Interview with Mr. Qin Haiyan, Secretary General of the Chinese Wind Energy Association, about the status of power generation in China

Questions from Gerhard Scholz, Austrian Wind Energy Association IG Windkraft.

Q: Why is there a shortage of coal- and gas-generated electricity in China?

A: Since the second half of 2021, many places in China have suffered from power shortages, and about a dozen provinces have imposed power rationing measures, disrupting normal production and daily life. The “power shortage” in this round is mainly caused by the following two reasons:

On the one hand, as the COVID-19 situation has been brought under control and China’s economic operation has gradually recovered to normal, electricity consumption in the whole society has increased significantly, especially in the manufacturing and service industries, increasing the imbalance between power supply and demand.

According to data released by the China Electricity Council(CEC), from January to August 2021, China’s electricity consumption was 5470.4 billion kilowatt-hour, up 13.8% on the year, and 2.5 percentage points higher than the growth rate of power generated by enterprises above designated size, make it the largest growth gap since 2003.

Specifically, industrial electricity consumption increased by 13.1% year-on-year, growth rate increased 13.5 percentage points than last year. Electricity consumption in China’s manufacturing sector rose 14.9% year-on-year, growth rate increased 15.3 percentage points than last year. The tertiary industry consumed 953.3 billion kilowatt-hour of electricity, up 21.9% year-on-year, 22.9 percentage points of growth rate higher than the same period last year.

On the other hand, the current electricity price mechanism leads to the inverted state of electricity price and coal price, that is, the coal price is determined by the market supply and demand, but the electricity price can only float in accordance with a certain proportion on the basis of the benchmark price determined by the state, and the previous floating proportion cannot exceed 10%.

In this case, once the coal price rises sharply, coal-fired power enterprises will face the dilemma of “power generation is loss”.

It is undeniable that coal-fired power still dominates China’s electricity system, and coal is the majority of the fuel used. Over the past year or so, coal prices in China have soared. From March 2020 to September 31, 2021, the thermal coal price rose from about 470 yuan/ton to about 1,380 yuan/ton, an increase of about 190%.

In particular, thermal coal prices rose rapidly from mid-August 2021. The price of thermal coal rose from 770 yuan per ton on Aug. 17 to 1,380 yuan per ton by the end of September, an increase of more than 78 percent, resulting in a sharp increase in power generation costs for thermal power companies, and a great influence on the motivation of power production.

Q: How does this affect the price of electricity?

A: Although the phenomenon of “power rationing” has no direct impact on the electricity price in the short term, it further exposes the problems existing in the electricity price mechanism and speeds up the market-oriented reform process of China’s electricity price to a certain extent.

On October 11, 2021, the National Development and Reform Commission (NDRC) issued a notice, details the implementation of four significant measures for the reform.

As of October 15, 2021, NDRC will orderly liberalize the on-grid price of coal-fired power generation, with all coal-fired power entering the market and the on-grid price being formed within the range of “base price plus fluctuation” through market transaction. The current benchmark price for coal-fired power generation will continue to be used as the benchmark for linking new energy power generation prices.

Meanwhile, the NDRC announced an expansion of fluctuation limits for the coal-fired power trading price to 20 percent from a previous 10 percent rise and 15 percent fall, but the market transaction price of energy-intensive enterprises is not subject to the 20 percent rise. Spot prices of electricity are not subject to the above range limits.

According to statistics, more than 20 provinces in China have adjusted the market mechanism of on-grid electricity price for local coal-fired power generation in accordance with the requirements of the above circular, and some regions have organized the power transaction after this round of electricity price reform.

Q: Are renewable energies, especially wind power, a substantial alternative yet?

A: In China, renewable energy has long been an alternative. But now it is becoming a principal energy in the planned new power system.

According to the latest data released by China’s National Energy Administration (NEA), By the end of October 2021, China’s cumulative installed capacity of renewable energy generation had exceeded 1000GW, doubled from the end of 2015. It accounted for 43.5 percent of the country’s total installed power generation capacity, 10.2 percentage points higher than that at the end of 2015. Among them, the installed capacity of hydropower, wind power, solar power and biomass power reached 385 GW, 299 GW, 282 GW and 35.34 GW, respectively, remaining the world’s largest.

In terms of power generation, from January to September 2021, China’s renewable energy capacity reached 1.75 trillion kilowatt-hour, accounting for 28.8 percent of the total. Among them, large-scale hydropower generation was 903 billion kilowatt-hour, down 0.9% year-on-year; wind power generation reached 469.4 billion kilowatt-hour, up 41.5% year-on-year. Photovoltaic power generation was 248.6 billion kilowatt-hour, up 24.0% year-on-year; biomass power generation was 120.6 billion kilowatt-hour, up 25.7% year-on-year.

Q: What are the plans for wind energy for the coming decades?

A: On September 22, 2020, Chinese President Xi Jinping announced at the General Debate of 75th session of United Nations General Assembly that China will increase its nationally determined contribution, adopt more effective policies and measures, strive to peak carbon dioxide emissions by 2030, and strive to achieve carbon neutrality by 2060.

This is the first time that China has clearly put forward a carbon peak and carbon neutral timetable in the international community. It will bring about a broad and profound economic and social systematic change.

As China’s main source of carbon dioxide emissions, the power system is undoubtedly the key to achieving these goals, and must be the first to complete decarbonization. In the absence of disruptive new technological breakthroughs, decarbonisation of the power system will depend largely on wind and photovoltaic power.

As stated at the ninth Session of the Financial and Economic Commission of the CPC Central Committee on March 15, 2021, it was proposed to build a clean, low-carbon, safe and efficient energy system, control the total amount of fossil energy, improve efficiency in utilization, implement actions to alternative renewable energy initiatives, deepen reform of the electric power system, and build a new type of electric power system with new energy as the main body. This means that wind and photovoltaic power generation will account for more than 80% or even 100% of the power system in the future.

According to the calculations of authoritative institution, the annual installed capacity of wind power in China between 2021 and 2025 should not be less than 50 GW in order to achieve the goal of carbon peak and carbon neutrality smoothly. From 2025 forward, China’s annual wind power installed capacity should be at least 60 GW, at least 800 GW by 2030 and at least 3000 GW by 2060.