The Changing Economics of China’s Electricity System: Why Renewables and Electricity Storage may be a Lower Cost Way to Meet Demand Growth than Coal

Fritz Kahrl and Jiang Lin

Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

Abstract: Concerns around reliability in China’s electricity sector have rekindled interest in a traditional solution: building more coal-fired generation. However, over the past decade China’s electricity sector has seen significant changes in supply costs, demand patterns, and regulation and markets over the past decade, with falling costs for renewable and storage generation, “peakier” demand, and the creation of initial wholesale markets. These changes suggest that traditional approaches to evaluating the economics of different supply options may be outdated. This paper illustrates how a net capacity cost metric – fixed costs minus net market revenues – might be better suited to evaluating supply options in China. Using a simplified example with recent resource cost data, the paper illustrates how, with a net capacity cost metric, solar PV and electricity storage may be a more cost-effective option for meeting demand growth than coal-fired generation.

Keywords: Social and Behavioral Sciences; peak demand; economics of electricity generation; China; coal power (search for similar items in EconPapers)
Date: 2023-07-01
New Economics Papers: this item is included in nep-cna, nep-ene and nep-reg
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