ENERGY TRANSITION IN CHINA

Market reform of the electricity sector is essential to enabling a clean energy transition and reducing the country’s carbon emissions. Historically, the lack of a wholesale power market has contributed to curtailment of renewable energy, which makes renewable energy artificially less economical. China’s administratively planned power system had historically encouraged the over-building of coal plants through inflexible planned operating hours contracts that enabled cost recovery for coal plant investments. To ensure the solvency of state-owned power companies and maximize provincial tax revenue, provincial governments had also favoured dispatch of within-province coal plants over trading power between provinces—creating a system known as “provincial fortresses.”

China’s power market reforms that were restarted in 2015 have been aimed at gradually resolving these issues through a combination of market and administrative measures, including phasing out planned operating hours and encouraging power trading among provinces. Today, electricity spot markets are being trialed on provincial level to gain experience for the introduction of a nationwide spot market in the near future. In 2000, Germany’s first electricity exchange started trading in Frankfurt. Two decades later, German and European power markets are ever more integrated with numerous products, from futures to intra-day products, offered on the trading floor.

Within the various Sino-German cooperation projects in the energy sector of GIZ, German and international experts share best practices and offer advice for China’s efforts to establish effective and efficient spot trading mechanisms and advance China’s ongoing power market reform.