transition is a gradual process from mature technologies to newly built ones and "an immediate transformation is neither plausible nor necessary."

On Sept. 27, power regulator China Electricity Council said coal-fired plants faced challenges in coal procurement due to tight domestic supply, high prices in global markets, disruptions in shipping and port closures, and unexpected electricity demand.

"For the existing coal-fired power, the average life span is 40 years. By 2060, they will be naturally phased out. But if the intermittency issue [of renewables] is not well addressed, a certain proportion of coal-fired power will need to be kept for peak shaving," Zhang said.

He said China's whole power system needs to reach net zero with or without fossil fuels, and hence technologies like CCUS [Carbon Capture, Utilization and Storage] will be key. IEA's report showed CCUS is expected to contribute 8% of China's carbon emission reductions from now to 2060, and renewables will contribute 38%.

Climate legislation

"At the national level, the '1+N' policy will be launched and implemented very soon," Chai Qimin, Department Head of China's Ministry of Ecology and Environment (MEE), said at the event.

In the so called '1+N' policy, '1' refers to the climate policy framework and 'N' refers to a set of detailed, supporting measures, including a carbon peaking action plan and carbon neutrality roadmap, MEE said earlier this year.

"We have long-term targets, and in the process of implementation, we need to accumulate experiences and try to take corrective actions along the way," Chai said. "China needs both regulatory policies as well as the market policies to realize carbon peaking and neutrality," he added.

TABLE: China's Five-Year Plan energy targets and attainment

Target indicator
11th FYP (2006-2010 ) Goal
Achieved
12th FYP (2011-2015) Goal
Achieved
13th FYP (2016-2020 ) Goal
Achieved
14th FYP (2021-2025) Goal
CO2 intensity per unit of GDP
na
na
-17.0%
-20%
-18%
-18.80%
-18%
Energy intensity per unit of GDP
about -20%
-19%
-16%
-18.20%
-15%
-14%
-13.50%
Total primary energy demand (billion mt coal eq)
about 2.7
3.3
4.0
4.3
5.0
4.98
tbd
Share of nonfossil fuel in total primary energy demand
na
na
11.40%
12%
15%
15.90%
about 20%
Solar PV capacity (GW)
0.3
0.86
21
43
110
253
tbd
Wind capacity (GW)
10
31
100
131
210
282
tbd

Source: IEA