Success Cases (1999-2014)

Creating Virtual Power Plants

Creating Virtual Power Plants

In the early 2000s, the China Electric Utilities (CEU) Program and its international partners recognized that conventional approaches to demand side management (DSM) were impractical.

DSM reduces demand for power by making the habits of consumers more efficient. It saves electricity, reduces load and investments in power infrastructure construction, and cuts pollution. According to some estimates, if DSM were implemented effectively, China could reduce installed electricity capacity by about 100 million kilowatts by 2020—exceeding the installed capacity of five Three Gorges Dams.

CEU and its partners knew there should be a way to bundle DSM mechanisms together into “virtual power plants”. This would allow them to be compared to conventional generation power plants in terms of cost and effectiveness, allowing power sector stakeholders to gauge their true value. Working with grantee DSM Instruction Center of the State Grid, they introduced the concept of efficiency power plants (EPP) for a DSM project in Jiangsu Province in 2003.

More generally, CEU went to work in four areas. First, support went to the Energy Research Institute, the State Grid Energy Research Institute, and the Beijing Energy Conservation Center to conduct preliminary research into EPP projects. Second, CEU backed EPP pilots in Jiangsu, Hebei, Guangdong, Beijing, Ningxia, and other provinces. Third, CEU supported studies on DSM and EPP development in major provinces and municipalities, and the energy-saving service business models of power grid enterprises. The fourth area was capacity building: CEU brought together domestic and overseas experts for seminars and trainings to help build the human resources that would be necessary to manage widespread DSM.

This approach drew success. Drawing on this comprehensive support for DSM, in 2010 the National Development and Reform Commission (NDRC) and five other ministries and commissions jointly released the Regulation on Power Demand Side Management. To help implement this policy, in July 2011 NDRC and the Ministry of Finance launched the DSM Cities Program, which aimed to build 40 gigawatts (GW) of peak regulation capacity and 20 GW of EPP over three years. NDRC and MOF invested about one billion RMB (approximately $160 million) in public funding to support the four cities in the program, which in turn leveraged over 20 billion RMB (about $3.3 billion) from commercial sources.

In December 2011, NDRC issued the Plan for Responsibility Assessment of Power Grid Enterprises in Demand Side Management (provisional), placing the completion of electricity savings targets and DSM operation into the annual performance indicators of power grid enterprises. A subsequent evaluation by NDRC on grid companies’ DSM performance indicated that grid companies fulfilled their obligations in both 2012 and 2013.

With this, DSM is off to a good start in China. The foundation is in place for CEU to continue to push forward in this promising area of work.

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