Using diverse market-based approaches to integrate renewable energy: Experiences from China

Abstract

China's power system has faced major challenges to integrate the rapidly growing capacity of wind and solar power. In the context of a highly regulated power system, different localities have sought to use market-based approaches to mitigate this integration problem. In this paper, we use three cases to illustrate why and how these approaches have been implemented. The three cases involve the generation rights trading between hydropower and thermal power in Sichuan province since the late 1990s, the generation rights trading between wind power and thermal power, and the trading of peak regulating ancillary service in northeast China since 2012, and the generation rights trading between renewable units and captive power units in northwest Gansu province in recent years.Our analysis shows that these approaches have enhanced power system flexibility and improved renewable energy integration by circumventing the regulated wholesale power tariff, overcoming the constraints to economic dispatch arising from planned generation and long-term power purchase agreements, incentivizing relevant players to enhance power system flexibility, and providing appropriate price signals for renewable energy investment. Policy recommendations are to improve the mechanism for generation rights trading, increase trading items of ancillary services, and regulate the operation of captive power plants. China's experiences can provide helpful insights for other economies with regulated power systems.