Evaluating the cost impacts to meet China’s renewable electricity portfolio standard target in 2030

ABSTRACT

The power sector plays a pivotal role in China’s carbon peak and carbon neutrality targets. To build a low-carbon power system, it is important to develop wind and solar. This study aims to evaluate the economic impacts of the newly launched renewable portfolio standard in 2030 in China using a cost minimization model and an input-output model. The results show that to accomplish the renewable electricity portfolio standard in 2030, the installed wind and solar capacity will have to reach 1451.9 gigawatts (GW) in 2030. The Northeast, Northwest, and North regions will deploy the most installed capacity, and Inner Mongolia will take on the most renewable energy generation tasks. The annual cost of wind and solar development is expected to be 506.6 billion CNY in 2030, 94.7% of which are new construction costs and storage costs. Renewable energy growth will result in a national average electricity price increase of 5.4 CNY¢/kWh compared to 2019, and Heilongjiang, Gansu, and Shanxi are the most affected. The rapid development of renewable electricity in the next decade will increase the Consumer Price Index (CPI) by 0.4%, Producer Price Index (PPI) by 0.9%, and Gross Domestic Product (GDP) deflator by 0.5% in 2030. Based on the results, we propose to improve the electricity market mechanisms, enhance the electricity transmission stability, and develop policies appropriate to local conditions.

KEYWORDS:

• Renewable energy
• regional deployment
• macro-impact
• cost minimization

NomenclatureAbbreviations

CNY	=	Chinese Yuan
CPI	=	Consumer Price Index
C&T	=	Cap-and-trade
FIT	=	Feed-in tariff
IEA	=	International Energy Agency
GDP	=	Gross Domestic Product
NDRC	=	National Development and Reform Commission
NEA	=	National Energy Administration
PPI	=	Producer Price Index
RPS	=	Renewable Portfolio Standard
USD	=	Renewable Portfolio Standard

Subscript

$c$	=	Installed capacity type ($c$= wind, solar)
$i,j$	=	Region or Province
t	=	Year

Parameters

$Ca{p}_{i,c}$	=	Newly capacity of installed capacity c in region $i$ from 2020 to 2030
$CC$	=	Construction cost of the new installed capacity
$Cost$	=	The annual total cost of non-hydro renewable electricity generation
$D{V}_{j.i}$	=	Output electricity from region $j$ to region $i$
$\mathrm{E}\mathrm{D}$	=	Annual electricity demand
$GC$	=	Electricity generation cost of non-hydro renewable electricity
$hou{r}_{i,c}$	=	Average annual generating hours of installed capacity $c$ in region $i$
$L$	=	Operation life
$M$	=	Number of electricity output regions
$N$	=	Number of electricity input regions
$Oldca{p}_{i,c}$	=	Built capacity of installed capacity $c$ in region $i$ in 2019
$R{D}_i$	=	Non-hydro renewable electricity demand in region $i$
$SC$	=	Storage construction cost
$TC$	=	Non-hydro renewable electricity transmission cost
$Totalca{p}_c$	=	National newly installed capacity target
$UC{C}_{i,c}$	=	Unit construction cost of installed capacity c in region $i$
$UG{C}_{i,c}$	=	Unit generation cost of installed capacity $c$ in region $i$
$USC$	=	Unit storage construction cost
$UT{C}_{j,i}$	=	Unit transmission cost from region $j$ to region $i$
$w_{ij}$	=	Weight of the impact of province $j$ on province $i$
$Z_{it}$	=	Exogenous variables

Greek symbols

${\beta }_i$	=	Non-hydro RPS target in region $i$ (%)
${\eta }_i$	=	Province fixed effect
${\epsilon }_{it}$	=	The error term
${\pi }_i$, $\rho$, $\delta$	=	Elasticity coefficient
$\sigma$	=	Sensitivity index of each province to the increase in electricity prices

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The authors confirm that the most data supporting the findings of this study are available within the article and its supplementary materials. Other data that support the findings of this study are available from the corresponding author, [P.L. Chen], upon reasonable request.

Notes

¹ Source: NPC deputies suggest measures to reach China’s carbon neutrality goal- China.org.cn.

² Source: http://nyj.yq.gov.cn/zxdt/202102/t20210218_1128635.html.

³ The NDRC issued the Notice on Trial Implementation of Renewable Energy Tradable Green Certificate Issuance and Voluntary Subscription Trading System on January 18th, 2017. The notice stipulates that the wind power and photovoltaic power sectors trial RPS policy from July 1st. Source: https://zfxxgk.ndrc.gov.cn/web/iteminfo.jsp?id=2717.

⁴ The model construction refers to Auffhammer and Carson (2008).

⁵ The operational lifetime of wind and solar installations is assumed to be 25 years.

⁶ We assume that the marginal generation cost of solar and wind is ignored.

⁷ Referring to provincial policies, we assume that new wind and solar plants need to be equipped with no less than 10% of storage facilities, and the operational lifetime of energy storage facilities is the same as wind and solar installations.

⁸ Under RPS, renewable power gradually replaces thermal power in inter-regional power trading, which will not lead to a large number of new inter-regional trading. Therefore, new transmission lines are not considered in this paper.

⁹ Source: https://www.bjx.com.cn/.

¹⁰ International Energy Agency (2022) estimated the electricity demand in 2030 to be 9–11 TWh. From the perspective of national total, our electricity demand estimate is reasonable.

¹¹ Source: https://www.un.org/zh/climatechange/climate-ambition-summit.

¹² In Fan et al. (2021), the allocation of non-hydro renewable energy capacities under RPS is consistent with our paper, which indicates that our planning for the deployment of renewable energy is feasible to some extent.

¹³ No previous studies have assessed the cost of RPS, but Zhuo et al. (2022) estimated that the average annual additional costs are 0.62% of China’s GDP in 2020 under carbon neutrality target.

¹⁴ Zhuo et al. (2022) estimated that the supply cost increments contributed by variable renewable energy total 15.5 CNY¢/kWh in 2050 under carbon neutrality target, which is higher than our study. The reason is that the carbon neutrality target requires a higher percentage of renewable energy and also takes into account capital costs and maintenance costs.

¹⁵ Source: https://www.sohu.com/a/425405009_749304.

¹⁶ Source: http://www.nea.gov.cn/.

¹⁷ Source: http://guangfu.bjx.com.cn/news/20200615/1080960.shtml.

¹⁸ Source: http://www.cnesa.org/information/detail/?column_id=2&id=519.

Additional information

Funding

This work was supported by the Graduate Research Project of the School of Applied Economics, Renmin University of China (2022YJBJCX09).