Abstract
We analyzed the changes necessary to increase the share of natural gas in China's electricity mix, currently at 2%. The competitiveness of natural gas generation relative to coal generation depends on three factors: the price of natural gas relative to coal; the capital cost of natural gas power plants relative to coal power plants; and a carbon price. We modeled how changes in these factors would make natural gas cost-competitive in baseload, load following, and peaking applications in China. We found that natural gas is already cost-competitive for peaking, but that government agencies must adjust current methods of compensating generators in order to bring more gas peakers online. Natural gas load following and baseload generation are not currently cost-competitive, but could become so with relatively modest decreases in both capital costs and fuel prices, especially if a small price was imposed on carbon emissions. A government policy of indigenizing natural gas turbine technology could reduce capital costs, which is the primary factor in making gas cost-competitive for load following with relatively low capacity factors. Reforms in the natural gas supply industry, a carbon price, and fundamental changes in electricity wholesale pricing could make gas competitive as a baseload resource.
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