Panel Paper: Contextual Factors and Instrument Effectiveness in Chinese Wind Energy Policy

Thursday, November 2, 2017
Stetson E (Hyatt Regency Chicago)

*Names in bold indicate Presenter

Yixin Dai, Tsinghua University and Michael Davidson, Massachusetts Institute of Technology

In order to boost wind energy development and deployment, China has introduced a range of decentralization and marketization reforms to stimulate rapid growth and cost reductions. Among these, delegating wind farm construction permit authority to the provinces, assigning oversight responsibility of power systems operation to the provinces through “equal shares dispatch”, and encouraging direct electricity purchasing between large producers and consumers are three major wind sector and electricity sector policies of the central government. As a result, over the last decade (2006-2016), grid-connected wind power capacity has increased 70-fold. Nevertheless, delayed grid connection and curtailment (forced spillage) of wind electricity are the world’s largest, indicating persistent policy design and implementation challenges.

This study explores the three policies above along these dimensions with an in-depth case study and interviews conducted over 2015-6 in Gansu province – home of the earliest centrally-designated wind farm base, and reported wind curtailment in 2016 of 43%, the country’s highest.

Preliminary findings indicate that context matters in three ways. First, wind energy development is part of a much broader policy agenda connected to a diversity of goals: electricity market reforms, industrial development, climate change, State-owned enterprise reform as well as environmental protection. Directives from central agencies can be fragmented in terms of clearly delineated authorities as well as mutually inconsistent – such as the conflicting policies of “equal shares” dispatch and mandatory renewable dispatch.

Second, decentralization places greater flexibility and responsibility with local governments in policymaking and administration. Variation across provinces in terms of the relative strength of stakeholders could lead local governments to change wind energy development pace via its permit authority, the grid dispatch priority through re-interpreting equal shares dispatch, and electricity prices through rules on direct electricity purchase. Without an effective monitoring mechanism from the center, we find that the Gansu provincial and local governments promote manufacturing and deployment of wind farms through permitting, while squeezing wind farm’s profit through preferential dispatch policies for coal and depressed electricity prices through state-controlled market mechanisms.

Third, wind’s variability and the complexities of operating and planning electricity systems create enormous benefits of regional collaboration, as observed in electricity markets in many other countries. For instance, as wind farm construction can quickly outpace grid expansion, coordinating large-area transmission expansion activities are critical to avoid delays. Once planning and operations are effectively decentralized, however, the center has few levers to ensure coordination among Gansu’s neighbors in Northwest China Grid. Strong regional governance institutions are lacking.

This paper calls attention to the complexities of decentralization and marketization in China, particularly in complex sectors like energy with a range of stakeholders and significant benefits to coordination and regionalization. Ensuring smooth deployment and utilization of wind energy will require strengthened monitoring and collaboration across multiple levels of government.