As the world's environmental focus shifts to China following the U.S. withdrawal from the Paris Agreement on climate change, Beijing's "green" energy targets are coming under increasing scrutiny.
While it is true that China is a global leader in renewable energy, with more capacity installed than anywhere else, a significant portion of this is going to waste. Curtailment -- the inability to use all the electricity capable of being generated at a given location -- was running at around 17% for wind energy alone last year.
This problem is not limited to technical issues posed by transmission network constraints. These can be easily remedied through grid augmentation and expansion. The problem runs deeper, is much more challenging, and is unlikely to be resolved in the short term. A combination of massive oversupply and slowing rates of economic growth means that most of China simply does not need additional sources of electricity, even as they continue to be built.
In the past, the problem was commonly seen to be the result of a geographic mismatch between the location of the best renewable energy resources (in the west and north) and the locations where electricity is consumed most intensively (in the south and east). Such a mismatch could, in principle, be solved by enhancing the transmission system. Massive expansion of China's ultra-high voltage transmission network seemed like the most robust and obvious solution.
Designed to minimize electricity losses despite the very long distances involved, China's UHV network had reached 19,000km, with a combined capacity of 94 gigawatts, by the end of March 2017. Additional projects still under construction should bring the total to more than 30,000km and 155GW by the end of 2017 or early 2018.
This represents a substantial achievement on the part of China, especially considering that almost 50% of this total has been approved and constructed since March 2015. Despite construction lagging the original UHV transmission targets for 2020, there can be no doubting China's resolve.
Yet if construction has been rapid so far, there are reasons to think that the future might be rather different. China's grid planners continue to worry about the risk of cascading network failures. A cascading failure arises when a problem in one regional grid affects another, and they become a bigger challenge the more deeply interconnected the grids become.
But the bigger problem is simply the pervasiveness of China's excess capacity: Not a single province needs more capacity than it currently has access to. With the possible emergence of a "new normal" economic growth rate of around 6.5% a year (down from the double-digit average enjoyed from 2002 to 2011), China is generating much more electricity than it needs, without the prospect of high rates of economic expansion, which were once expected to absorb it.
The extent of China's excess capacity is vast. Peak demand was roughly 800GW in 2015, compared with installed capacity of close to 1,525GW. Oversupply worsened in 2016, with nearly 140GW of new capacity added -- enough to cover about seven years of "new normal" growth. By 2016, there was 943GW of coal-generated capacity alone. Even if the wind never blows, the sun never shines and the rivers do not run, China has more than enough coal capacity to meet peak demand.
Out of control
This amount of excess is akin to a system out of control, and it reflects a considerable financial risk to investors. It will be very difficult to support new renewable energy investment without adding to existing capacity. And without any meaningful case for transmission system development, curtailment levels in renewable energy resource-rich regions may grow. More development of local renewable energy in the east and south may occur, but only at the expense of future power imports from provinces where electricity supply investment has been a mechanism to promote development.
About one-third of China's mainland provinces consume more electricity than they produce, but when current levels of interprovincial power transfers are factored in, every province has a power surplus. What is more, planned capacity additions up to 2020 will increase surplus capacity, while existing and under-construction UHV lines have more than enough capacity to handle the growth. The problem facing China is not a lack of grid connections, a lack of long-distance UHV transmission lines or a lack of desire to invest in more renewable energy resources. It is simply overcapacity.
Consequently, curtailment of wind and solar power has been getting worse, not better, despite the increase in grid connections for wind installations. In Gansu and Xinjiang provinces curtailment rates for wind power in 2016 were approximately 40%. For every 100 kilowatt-hours of electricity that can be produced, only 60kwh is generated and dispatched to the grid.
Intransigent curtailment has become the story lurking beneath China's renewable targets. The country has made great strides in installing renewable capacity; it has developed its UHV transmission grid to help carry power across the country; by some measures it is slowing its energy demand growth and may have begun to reduce its coal use. But its overcapacity is so large and so ubiquitous that renewable energy is being squeezed out.
Like so much in China, this is not a technical challenge but one of policy, implementation, enforcement and incentives. It is a problem that will not get better in the short term without a change in the status quo and better coordination between national policymakers and provincial planners. Tax revenues and employment opportunities still incentivize provinces to build their own thermal capacity rather than import renewable energy from elsewhere. For would-be provincial renewable energy exporters, destination provinces are already saturated.
Beyond the planning of new capacity, policies controlling generation dispatch might also be more fully enforced. Under recent power sector reforms renewable energy is supposed to be dispatched first -- a measure that could at least partially alleviate curtailment. Yet quotas still ensure a minimum level of dispatch for coal-generated power, and it seems unlikely that provinces would willingly switch off their thermal plants to import renewable energy without a revitalized set of incentives.
Renewable targets and UHV transmission capacity are only half the story; the other half is how to manage and incentivize the transition to renewables in a system that already has too much capacity.
Leo Lester and Xinmin Hu are principals at the Lantau Group, an energy consultancy in Hong Kong.Liutong Zhang is a senior manager at the company.
