How do support schemes for renewable energy impact

electricity market in China?

Zhaotian Chong

College of Economics & Management

Nanjing University of Aeronautics and Astronautics

40th IAEE International Conference

21 June 2017, Singapore

Backgrounds

Methodology

Results

Part 1

Part 2

Part 3

Backgrounds

1

Energy and Renewable Energy In China

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Energy Production Energy Consumption

Figure 1 Energy production and consumption from 2006-2015 in China

0.00

10000.00

20000.00

30000.00

40000.00

50000.00

60000.00

70000.00

2009 2010 2011 2012 2013 2014 2015 2016

hydro thermal nuclear wind photovoltaic

Energy and Renewable Energy In China

Figure 2 Different Energy power generation from 2009-2016 in China

Energy and Renewable Energy In China

AreaAbandoned Wind Power（hundred million kWh）

ProportionAbandoned PV Power

（hundred million kWh）Proportion

Gansu 82 39% 26 31%

Xinjiang 70 32% 18 26%

Jilin 27 32%

Heilongjiang 19 21%

Inner Menggu 91 18%

Ningxia 13 13% 3 7%

Hebei 19 10%

Niaoning 12 10%

Yunnan 3 3%

Shanxi 3 2%

Qinghai 2 3%

Total 339 49

Table 1 The amount of abandoned wind and PV power in 2015

Energy and Renewable Energy In China

AreaAbandoned Wind Power

（hundred million kWh）Proportion

Abandoned PV Power

（hundred million kWh）Proportion

Gansu 104 43% 26 30%

Xinjiang 137 38% 31 32%

Jilin 29 30%

Heilongjiang 20 19%

Neimenggu 124 21%

Ningxia 19 13% 4 7%

Hebei 22 9%

Niaoning 19 13%

Yunnan 6 4%

Shanxi 14 9% 1 7%

Qinghai 8 8%

Total 497 69

Table 2 The amount of abandoned wind and PV power in 2016

To abandon wind and PV

power is widespread

Renewable

energy

Question: How to consume these renewable energy by the greatest

degree with different energy policies in China?

Electricity

market

Energy

policy

Power industry reformation;

Oligopoly market

Too many policies are in

disorder

Problems with Chinese Characteristics

Methodology

2

Support Schemes for renewable energy

PRICE QUANTITY

ANTE Feed-in-tariff Ante-quota

POST Floating premiun Post-quota

Mathematical model is applied here to analyze effects of different

policies.(Green R.,Vasilako N.,2010; Paul Twomey, Karsten Neuhoff, 2010;

Ori Ben-Mashe, oFir D. Rubin, 2015; Iychettira K. K. et al., 2017)

Table 3 Policy elements and policies

Assumptions and Methodology

• Assume that there are two generator firms in the market: conventional generator and wind power generator

• Market price is the inverse function of demand:

o Tp D bD T g w wD Q Q

• Costs: generation costs and penalty of carbon emissions

2( ) (1 )2

F g g gC Q Q u QT gC uQ

Assumptions and Methodology

• Firms’ benefits under FIT :

g g T FpQ C C 𝜋𝑤 = 𝑥𝑄𝑤

• Firms’ benefits under ante-quota :

( ( )) ( )g g w w w w w T Fp Q m Q z m Q C C

𝜋𝑤 = 𝑝 1 −𝑚 𝑄𝑤 + 𝑍𝑤𝑚𝑄𝑤

Assumptions and Methodology

• Firms’ benefits under floating premium :

g g T FpQ C C

• Firms’ benefits under post-quota :

𝜋𝑤 = (𝑝 + 𝜏)𝑄𝑤

( ( )) ( )g g w w w w w T F wp Q n Q z n Q C C snQ

𝜋𝑤 = (𝑠 + 𝑝) 1 − 𝑛 𝑄𝑤 + 𝑍𝑤𝑛𝑄𝑤

Results

3

The difference results from the intermittent

nature of wind power output.

Model under FIT

m and b increases, impact increase.

u increase, impact decreases.

Model under ante-quota

The price of wind power is lower than

the average price in spot market.

Model under floating premium

Model under post-quota

The price of wind power depends on

zw and n.

Results

Policy P* Pw

Feed-in-tariff x

Ante-quota

Floating premium

Post-quota

[ )]( ) (

2 )

o wb u D bQ b u

b u

[ )] [ (1 ) )] (

2 )

o wb u D b b m u Q b u

b u

2[ (1 ) )]

* ( *)2

ww

w

b b m up z p m

b u Q

[ )]( ) (

2 )

o wb u D bQ b u

b u

2[ )]

* τ2

w

w

b b up

b u Q

[ )] [ (1 ) )] (

2 )

o wb u D b b n u Q b u

b u

2[ (1 ) )]

(1 )( * )2

ww

w

b b n un p s z n

b u Q

Results

Results

Generally, the more wind power output, the lower market price. Here we

proved policy can change this phenomenon. The market price depends on the

ratio of renewable energy purchased by conventional GFs.

As carbon emission of conventional generators rise, the impact on wind

power price is decreasing. The level of carbon emission is lower, the impact is

higher. It proves that conventional GFs compensate their costs at the expense

of wind power. Wind generators benefit less than conventional generators.

Thanks for your kind attention!