Implications of power industry marketization for sustainable generation portfolios in China

Abstract

China is currently pursuing a new round of electricity reform, aiming to establish cost-bidding wholesale electricity markets to replace the current centrally planned electricity economy. Cost minimization-oriented marketization can reshape generation priorities from an economic and low-carbon perspective. However, while the existing literature mainly focuses on the operation, emission, and curtailment evaluation of renewables after electricity market reform, few studies have well addressed the impact of the reform on long-term generation portfolios. Here, we analyze the impacts of China's electricity reform on generation portfolios based on a refined model describing China's electricity system operation and planning modes before and after marketization, i.e., centrally planned-electricity operation (CPO) and a competitive wholesale-electricity market (CWM), respectively. By comparing the generation portfolios of six provinces in 2020 and 2030, we conclude that China's marketization could significantly reduce the proportion of thermal generation by 0.81%–27.48%, of which the market share of low-capacity but coal-heavy generators (<300 MW) could potentially drop by more than 50%. The provincial diversity highly depends on the existing power resource configuration, e.g., the penetration level of renewables and the proportion of thermal generation. In addition, we discover that marketization has a limited impact on renewable expansion planning. In contrast to CPO, CWM can slightly increase the investment in wind and solar energy by less than 1% owing to a relatively high levelized cost of energy (LCOE) of wind and solar energy. Therefore, we further conduct a sensitivity analysis of the renewable LCOE, and it indicates that a reduction in wind investment costs to 2500–5000 CNY/kW (LCOE reaching 0.102–0.204 CNY/kWh) and solar investment costs to 2000–6000 CNY/kW (LCOE reaching 0.107–0.320 CNY/kWh) can effectively promote renewable portfolios.