Has Wind and Solar Curtailment Peaked In

Liutong Zhang ([email protected]) China wind and solar capacity is mostly found in Northwest, North and Northeast regions – those three regions have high curtailment rates as well

Wind capacity in 2016, MW Solar capacity in 2016, MW

Heilongjiang Heilongjiang

Jilin Jilin Inner Mongolia Inner Mongolia Xinjiang Liaoning Xinjiang Liaoning Gansu Beijing Gansu Hebei Hebei Tianjin Ningxia Shanxi NingxiaShanxi Qinghai Qinghai Shandong Shaanxi Hena Shaanxi Henan Jiangsu Jiangsu Tibet n Tibet Sichuan Hubei Anhui Sichuan Hubei Anhui Shanghai Chongqing Zhejiang Zhejiang HunanJiangxi Hunan Guizhou Jiangxi Fujian Guizhou Fujian Yunnan Guangxi Yunnan 0 Guangdong 0 GuangxiGuangdong 0-1000 0-500 500-1000 1000-3000 Hainan 3000-5000 Hainan 1000-2000 5000-10000 2000-5000 10000-26000 5000-9000 Total wind capacity in 2010: 30 GW Total solar capacity in 2010: Negligible 2015: 128 GW 2015: 43 GW 2016: 149 GW 2016: 77 GW Source: NEA 1 The Lantau Group The curtailment rates have generally improved in H1 2017, although they are still high

Wind curtailment rates in 10 provinces 50% 2013 2014 2015 2016 40% 30% 20% 10% 0% Gansu Xinjiang Ningxia Shaanxi Hebei Shanxi Inner Mongolia Liaoning Jilin Heilongjiang

50% H1 2016 H1 2017 40% 30% 20% 10% 0% Gansu Xinjiang Ningxia Shaanxi Hebei Shanxi Inner Mongolia Liaoning Jilin Heilongjiang Solar curtailment rates in 5 key provinces

H1 2016 H1 2017 40% 2013 2014 2015 2016 40%

30% 30%

20% 20%

10% 10%

0% 0% Qinghai Gansu Xinjiang Ningxia Shaanxi Qinghai Gansu Xinjiang Ningxia Shaanxi

Source: NEA, Northwest China Energy Regulatory Bureau and TLG research from news reports. 2 The Lantau Group Fundamentals Grid Policy

Agenda – How will solar and wind curtailment evolve in China

1 Market fundamentals

2 Grid infrastructure

3 Policy and Regulation

4 Summary

3 The Lantau Group Fundamentals Grid Policy Dispatch is driven by both policy (giving RE preferential dispatch), but also economic factors (resulting in coal fired generators receiving a generation quota)

“Unified Dispatch and Multi-level “Energy conservation” dispatch rules at Management” dispatch principle provincial level

Level Entity • Intermittent renewable resources such as wind, solar, 1 National dispatch wave and run-of-the-river hydro State Grid organisation • Hydro-power with storage, municipality waste generation 2 and geothermal Regional dispatch Regional grid organisation companies • Nuclear plant 3 • Power generation from integrated use of waste heat, waste Provincial grid Provincial (PDO) gas and coal-bed methane from non-coal resources companies 4 • National demonstration project (like IGCC) Prefecture dispatch Prefecture power • Coal-fired combined heat and power (CHP) organisation supply organizations • Natural gas and coal-to-gas generation plant • Coal-fired power plants 5 County dispatch County power • Fuel oil-fired power plants organisation supply organisations

• Most utility-scale solar and wind farms are under provincial dispatch (i.e. level 3).

• Although solar and wind farms have priority over thermal generation under the “energy conservation dispatch rule”, system operators a provincial and local levels make exceptions to this rule. These dispatch exceptions are typically driven by technical limitations (e.g. minimum load requirements of coal fired power plants), as well as economic considerations where coal power projects would not be economically sustainable if dispatch was strictly according to priority order set out by government policy

4 The Lantau Group Fundamentals Grid Policy Demand has been strong while new coal capacity addition has slowed down, providing a slight improvement from last year

Incremental annual power supply & demand Excess capacity is at historically high level

GW GW +84 percent namplate excess 160 1800 1645 Others 140 1600 77 Others 149 Solar 1400 120 Solar 1200 332 100 Wind Wind 1000 893 80 Nuclear 800 Nuclear 60 Hydro 600 40 943 Hydro Gas 400 20 200 Gas Coal 0 0 Coal 2010201120122013201420152016 H1 Average load Max Demand 2016 Installed 2017 growth Capacity Annual average incremental surplus Over-supplied situation is particularly serious capacity was about 116GW in 2012-2016, in the resource - rich regions close to the total installed capacity in UK Source: CEC; TLG research and analysis Note: Average load and peak load are estimated based on historical electricity consumption. Average load for H1 2017 represents estimated average load growth for 2017. 5 The Lantau Group Fundamentals Grid Policy Common and unique challenges in each province – Gansu and Xinjiang are particularly challenging for resolving their over-supplied situation

Gansu supply and demand Xinjiang supply and demand GW GW 60 Solar Wind 90 Solar Hydro Wind 50 Thermal 80 Hydro Estimated Peak Demand 6 7 Thermal 9 70 6 40 Peak Demand + Net export 5 Estimated Peak Demand 13 Surrounded 60 Peak Demand + Net export 18 4 13 17 30 10 by surplus 3 50 8 6 7 provinces 6 7 6 8 9 9 40 3 6 About 60% 20 1 8 5 1 7 7 5 6 30 3 coal is 6 4 42 44 embedded 10 19 19 20 Sizeable 20 32 38 13 15 16 16 1 29 11 1 3 23 hydro 10 2 16 0 capacity 10 12 2009 2010 2011 2012 2013 2014 2015 2016 0 2009 2010 2011 2012 2013 2014 2015 2016 Inner Mongolia supply and demand Jilin supply and demand GW Solar GW Wind 120 Thermal 30 Hydro Estimated Peak Demand 6 25 100 5 4 5 Estimated Peak demand + Net export 3 4 4 3 24 26 3 80 1 21 20 2 19 Slow local 15 17 60 10 Material 15 1 demand 6 export growth, and 40 10 volumes Northeast grid 11 14 16 16 17 18 18 18 20 5 is relatively 48 54 60 60 64 67 73 76 4 4 4 4 4 4 4 4 stand-alone 0 1 1 1 1 1 2 2 2 0 2009 2010 2011 2012 2013 2014 2015 2016 2009 2010 2011 2012 2013 2014 2015 2016 Common challenges are hugely over-supplied local market, lack of peaking units and limited export 6 The Lantau Group opportunities Fundamentals Grid Policy Curtailment has resulted in geographical diversification of new solar capacity, instead of reduction of 2020 solar capacity targets

Estimated solar capacity by 2020 under new Utility-scale solar development quota in 2017-20 development plan GW 250 Heilongjiang 43 200 Rooftop solar target Jilin (>60GW by 2020) Xinjiang Liaoning 17 Beijing 13th FYP: H1 2017 rooftop Gansu 32 HebeiTianjin 150 >110GW solar Shanxi Ningxia Shandong Front Runner Qinghai Shaanxi Henan 55 Programme Jiangsu 100 Tibet 2017-20 utility-scale Sichuan Hubei Anhui Shanghai Chonging solar quota Hunan Zhejiang 50 Jiangxi 84 H1 2017 utility-scale 0 Guizhou Fujian 0-1000 Yunnan solar 1000-2000 Guangxi Guangdong 2000-3000 0 3000-4000 Solar capacity by 2020 4000-5000 Hainan Unlimited Source: NEA, TLG analysis Note: Quotas do not include Front Runner Programme, rooftop solar project and village-level poverty alleviation project.

In July 2017, NEA published provincial development quota and target during 2017-20 for wind and utility-scale solar. NEA assigns provincial development quota with 87 GW for utility-scale solar and 110GW for wind by 2020, which does not include provinces are not suitable to build more renewable capacity due to curtailment issues.

7 The Lantau Group Fundamentals Grid Policy Similar to solar capacity, Central government is planning to build more wind capacity in provinces with less curtailment rate

H1 2017 existing capacity vs. 2017-20 new capacity quota Wind development quota in 2017-20

Inner Mongolia Zero Xinjiang Zero Gansu Zero Hebei Heilongjiang Ningxia Zero Shandong Inner Mongolia Jilin Shanxi Xinjiang Liaoning Yunnan Gansu Beijing Liaoning HebeiTianjin Shanxi Jiangsu Ningxia Shandong Heilongjiang Zero Qinghai Shaanxi Henan Jilin Zero Jiangsu Guizhou Tibet H1 2017 2017-20 Quota Guangdong Sichuan Hubei Anhui Shanghai Hunan Chongqing Zhejiang Fujian HunanJiangxi 0 Guizhou Hubei Fujia 0-2000 Yunnan n Shaanxi GuangxiGuangdong Anhui 2000-4000 Henan 4000-6000 Jiangxi 6000-8000 Hainan Sichuan 8000-12000 Zhejiang Guangxi Qinghai • Inner Mongolia, Xinjiang, Gansu, Heilongjiang and Shanghai Chongqing Jilin are not allowed to build new wind capacity Hainan before curtailment problem is mitigated. Tianjin Beijing Tibet • Provinces in North China (Hebei, Henan, Shanxi 28000 24000 20000 16000 12000 8000 4000 0 MW 0 4000 8000 12000 and Shandong) are allocated the highest Source: NEA development quota in the next four years.

8 The Lantau Group Fundamentals Grid Policy

Agenda

1 Market fundamentals

2 Grid infrastructure

3 Policy and Regulation

4 Summary

9 The Lantau Group Fundamentals Grid Policy UHV DC and AC lines expansions will enable power exports from the curtailed regions, but their utilization rates are likely to be relatively low at least in medium-term

Large new coal UHV AC lines plants & UHV DC lines solar/wind

Zhalute

Zhundong Shengli Hami (North)

Hami (South) Ximeng

Ximeng Mengxi

Shanghaimiao Jingbei Mengxi Jinbei Jiuquan East Beijing Ningdong West Beijing Jingbian Jinzhong Qingzhou Jindongnan Yubei Taizhou Nanyang Taizhou Fengxian Nanjing Suzhou Yubei Xuancheng Wanxian Xiangjiaba Shaoxing Ya’an Wannan Huxi Xiangtan Jinping Wuhan Jingmen Zhebei Jinhua Leshan Zhezhong Dianxibei Xiluodu BLUE indicate DC Terminal Chuxiong UHV DC in Operation areas with Key Substation Nuozhadu UHV DC under constructionhydro resources Jiangmen In operation UHV DC approved Under ConstructionSource: TLG research and analysis UHV DC proposed Proposed Approved The tension between provincial governments for power import/export will likely increase in the future 10 The Lantau Group Fundamentals Grid Policy

Agenda

1 Market fundamentals

2 Grid infrastructure

3 Policy and Regulation

4 Summary

11 The Lantau Group Fundamentals Grid Policy NEA has published guaranteed minimum utilization hours for wind and solar but they are not implemented

Guaranteed utilization hour versus actual utilization hour in 2016 Hour Hour 2500 Wind 1800 Solar 1600 2000 1400 1200 1500 1000 800 1000 600 500 400 200 0 0

Guaranteed utilization hour Actual utilization hour Guaranteed utilization hour Actual utilization hour

Source: NEA • Though NEA set the least hours than wind and solar are supposed to be dispatched in corresponding resource regions, the actual utilization hours in most regions are less than the guaranteed minimum hours. • For Wind, the difference between guaranteed minimum hours and actual utilization hours in Xinjiang (region III), Gansu and Jilin is over 340 hours. Only Liaoning, Hebei and Shanxi meet the minimum hours requirement. • For solar, Xinjiang and Gansu are over 25% lower than the guaranteed hours. The actual utilization hours in Inner Mongolia (region II), Qinghai (region II), Heilongjiang and Shanxi exceed the minimum hours requirement.

12 The Lantau Group Fundamentals Grid Policy Supply-side intervention (halting new built in highly curtailed regions and adding pumped storage plants) can mitigate RE curtailment if successfully implemented

Proposed policies to mitigate curtailment • Slow-down approval or halt new coal, solar and wind projects in highly curtailed Supply-side regions will be very positive to reduce curtailment; • Several Non-hydro RE targets have been discussed in China, which incentive existing generators to continue to build new solar and wind capacity.

Flexible • More pumped storage plants: Several provinces like Gansu and Jilin have Generation plans to build new pumped storage plants. • Increasing flexibility of the system: This has been discussed, but it remains to be seen whether private players will invest in technologies (such as battery) that can improve the flexibility of the system.

• Wind/solar for heating: This is still not commercially proven. Demand-side • Local governments with high wind and solar curtailment rates have been trying to attract energy intensive industries (like data centres) to move to their provinces.

Set-up of • Eight provinces have been working to create competitive spot pool markets by competitive spot end 2018. Mengxi in inner Mongolia and Gansu are among the eight. electricity pool • If they are implemented in a similar way as international spot pool markets, market curtailments are likely to be reduced because dispatch would be largely based on variable cost (solar and wind have zero variable cost). 13 The Lantau Group Fundamentals Grid Policy Strong push to build pumped storage plants to increase grid flexibility in the highly curtailed regions

Pumped storage projects in the ‘Three-North’ region Meidai, 1,200MW Shangyi, 1,200MW Wuhai, 1,200MW Tianshan, 1,200MW Zhirui, 1,200MW

Fukang, 1,200MW Shangzhi, 1,000MW

Heilongjiang Wuchang, 1,200MW Changma, 1,200MW Jilin Inner Mongolia Jiaohe, 1,200MW Niushoushan, 800MW Xinjiang Liaoning Beijing Huadian, 1,200MW Gansu Tianjin Hunyuan, 1,200MW Shanxi Hebei Qingyuan, 1,200MW Ningxia Qinghai Shaanxi Zhuanghe, 800MW Zhen’an, 1,400MW Xingcheng, 1,200MW Yuanqu, 1,200MW Funing, 1,200MW Commissioned project Project under construction Yixian, 1,200MW Project at planning stage

• China is also building up its technical capability in battery technology.

14 The Lantau Group Fundamentals Grid Policy Development on battery storage can reduce curtailment, but it is yet to reach large-scale commercial deployment in China

Installed capacity of battery storage • Total installed capacity of battery storage is 243MW. MW Lithium-Ion battery accounts for 59% of total capacity. 300 101MW of battery capacity is commissioned in 2016. 55 percent of new battery capacity additions are applied to +>139% p.a. renewable energy sector. Almost all battery project 250 installed in northwest region are deployed with renewable energy projects. 200 • In June 2016, NEA launched a pilot programme on implementing compensation scheme of ancillary service for 150 battery storage in ‘Three North’ region. Battery storage can be either deployed with power plants or independent 100 market participant. • NEA drafted a guidance on Improve Storage Technology 50 and Industry Development which is under consultation in May 2017. The overall target is to realize early stage of 0 commercialization for storage industry before 2020 and 2012 2013 2014 2015 2016 gradually shift to large scale development before 2025. Source: China Energy Storage Alliance (CNESA) Battery storage is encouraged to deployed with renewable projects and smart grid. Renewable energy plus battery is allowed to participate ancillary service market. NEA proposed to introduce capacity payment mechanism for storage.

15 The Lantau Group Fundamentals Grid Policy

Agenda

1 Market fundamentals

2 Grid infrastructure

3 Policy and Regulation

4 Summary

16 The Lantau Group Core

RE curtailment – probably will get better but no quick fix

• Moderate/delay/stop building new coal projects

• Moderate/cancel new solar and wind build in highly curtailed regions

• Expand transmission and distribution investment – Ultra-high Voltage (UHV) lines – Intra- and inter-provincial network

• Build up energy storage – Pumped storage plants – Battery

• At regional level, Northwest provinces such as Gansu and Xinjiang will have more challenging tasks to reduce curtailment Hope that demand growth does not slow down again

17 The Lantau Group Fundamentals Grid Policy

Quantitative wind curtailment forecast from TLG’s model (for illustration)

GW 2016 Spring (Mar-May) Case study: Wind curtailment forecast in 10 Curtailment = 46 percent 9 Jilin 8 7 50% Depending on: 6 Wind curtailment • Local solar and 5 45% peaking wind addition 4 wind 40% 3 • Demand growth Mingen 2 35% • Export 1 30% • Flexible/peaking 0 capacity 25%

20% GW 2016 Autumn (Sep-Nov) 10 Curtailment = 45 percent 15% 9 8 10% 7 6 5% 5 4 0%

3

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2 2014 1 Spring Summer Autumn 0

Winter Annual

0:00 1:00 2:00 3:00 4:00 5:00 6:00 7:00 8:00 9:00

11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 23:00 18 The Lantau Group 10:00 Source: TLG research and analysis Thank you

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