What kind of electricity market do we need under a high share of new energy?

Release time:

2024/02/13

In recent years, China has steadily intensified its efforts to develop new energy sources, actively aligning with the global Sustainable Development Goals and the dual carbon targets of peaking carbon emissions and achieving carbon neutrality. By the end of 2022, China’s installed capacity of renewable energy had reached 1.21 billion kilowatts, accounting for 47.3% of the country’s total power generation capacity. According to projections, under the assumption of achieving carbon neutrality by 2060, China’s electrification rate will rise to approximately 70%, with the vast majority of electricity demand met by renewable energy. From a policy perspective, China has formulated and implemented a series of new-energy development policies, including the 14th Five-Year Plan for Renewable Energy Development, which have laid the foundation for the gradual increase in the share of new energy in the power system and facilitated the transformation of the power system from quantitative change to qualitative change as it integrates a high proportion of new energy.

What kind of electricity market do we need under a high share of new energy?

In recent years, China has steadily intensified its efforts to develop new energy sources, actively aligning with the global Sustainable Development Goals and the dual carbon targets of peaking carbon emissions and achieving carbon neutrality. By the end of 2022, China’s installed capacity of renewable energy had reached 1.21 billion kilowatts, accounting for 47.3% of the country’s total power generation capacity. According to projections, under the assumption of achieving carbon neutrality by 2060, China’s electrification rate will reach approximately 70%, with the vast majority of electricity demand met by renewable energy. From a policy perspective, China has formulated and implemented a series of new-energy development policies, including the 14th Five-Year Plan for Renewable Energy Development, which have laid the foundation for the gradual increase in the share of new energy in the power system and facilitated the transformation of the power system—from quantitative changes to qualitative leaps—as it integrates a high proportion of new energy sources.

Although the environmental friendliness, renewability, and low-carbon characteristics of new energy sources bring a host of positive impacts to the power system, their inherent intermittency and uncertainty pose significant challenges to the operation of both the power system and the electricity market. These challenges are primarily manifested as “spatio-temporal dual-dimensional imbalances”: spatial imbalance in generation output due to meteorological conditions, and temporal imbalance arising from fluctuations in supply and demand. If the institutional and systemic challenges posed by the high penetration of new energy into the power system are not effectively addressed, the social welfare gains resulting from technological innovation will be substantially undermined. Therefore, the development of a new-type power system entails not only physical and technological transformation but also comprehensive, multi-dimensional institutional and systemic innovation that seamlessly integrates power technologies, market mechanisms, and business models.

To this end, this paper first examines the market phenomena arising from the integration of a high share of new energy sources and elucidates the underlying systemic issues; it then reviews relevant targeted policy measures adopted internationally and assesses whether lessons from these experiences can be adapted and applied in China; finally, it analyzes the specific implications for adapting to China’s power system and electricity market conditions and explores the disruptive impact of a high share of new energy on electricity market mechanisms.

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