电力零碳增长2020-2030中国实现碳中和的必经之路

电力零碳增长2020-2030中国实现碳中和的必经之路INTHEAVitalCarbonNeutralityTABLEOFCONTENTS5THEFORAREANDANDTHEINTRODUCTION1INTRODUCTIONCHINAZERO-CARBONELECTRICITYGROWTHINTHE2020S:AVITALSTEPTOWARDCARBONNEUTRALITY|CHINAZERO-CARBONELECTRICITYGROWTHINTHE2020S:AVITALSTEPTOWARDCARBONNEUTRALITY|PAGE9PAGEPAGE6|ROCKYMOUNTAININSTITUTEINTRODUCTIONAttheUnitedNationsonXiJinpingcommittedcarbonneutralitye00dokse1swasahugelyimportantstepforwardinthefightagainstchangeandreflectsprovideglobalChinacanachievecarbonneutralityandbecomeafullydeveloped,richeconomyby2060andpotentiallyasearlyasby2050.AsoutlinedintworecentreportsbytheEnergyTransitionsCommission,onefocusedontheglobaleconomyandonespecifictoChina,2itisundoubtedlypossiblefortechnologicallyadvancedeconomiestoachievezerocarbonbymid-centuryataveryloweconomiccost.Thekeytoachievingthisistoelectrifyasmuchoftheeconomyaspossibleandtoensurethatalmostallelectricityisgeneratedwithzero-carbonresourceswellbeforethetargetdateforoverallcarbonneutrality.Countriesaroundtheworldareincreasinglyfocusedontheneedandopportunitytodecarboniseelectricitysystemsandaresettingtargetsaccordingly.TheUKisnowlegallycommittedtoachievenet-zeroGHGemissionsby2050,withagoaltoachieveazeroornear-zerocarbonelectricitysystemby2035.President-ElectBidenproposesthattheUnitedStatesachieveacarbon-freepowersectorby2035andreachnet-zeroemissionsnolaterthan2050.ArecentanalysisfromTsinghuaUniversity’sInternationalCenterforClimateChangeandSustainableDevelopment(ICCSD)showshowChinacanmeetthe2060orearliercarbonneutralitytarget,alignedwithlimitingglobalwarmingto1.5°C.Inallcrediblescenariosandinallcountries,electricitydecarbonisationhastoleadthewaytobroadereconomy-widedecarbonisation.Whathappensin

electricitysystemintheisthereforevitalbothtopeakemissions2030andtothecredibilityofthe2060orearliercarbonneutralitytarget.Chinamustsignificantlyaccelerategrowthinzero-carbonpowerinvestmenttobeonapathtomeetPresidentXi’sobjective.Anynewcoalinvestmentthreatenstoassetswhichwilleitherthetargetunattainableorwillhavetobecloseddownwelltheendoftheirusefullife.Thiswouldawasteofinvestmentresourcesandadditionalchallengestodecarbonisingthepowersystem.TheappropriatestrategycompatiblewithChina’slong-termcarbonneutralitytargetshouldthereforebetoensurethatmovingforwardalmostallgrowthinChina’selectricitygeneratingcapacityiszerocarbon,withnonewcoalinvestment.However,Chinaiscontinuingtobuildnewcoal-firedplantswithabout20gigawatts(GW)approvedfromJanuarytoJune2020,whichishigherthanthetotalcapacitypermittedeachyearinthepastfouryears.i,3Thisreflectsmultiplefactors,includingactualorperceivedincentivesthatencourageprovincestotakeactionsincompatiblewiththenationalobjective.Onefactoristhemisguidedbeliefthatitisdifficultoreventechnicallyimpossibletointegratenewrenewablesupplywithoutadditionalcoalsupply.Anotherfalseassumptionisthatthezero-carbonelectricitysupplywillnotbeabletogrowfastenoughtomeetexpandingdemandinthe2020s.Thisreportdemonstrateswhythesebeliefsaremistakenandwhyapolicyofalmostallnewgrowthfromzero-carbonsourcesisfeasibleandeconomicallyoptimal.By2050alargelydecarbonisedChineseeconomywillconsumeabout15,000terawatt-hours(TWh)ofelectricity,aboutdoublethecurrentlevel.Thiswillentailsomesectorsandactivitiesthatcurrentlyusefossilfuels—suchassurfacetransportandresidentialheating—achievingclosetofullelectrification.ByiThemajorityofthenewlypermittedprojectsarenotreplacementsforretiredsmallerunits.INTRODUCTIONINTRODUCTION2030,studiessuggestChina’selectricitydemandwillrangefromabout10,000to12,000TWhaseconomicgrowthcontinuesandaselectrificationspreadstonewsectors(Exhibit1).Inthisreportwethereforeassessascenariofor2030alignedwithwhatisneededtodecarboniseChina’spowersectorby2050;wewillrefertothisastheZero-CarbonInvestmentScenario.Thisscenario,showninExhibit2,includesthefollowingassumptions:electricitysupplyreaches11,000TWhby2030,anincreaseof54%abovecurrentlevels,reflectinganaveragegrowthrateof4%peryear;

nonewcoalsupplyisaddedbeyondthe1,041GWinplacein2019,butwithaslightincreaseincoalgenerationasexistingassetsareusedmoreintensely;iivariablerenewablescapacityincreasesfrom408GWin2019to1,650GWin2030—whichequatestoabout110GWannually—withvariablerenewablegenerationaccountingfor28%oftotalgenerationinthatyear;andtotalnon-fossilfuelgenerationreaches53%ofthetotal,slightlyabovethetargetof50%proposedbyChina’sgovernmentin2016.4TWhTWhEXHIBIT114,00012,00014,00012,00010,0008,0006,0004,0002,0000BusinessasusualscenarioAcceleratedelectrificationscenarioBusinessas RFscenariousualscenario (highefficiency)HighREscenarioStateGridERI:ChinaEnergy& ReinventingFire:ChinaElectricityOutlook2019CNREC:ChinaHighrenewablepenetrationsystemroadmapandpathwayBelow2degreescenarioCNREC:ChinaRenewableEnergy2018iiAsconstructionofcoalpowerplantscurrentlyunderwayaddsnewcoalcapacity,itisbeingoffsetbyretiringsmaller,inefficientunits.However,thetotalcapacityshouldnotexceedthecurrentamountofcapacity,givenincreasingstrandingrisks.GenerationGeneration(TWh)EXHIBIT24,0003,5003,0002,5004,0003,5003,0002,5002,0001,5001,000500020192030CoalNaturalGasSolarOnshoreWindOffshoreWindHydroBiomassNuclear12,00010,0008,0006,0004,0002,000020192030CoalNaturalGasSolarOnshoreWindOffshoreWindHydroBiomassNuclearCapacity(GW)iiiTheillustratedassumptionsofthescenarioareintheAppendix,TableAINTRODUCTIONINTRODUCTIONCHINAZERO-CARBONELECTRICITYGROWTHINTHE2020S:AVITALSTEPTOWARDCARBONNEUTRALITY|CHINAZERO-CARBONELECTRICITYGROWTHINTHE2020S:AVITALSTEPTOWARDCARBONNEUTRALITY|PAGE9Thisscenariowouldneedtobefollowedbyfurtherrapidzero-carbonsupplyexpansionfrom2030to2050andbythegradualeliminationofexistingcoalgeneration—unlessfittedwithcarboncaptureandstorage—duringthattimeframe.Achievingthisscenariowillhelpmakethe“peakingbefore2030”objectiveattainableandputChinaonapathcompatiblewithits2060objective.Thispaperdescribeswhymeetingthegrowthalmostentirelyfromzero-carbongenerationsourcesisfeasibleandwhatneedstohappentodeliverit,infoursections.Theeconomiccaseforzero-carbonpowerandthepathtolow-costgreenelectricityThetechnicalfeasibilityofrapidlyexpandingvariablerenewableenergy(VRE)generationApproachestosuccessfullybalancingsupplyanddemandinasystemwithanincreasingshareofVREThepoliciesrequiredtodeliverzero-carbonelectricitygrowththrough2030andbeyondCHINAZERO-CARBONELECTRICITYGROWTHINTHE2020S:AVITALSTEPTOWARDCARBONNEUTRALITY|CHINAZERO-CARBONELECTRICITYGROWTHINTHE2020S:AVITALSTEPTOWARDCARBONNEUTRALITY|PAGE11PAGEPAGE20|ROCKYMOUNTAININSTITUTETHECASEFORZERO-CARBONAcrosstheworld,renewableelectricitygeneratingcostsareincreasinglyfallingbelowthoseoffossilfuels,andthisistruealsoinChina.ButChinamustadjustitspoliciestoensurethatrenewablecostscontinuetofallasrapidlyaspossibleandzero-carboninvestmentgrowsasfastasneeded.RENEWABLESCOSTSFALLACROSSTHEWORLDThecostofrenewableelectricitygenerationhasfallendramaticallyoverthepast10years.Estimatesoftheglobalaveragelevelizedcostofelectricity

(LCOE)forsolararedown85%,onshorewindisdown60%,andoffshorewindcostshavenowstartedarapidfall,downover60%injustfiveyears.5Infavourablelocationsbidauctionpriceshavebeenfarlowerstill.Thus,whiletheestimatedaverageglobalLCOEforsolarPVisabout$50permegawatt-hour(MWh),auctionsinCalifornia,Portugal,andtheMiddleEasthaveseenpricesatorbelow$20/MWh.AndwhiletheglobalaverageoffshorewindLCOEisestimatedatabout$90/MWh,arecentauctionintheUKwasclosedatabout$51/MWh.6400362400362350347fixedaxis300250200190Offshorewind150111tracking100Onshorewind507850443902009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020LCOE($/MWh,2019real)EXHIBIT3GlobalLCOEBenchmarksforSolarandWind,2009–2020Source:BloombergNEFTHEECONOMICCASEFORZERO-CARBONPOWERTHEECONOMICCASEFORZERO-CARBONPOWERTHEECONOMICCASEFORZERO-CARBONPOWERTHEECONOMICCASEFORZERO-CARBONPOWERInmanycountries,solarandwindarenowcompetitivewithbaseloadfossilfuelgeneration,andinsomecountriesrenewablesplusstorageisbecomingacheaperwaytoprovidepeakingpowerthangasturbines.EstimatesfortheUnitedStatesshowthatsolarorwindwithtaxcreditsarenowcheaperthan

combinedcyclegasturbine(CCGT)plantsinallstates(Exhibit4),andinseveralUSstatesordersfornewgaspeakingplantshavebeencancelledinfavourofsolarPVplusbatterycombinations.7EXHIBIT4CheapestSourceofNewBulkElectricityintheUnitedStates,2020ExcludingExcludingtaxcreditsIncludingtaxcreditsNorthwest$37/MWhNew$47/MWhMISO$37/MWhNorthwest$35/MWhNew$38/MWhCAISO$35/MWhNew$44/MWhMISO$27/MWhNew$36/MWhSPP$27/MWhPJM$42/MWhCAISO$29/MWhSPP$16/MWhPJM$34/MWhSouthwest$32/MWhERCOT$26/MWhSoutheast$35/MWhSouthwest$26/MWhERCOT$15/MWhSoutheast$32/MWhOnshoreWindUtilityPV–trackingGas–CCGTNote:RegionsfollowstateboundariesandthereforedonotmapperfectlytoISOterritories.ThenumbersrepresentthebenchmarkLCOEforeachISO.Source:BloombergNEFCHINAZERO-CARBONELECTRICITYGROWTHINTHE2020S:AVITALSTEPTOWARDCARBONNEUTRALITY|CHINAZERO-CARBONELECTRICITYGROWTHINTHE2020S:AVITALSTEPTOWARDCARBONNEUTRALITY|PAGE19PAGEPAGE14|ROCKYMOUNTAININSTITUTELookingforward,thesecostreductionsarecertaintocontinue.Asaresult,solarandwindcostsinsomecountrieswillsoonfallbelowthemarginalcostofrunningexistingcoalorgasplants.Thattippingpointwillbereachedinmanycountriesduringthe2020s,andtherenewableenergyadvantagewillsteadily

widenovertime.Exhibit5outlinesthecosttrajectoryintheUnitedStateswhererenewablesarebeginningtooutcompetebothnewcoalinvestmentsandmanyexistingcoalplants,puttingadditionalpressureontheseplantsandthecompaniesthatownthem.8EXHIBIT5LCOEvs.LCOEvs.runningcosts($/MWh,2019real)LCOEvs.runningcosts($/MWh,2019real)NewwindNewwindversusexistingcoalandCCGTNewutility-scalePVversusexistingcoalandCCGT100 10090 9080Offshorewind80707060 6050Coal50Coal404030 CCGT 30 CCGT20 2010Onshorewind10TrackingPV02020 2025 2030 2035 2040 2045 205002020 2025 2030 2035 2040 2045 2050Note:AllLCOEcalculationsexcludetax-creditsandcurtailment.TherangeoftheLCOErepresentsarangeofcostsandcapacityfactors.Inthecaseofoffshorewind,ourassessmentincludesthegeneratingasset,theoffshoresubstation,theexportcable,andtheonshoresubstation.Forthermalplants,theshort-runmarginalcostrangerepresentsadiversityofplantefficienciesinthefleet.RENEWABLESANDOTHERZERO-CARBONCOSTSINCHINATheglobalpictureismirroredinChinawheresolarcostsarealreadyfallingbelowthecostofcoalgeneration,andonshorewindwillsoonfollow.Offshorewindcostswilllikelybecomecompetitiveduringthe2020s,andChina’snuclearcostsarebroadlycompetitivewithcoaltoday.SolarcostsalreadybelownewcoalEstimatesfromBloombergNEF(BNEF)suggestthattheLCOEofsolarinChinaisnowbetween$29/MWhand$59/MWh,makingitcompetitivewithnewcoalinmostlocations(Exhibit6).9Priorto2019,solarcostswerecompensatedviaafixedfeed-intariffthatwas

designedtodeclinegraduallyovertime.In2019Chinaswitchedtoanauctionsystem.ThelatestpermittingoutcomesandauctionresultshavebroadlyconfirmedBNEF’sestimatesthatsolarisnowcompetitivewithnewcoalandwillbeincreasinglycompetitivewithexistingcoal.Auctionresultsin2019revealeda30%reductioninsolarcostscomparedto2018projectcosts,andbroughtafurther20%reduction,similartoBNEF’sestimateofadeclineinLCOE.ivAsaresult,whilethe2019solarauctionstrikepriceswerestillhigherthanthenewcoalbenchmarkpriceinmostprovinces,intheaveragesubsidyhadfallentojust$5/MWh.vThelowestsubsidieswerejust$0.01/MWh(Exhibit7).10$/MWh$/MWhEXHIBIT6LCOEofDifferentGenerationSourcesinChina,2020300276250250235200150130104100939713211612130027625025023520015013010410093971321161215962666850697583335129414150290ivCostreductionratesarecalculatedbasedonauctionresultsreleasedbytheNationalEnergyAdministration.vThesubsidyisthepricepremiumpaidtodevelopersovercoalbenchmarkprice.Thesecostreductionsarecertaintocontinue,andwouldimplyattainableauctionpricesin2021significantlybelowthecoalbenchmarkpriceinalmostallprovinces(Exhibit8)andinmanyprovincesbelowthecoaltransactionprice(Exhibit9).viThisisalignedwiththemarketforecastthatsubsidieswillnolongerbeavailable.

Solarsubsidiesarebeingphasedoutwithsolarcostsbecomingcompetitiveenoughtomakeunsubsidisedprojectseconomic.In2020,33GWofnewunsubsidisedprojectswereapprovedandnearly50GWofunsubsidisedsolarisunderdevelopmentacross20provinces.RMB/kWhRMB/kWhEXHIBIT0.20CoalbenchmarkpriceAuction2019Auction2020viTransactionpricesarethepricesformid-to-long-termcontractsandusuallyfallbetweenmarginaloperatingcostsandall-incosts.Thiscanprovideinsightintothecostsofrunningexistingplants.EXHIBIT80CoalbenchmarkpriceAuction2020Feasiblelowestpricein2021RMB/kWhEXHIBIT90CoalTransactionpriceAuction2020Feasiblelowestpricein2021RMB/kWhComparisonofExistingCoal,2020SolarAuctions,andFeasible2021SolarPricesinChina110CoalTransactionpriceAuction2020Feasiblelowestpricein2021RMB/kWhvii2021attainablepricesarecalculatedbyapplying20%reductionrateon2020lowestpermittedprices.bewithForonshorewind,majorchangesinthepolicyframeworkhavemadeitmoredifficulttodiscernthelatestunderlyingcosttrend.However,providedthatfuturepolicysupportsthestrongvolumegrowthrequiredtomeetthe2030objectiveindicatedinExhibit2,costswillalmostcertainlysoonfallbelownewcoalandbelowthecoaltransactionpricelaterinthe2020s:Chineseonshorewindcostshavedeclinedabout40%since2010andBNEFestimatessuggestarangeof$41/MWh–$62/MWhin2020,makingitalreadyhighlycompetitivewithnewcoal.Thisstrongdeclineseemedtomakeitpossibletoremovewindsubsidiesbeforesolar,withallwindsubsidiesduetoendafter2021(Exhibit10).Auctionsforwindwereintroducedin2018,butmanyprovincesdecidedtoholdnoauctionssincemanyhadalreadyhit13thFive-YearPlantargetsforquantityofwinddevelopment.Auctionresultsfortheprovinceswhichdidholdauctionsin2019(suchasTianjinandChongqing)producedbidsforsubsidiesinthe$10/MWh–$20/MWhrange,abovetheaverage$9/MWhinthe2019solarauctions.

Newlypermittedsubsidy-freeprojectsinhavebeenadisappointinglysmall11GW.Thispatternofbothquantityandpricedevelopmentreflectsthefactthatthedeclaredendofthesubsidyregimeproducedasurgeofprojectconstructionandwindturbineorderswhichtemporarilydroveupcostsandusedupproductioncapacity.Butprovidedstrongvolumegrowthresumes,majorcostreductionscanbeachieved.BNEFestimatesthataveragecostscouldfall30%toaround$35/MWhby2025andto$30/MWhby2030,withmuchlowercostsinthemostfavoredlocations(Exhibit11).Apolicyofclearmedium-termquantitativetargets,plusauctionstocreatecostreductionincentives,willmaximisethecostreductionachieved.OffshorewinddevelopmentsinChinahavebeenlimitedtodate,withonly6GWofinstalledcapacityby2019.Thecurrentcosttobuildnewoffshorewindcapacityisestimatedtobesignificantlyabovenewcoalcosts.WithglobalcostsfallingrapidlyandtheChineseindustryrapidlydeveloping,costreductionscouldmakeoffshorewindcompetitivewithnewcoalbeyond2025.Clearquantitativetargets,suchasGuangdong’sgoaltobuild30GWofoffshorewindby2030,willhelpdrivethesecostreductions.12EXHIBIT10RenewablesSubsidyPhase-OutTimelineCODdeadlinePermittedbefore2019JanuaryPermittedin2019and2020OnshoreWindEndof2020Endof2021SolarNocleardeadlineEXHIBIT11LCOELCOE($/MWh,2019real)100CCGT75100CCGT75Coal50Offshorewind25Onshorewind02020202520302035204020452050Solarandwindarealready,orwillverysoonbe,thecheapestsourcesofnewelectricitygenerationinChina.Inaddition,bythelate2020s,BNEFestimatesthatnewwindandsolardevelopmentswilldeliverelectricitybelowthecostofmanyexistingcoalplants(orcombined-cyclegasturbines),whichcanmakeexistingcoalassetsuneconomic(Exhibit12).Thisdangerisexacerbatedbytheovercapacityofexistingcoalgeneration,whichcurrentlyhasanaveragecapacityfactorof56%.ProvincesinnorthwestandsouthwestChina,whereabundantrenewableresourcesareavailable,arealreadyfacingthischallenge.Coalplantsarerunningatanaveragecapacityof35%intheseregions,resultinginsignificantfinanciallossesandstrandingrisks.

NuclearandhydropowercostscompetitiveBNEFestimatessuggestthatChinesenuclearpowercandeliverelectricityatabout$51/MWh–$68/MWh,andcurrentpricesconfirmthislevel.Thismakeszero-carbonnuclearfullycompetitivewithcoalasaproviderofbaseloadelectricity.Chinesehydroplantsalsodeliverzero-carbonelectricityatcostscompetitivewithcoal.Thetransactionpricesforhydroplantsareoftenaround$40/MWh,withsomeaslowas$30/MWh,significantlybelowtypicalcoalpowertransactionprices,reflectingverylowmarginalcostofrunninghydroplants.ItiscommonlyacknowledgedthathydroisthecheapestgenerationsourceinChina.EXHIBIT12LCOEofNewPVandOnshoreWindversusRunningCostsofExistingCoalandGasinChina7060CCGT507060CCGT5040Coal3020OnshorewindUtility-scalePV1002019202520302035204020452050LCOE($/MWh,2018real)POLICYSPECIFYINGCLEARDEPLOYMENTTARGETSCANRESTORETHEPACEOFCOSTREDUCTIONChina’spastdevelopmentofzero-carbonelectricityhasbeenveryimpressive:withover400GWofwindandsolarcapacityalreadyinplace,itleadstheworldinrenewabledeployment.Thisreflectsthesuccessofpastpolicy,withinitialsubsidiesandquantitativetargetsdrivingrapidindustryexpansionandresultingcostreduction.Certaintyaboutthequantitativepaceofexpansionhasenabledtheindustrytoachievetheeconomyofscaleandlearningcurveeffectswhichhavebroughtcostsdowntocompetitivelevels,notonlyinChinabutalsoglobally.However,thecurrentpaceofzero-carbonpowercomingonlineisnotontracktomeetthelevelsneededby2030,inparticulartherateofwinddeployment.Asourscenariosuggested,toachievethelevelsrequiredin2030,Chinaneedstoadd

approximately650GWofsolar600GWofonshorewind,60GWofoffshorewind,110GWofhydro,and65GWofnuclearpower(Exhibit2).Solarprojectapprovalsinarerunningat59GW,theannualpacerequiredtoachievethe2030amount,withunsubsidisedprojectsaccountingfor33GW.65GWofnewnuclearlooksfeasible,givenapipelineofaround12GWunderconstructionand22GWinplanningwithdefinedconstructionstartdate.Theadditionof110GWofnewhydroisbackedbyabout40GWofprojectsunderconstructionandover20GWintheplanningstage.However,thepaceofnewwinddevelopmentisoff-trackrelativeto2030levels.Withwindsubsidiesphasingout,the11GWofapprovedunsubsidisedwindistooslowtomeetrisingdemand.Anannualinvestmentpaceof55GWofwindperyearisundoubtedlyachievableifappropriatepoliciesareinplace:in2016and2017over30GWwaspermittedineachyearaswindcapacityincreasesranaheadofthe13thFive-YearPlantargets.Anditislikelythatthepaceofprojectproposalandpermittingmaynaturallyincreasesomewhatoverthenextfewyearsaswinddevelopersandturbinemanufacturerscompletethebacklogofexistingprojectsandorders.Butthereisalsoadangerthatthepaceofinvestmentwillbetooslowforseveralyears,andthatnewcoalinvestmentswillfillthegap,creatingunnecessarycostandstrandedassetslateron.Theappropriatepolicyresponseistocreatesufficientcertaintyaboutthequantityofwind(andsolar)projectstoensurethattheattainablecostandpricereductionsareachieved.Experiencefromothercountriessuggestthatassolarandwindcostsapproachorfallbelowfossilfuelcosts,removingtheneedforsubsidies,itisstillimportanttoproviderenewabledeveloperswithpricecertaintyforalargeshareoftheiroutput.Thisreducestherisksofrenewabledevelopmentandasaresultcutscostsandrequiredprices.Thiscanbeachievedeitherviaregulatorytargetsforthepercentageofpowerwhichmustcomefromrenewables(suchasChina’srenewableportfoliostandards)and/orviathecontinueduseofauctionsforpredeterminedquantitiesofrenewablepower,evenifitisexpectedthattheseauctionswillproducepricesbelowthefossilfuelprice.

IntheUK,forinstance,thePrimeMinisterhasrecentlycommittedtobuild40GWofoffshorewindprojectsby2030,viiiwithauctionstoensuretheirdeliveryatleastcost.Theseauctionswilldetermine“contractsfordifference”versusthewholesalepowerprice.Thesemayinsomecasesproducepaymentsfromtherenewableenergydevelopertothegrid—iftheauctionstrikepriceisbelowfuturewholesaleprices—butstilloffersconditionsthatarehighlyattractivetodevelopersbecausetheyprovidepricecertainty.ThespecificpoliciesrequiredtodriverapiddevelopmentaredescribedinSection5.Providedsuchpoliciesareinplace,renewablesgenerationcostswillcontinuetodecline,deliveringnewsupplyatcostsbelownewcoal,andbelowthecostofmanyexistingcoalplantsbefore2030.InChina,asinmanyothermarketsaroundtheworld,thecrucialquestionisnolongerwhetherrenewablesandotherzero-carbongenerationarecost-competitive.Instead,themainareasoffocusarearoundthetechnicalandeconomicchallengesofintegratingahighshareofVREintothegrid.viiiSincetheChinesepowersystemisabout25timeslargerthantheUKsystem(measuredbygeneration),thisisroughlyequivalenttoa1,000GWtargetinChinaCHINAZERO-CARBONELECTRICITYGROWTHINTHE2020S:AVITALSTEPTOWARDCARBONNEUTRALITY|CHINAZERO-CARBONELECTRICITYGROWTHINTHE2020S:AVITALSTEPTOWARDCARBONNEUTRALITY|PAGE25PAGEPAGE22|ROCKYMOUNTAININSTITUTETECHNICALGRIDCHALLENGESAREInChina,VREcurrentlyaccountsfor21%ofinstalledcapacityand10.2%ofpowergeneration.Thiswillcontinuetoexpand,andasSection2hasshown,willdeliverpowergenerationatcompetitivecosts.ButmanyworkingintheChinesepowersystemcontinuetoexpressconcernthatitmaybetechnicallyimpossibleorprohibitivelyexpensivetoexpandrenewablesharessignificantlyabovethecurrentlevel.SuchconcernswereoftenheardinotherpowersystemsatasimilarstageofVREexpansion.Butacrosstheworld,manycountriesarealreadyoperatingwithsharesofVRE,whichonsomedaysaccountforover50%oftotalenergysupply,withpeakpowerpercentagesevenhigher.InGermany,renewablesgenerated77%ofnetpowersupplyinasingledayonApril22,2019,withwindgenerating40%,solar20%,andothers17%.13AcrosstheEuropeanUnion,renewablesintotalaccountedfor54%oftotalelectricitysupplyonMay11,and%onMay4,14InCaliornia,windandsolarpowersupplied49%oftotaldemandatamomentaround11:20a.m.onMarch23rd,AndintheUK,windgenerationaccountedfornearly60%oftotalpowersupplyat1:30a.m.onAugust26,2020.16ThismakesitclearthatitistechnicallypossibletorunpowersystemsatfarhigherlevelsofVREthaninChinatoday,andindeedfarhigherthanthelevelsinExhibit2.ThisreflectsthefactthatthereareclearlyavailablesolutionstothefourcategoriesoftechnicalchallengeoftenmentionedasVREpenetrationrises:FrequencycontrolVoltagecontrolFaultridethroughCapacityutilisationoflong-distancehigh-voltageDC(HVDC)lines

FREQUENCYCONTROLThebiggestconcernexpressedbysomeChineseindustryexpertsisthatrisingVREshareswillmakefrequencycontrolmoredifficult.ButothercountrieshavedevelopedarangeofsolutionswhichallowstablesystemoperationatveryhighVREshares.Stablesystemoperationrequiresinstantaneoussupply/demandbalancetomaintainfrequencywithinanacceptablerange.Ifsupplyanddemandareinsignificantimbalance,frequencydeviationscancausegeneratingunitstotripoff.Intraditionalpowersystemsdominatedbythermalgeneration,rotatinginertiahasprovidedaflexiblemeanstohelpmoderatefrequencyfluctuations,anddispatchablepowersupplieshaveprovidedadditionalgenerationoutputtomeetloadchanges.VREbycontrastisnotdispatchableatwill,anditsfutureoutputcannotbepredictedprecisely.Asaresult,frequencycontrolbecomesmorechallengingundertheexistingsystemasVREsharesrise.Butthesechallengescanbeovercomebyacombinationoffourmeans:ImprovedforecastingofrenewableoutputThegreatertheuncertaintyaboutfutureVREoutput,thegreatertheneedtomaintainoperatingreserveandflexiblecapacitythatcanrespondtounanticipatedshortfallsorexcesses.Ifforecastingaccuracycanbeimproved,theneedfor“regulationcapacity”(i.e.,capacitythatcanrampupanddown)oroperatingreserves,canbeconstrainedevenasVREsharesincrease.InthecaseofCAISOforinstance,VRE’sgenerationshareincreasedfrom12.2%to20.9%between2015and2019,17butbecausemeanabsolutepercentageTECHNICALGRIDMANAGEMENTCHALLENGESARESOLVABLETECHNICALGRIDMANAGEMENTCHALLENGESARESOLVABLETECHNICALGRIDMANAGEMENTCHALLENGESARESOLVABLETECHNICALGRIDMANAGEMENTCHALLENGESARESOLVABLEerror(MAPE)improvedsignificantly,bothonadayaheadandreal-timebasis,requirementsforregulationcapacityandoperatingreservecouldbebroadlyunchanged(Exhibit13).

MAPEiscurrentlyfarhigherthanCAISO’s—about10%–20%versus4%–6%atthedayaheadtimescale.Improvedforecastaccuracyshouldthereforebeahighpriority.BoxAsetsoutbestpractices.EXHIBIT13PowerSystemOperationDataComparisonbetweenCAISOandChinaixCAISOChinaYear201520192019Yearlyelectricityconsumption(GWh)231,495214,9557,225,000VREpenetration12.2%20.9%10.2%WindforecastMAPEDay-ahead6.2%5%~10%–20%Real-time2.7%1.1%-SolarforecastMAPEDay-ahead6.4%4.2%~10%–20%Real-time3.7%1.6%-RegulationrequirementsRegulationup(MW)347~350-Regulationdown(MW)327~430-Operatingreserve(MW)1,664~1,600-ixCAISO’sdataissummarisedfromresourcesinendnote17.CHINAZERO-CARBONELECTRICITYGROWTHINTHE2020S:AVITALSTEPTOWARDCARBONNEUTRALITY|CHINAZERO-CARBONELECTRICITYGROWTHINTHE2020S:AVITALSTEPTOWARDCARBONNEUTRALITY|PAGE25PAGEPAGE26|ROCKYMOUNTAININSTITUTEBoxA:BestpracticesinimprovingVREBoxA:BestpracticesinimprovingVREforecastAlistofinternationalpracticesforimprovingforecastaccuracyanddispatch:Improvethedataquality.Ensurechecksandbalancesonthedataqualitygoinginto