Smart grids in China – business opportunities

China has become the world’s consumer of electricity, and it is expected to double its demand for electricity by the next decade and triple by 2035. Today it is poised to become a major consumer of smart grid technology.

Smart grid is an automated, widely distributed energy delivery network with responsive and organic capabilities. The adding monitoring, analysis, control, and communication capabilities of smart grids can greatly reduce the energy consumption.

Smart grid will be an effective approach to the increasing amounts of wind energy and solar energy. China has to figure out how to bring trillions of kWh of power to more than a billion customers, with distance being one of the challenges. The total power capacity is set to reach 1430 GW by 2015 from 874 GW at the start of 2010.

China’s government policy

In the 12th Five-Year Plan, the Chinese government will dedicate efforts to the development of smart grid over the next five years. In fact, the government has already been increasing investment into smart grid technology. This is in response to the national demand that is expected to double in 10 years.

China’s political leaders are intent on reducing carbon density by 40 to 45 per cent by 2020 relative to 2005. The government is also pushing for the use of cleaner and renewable energy source, promising a gigantic transformation of the nation’s energy landscape. These ambitious plans of China have attracted top equipment makers, communication device players, and integrated solutions providers around the globe.

According to the National Development and Reform Commission, China plans will build long-distance transmission networks to fully use hydro-power, wind, and solar.

There are two reasons why smart grids will be large and influential in China. First, smart grid technologies are the promising answers to China’s increasing commitment to green development. Second, the country has a unique structural context that could empower it to advance in the development of the smart grid: government ownership of the power transmission and distribution (T&D) sector, the availability of the market to lower down equipment cost, and primary role of the government in the economy to make this possible.

China’s Enormous Need for the Smart Grid

China is embracing efficient and clean energy, and it will need smart grid capabilities to transform the demand and supply aspects of the nation’s power industry.

Supply: A tremendous build-out of renewable energy resources will increase the need for grid connections and management systems to handle the intermittence of these sources. As of 2009, due to limitations in the transmission network and the difficulty of dispatching intermittent power, among other reasons, less than one third of wind power plants are connected to the grids. Wind and solar power in China are forecast to greatly increase their installed capacity, with 100 gigawatts for wind and 20 gigawatts for solar by 2020.

Building-integrated photovoltaics (BIPV) and solar PV are also receiving much attention in their contribution to increase the combined heat and power (CHP) capacity in China.

Demand: The continuing urbanization of the population of China and the distributed power potential can create opportunities for the smart grid. It is estimated that the urban population of China will grow up to 840 million in 2020.

Electric vehicles (EVs) are also growing in their popularity, with the aggressive promotion of China. It is projected that there will be 5 million EVs could be on Chinese roads by 2020. The vehicles will add significant grid to the electricity grid.

Currently, smart grid opportunities are positive. A pilot focusing on smart meters and home-area networks in a Chinese city could pay for itself in 6 to 7 years, and this will also provide benefits to the environment through energy savings and emissions reductions.

The Unique Structural Context of China

There are a number of factors present in China that will contribute to its global smart grid impact.
State Grid and Southern Grid had combined expenditures of $43 billion, and the figure is expected to grow 15 to 20 annual rate over the next 10 years. The enormity of the spending will permit China to integrate the latest technology into its system.

Compared to products manufactured in developed markets, the power generation equipment from China can be 30 to 50 per cent cheaper, due to cost advantages in the value chain. The net effect of this ultra-competitive equipment sector is that China has ready access to cost competitive equipment, and its utilities will be able to build out their infrastructure faster than anywhere else.

Enabling Leadership of the Government

The State Council, the chief administrative council of the central government of China, controls the administration of the overall energy policy. The State Electricity Regulatory Commission (SERC) is in charge of the regulatory policies and rate structures of electrical energy.

The National Development and Reform Commission (NDRC) is responsible for the planning of all national initiatives including energy related programs that it administers through its energy agency the National Energy Administration (NEC).

The Electric Power Law established legal protections for investors, consumers, and producers and regulated the generation, distribution and consumption of electricity. State Grid Corporation of China (SGCC) is China’s largest power transmission and distribution company and also in the world. It plans to invest 1.7 trillion RMB on new power routes.

With the growing potential of smart grid, the government can drive economic development and increase environmental protection. The role of the government of China is vital and visionary.

The rapid urbanization and increased distribution of power will require a shift to an emphasis on demand-supply balancing. The energy smart system will require the government to create incentives to support demand-side applications for the smart grid, in parallel with the supply-side developments.

To facilitate the testing and implementation of smart grid technologies, cities could pilot special financing, tariffs, and collaboration models.

Company Activities

Chinese smart grid companies are Tianwei Baobian, Tebian Electric Appliance, Henan Pinggao Electric, XJ Electric and Changyuan Group, among others. As for the international companies in China, among them are Siemens, GE, IBM, ABB and Areva.

Almost 666 billion RMB will be directed to the project to create a transmission capacity over the next 5 years. 2.8 billion kWh of power was lost in 2010 due to insufficient capabilities and grid connection. Upgrades in the power grids are still lagging behind the expansion of wind turbines. To upgrade the grid, State Grid will have to spend 500 billion RMB.

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