Institutional and Technical Analysis of Wind Integration Challenges in Northeast China Michael Davidson Advisors: Ignacio Perez-Arriaga, Valerie J. Karplus TMP – June 2014

Motivation Actual * Thermal862 Hydro Wind Nuclear Solar Biomass< Source: China Electricity Council, NEA, ERI *Final 2020 targets are still under discussion Wind is key focus of low-carbon electricity policy efforts in China. Grid-connected wind capacity is expected to triple by 2020, and may reach 400 / 1000 GW in 2030 / Generation ( ) Non-Fossil Capacity Targets

Wind integration challenges led to additional 9 Mt coal burned in 2012 Curtailment: Available wind turbines are instructed to not put power on the grid for economic, grid stability and other reasons Spilled wind 3

Some technical causes 4

Some institutional causes Tariffs set administratively by NDRC for each province reflecting economic costs and affordability Annual “generation quotas” for each coal plant to recover costs Transmission quotas/limits between provinces  most balancing is done within province “Energy efficient dispatch” piloted since 2007: implementation uneven, and inconsistent with power sector market reform 5 Sources: Ma, 2011; Kahrl et al., 2013; Gao & Li, 2010

Research question What is the relative contribution of technical and institutional causes to wind curtailment in the Northeast? Evaluate the potential of the following solutions to reduce costs and wind curtailment: – More flexible operation of coal plants – Dynamic minimum outputs of CHP units based on heat load – Heat storage – Greater transmission interconnection 6

Model Unit commitment optimization: – Minimizes total operating cost = variable + startup costs – Week time period: T=168 hours – Fixed heating load constrains CHP plant operation – Hydropower dispatch with historic inter-season storage rates – Up and down spinning reserves – All prices in yuan ($1 = 6.2 Yuan) 7

Data 8 6 representative wind resource weeks Fixed weekly electricity load (MW)% Thermal 71, % Hydropower 7,0057.9% Wind 10, % Total 89,069 Capacity (end of 2010)

Unit composition Database of all generators: CEC (2010) Updated unit breakdowns, cogeneration status 9

Daily Heating Load Power-Heat Curve Heat demand 10

Modeling institutional constraints “Generation quotas”: set minimum capacity factor of coal generators based on provincial average and reasonable summer/winter difference “Provincial dispatch”: (1) Set transmission limits and transmission directions between provinces. (2) Meet reserve requirement at provincial level. 11 Source: Kahrl et al., 2013; Gao & Li, 2010

Results 12

Reference Case (Technical Factors Only) Objective (mil RMB) Coal Use (Mtce) Wind Generation (GWh) Wind Share (% Generation) Wind Curtailment (%) Ja11, %5.0% Ja21, %5.9% Ja31, %5.9% Ma11, %9.6% Ma21, %6.9% Ma31, %6.1% Avg1, %6.6% 13 Ja – January Ma - March

Flexible coal Lower minimum outputs (from 54% to 40%) improve cost and wind integration Startup/shutdown times, ramp limits have little effect Startup costs have noticeable effect 14 Objective (% Change from Reference) Wind Curtailment (% Change from Reference) Pmin40%-1.0%-47.9% Ramp Rates50%0.0%4.2% Startup/24,24,60.0%4.2% Shutdown12,12,60.0% Times6,3,30.0% Startup Costs %-25.0% %-42.7%

Heat Dynamic outputs in dispatch worsens curtailment  Economic curtailment from not shutting down a high must-run baseload unit Storage has potentially huge impact 15 Objective (% Change from Reference) Wind Curtailment (% Change from Reference) Dynamic, No Shift-0.9%31.6% Dynamic, 4 Hour Shift-1.2%-4.2% Dynamic, 8 Hour Shift-1.8%-67.8%

Regulatory Features: Provincial Dispatch Reserve requirements at provincial level increase curtailment: 16

Generation Quota Highest curtailment for provincial dispatch with generation quota Difficulties w/model convergence (Ma1 wind scenario) 17 Objective (mil RMB) Wind Curtailment (%) Regional Reference1, % Regional (Min CF)1, % Provincial Reference1, % Provincial (Min CF)1, %

Conclusions (1) Technical Absent regulatory design issues, there is curtailment (6.6% average), but still below observed levels of curtailment (15-40% in winter months) Heat-electricity interactions can be measured: large impact of storage implies significant coupling and potential benefits from coordination Some flexibility changes in coal (e.g., lower mins and reduced startup costs) will reduce curtailment…but not all (e.g., shorter startup/shutdown times, higher ramp rates) 18

Conclusions (2) Regulatory Provincial dispatch with minimum generation quotas increases curtailment on order of technical causes More broadly, this methodology helps identify province- level dynamics in an otherwise opaque system Future research: Due to economic curtailment, does cost-minimizing dispatch guarantee elimination of integration challenges? 19

20 Thank you 谢谢

References Gao, C., and Li, Y. (2010). Evolution of China’s power dispatch principle and the new energy saving power dispatch policy. Energy Policy, 38(11), Kahrl, F., Williams, J., Ding, J. H., & Hu, J. F. (2011). Challenges to China's transition to a low carbon electricity system. Energy Policy, 39(7), Kahrl, F., Williams, J. H., & Hu, J. (2013). The political economy of electricity dispatch reform in China. Energy Policy, 53(0), Kerr, T. (2008). CHP/DHC Scorecard: China. International Energy Agency. Liu, W., Lund, H., & Mathiesen, B. V. (2011). Large-scale integration of wind power into the existing Chinese energy system. Energy, 36(8), Ma, J. L. (2011). On-grid electricity tariffs in China: Development, reform and prospects. Energy Policy, 39(5), Schuman, S. & Lin, A. (2012). China’s Renewable Energy Law and its impact on renewable power in China; Progress challenges and recommendations for improving implementation. Energy Policy 51 (2012): Zhao, X., Zhang, S., Yang, R., & Wang, M. (2012). Constraints on the effective utilization of wind power in China: An illustration from the northeast China grid. Renewable and Sustainable Energy Reviews, 16(7), Zhang, D., Davidson, M., Gunturu, B., Zhang, X. & Karplus, V. J. An Integrated Assessment of China’s Wind Energy Potential (Report No. 261). (MIT JPSPGC, Cambridge, MA, 2014) 21

China power sector reform : Vertically-integrated state-run utility (Ministry of Water Resources and Electric Power, later Ministry of Electric Power) : Private & foreign investors allowed to invest in generation, “competed” with local utilities : Ministry broken up – Regulatory fns  SETC, SDPC and later NDRC – State-owned generating assets  Big Five SOEs – T&D assets, system operation  State Grid, Southern Grid 2003-present: Reform slowed – markets, indep system operator were not created China does not fit either model – only partially unbundled 22

Why the Northeast 23 Kerr (2008)Zhang et al. (2014) High proportion of combined heat and power (CHP) units

Regional electricity/heat institutions 24 State Grid Provincial Governments Northeast Grid Provincial Grids Coal Generators Wind Subsidiaries Energy SOEs Wind IPPs Government Quasi-gov’t SOE Other Municipal Governments Electricity District Heating

Monthly Curtailment Figures 25 JanFebMarAprMayJunAvg Jilin 30.5%34.8%42.5%30.3%19.5%11.0%28.1% E. IM 24.1%27.9%23.6%22.3%12.7%6.1%19.4% Gansu 25.3%25.7%20.9%14.2% 10.5%18.4% W. IM 25.8%26.1%24.5%9.6%5.1%4.9%16.0% Liaoning 23.6%20.4%19.1%13.8%3.5%1.4%13.6% Heilongjiang 19.2%20.2%22.3%15.9%2.7%0.8%13.5% Wind curtailment (generation) by province (1 st half 2012) Source: China Association of Agricultural Machine Manufacturers

In a region with high overcapacity 26

Transmission 27

Transmission (Provincial Dispatch) 28