huge spending on network to cope with green energy surge


China’s electricity grid is undergoing an unparalleled investment of more than $800bn in the next six years to overcome strains on the country’s energy system as it makes a rapid shift from coal power to renewable sources.

The creaking grid is proving to be the major constraint to green progress, and across China there are increasing signs of pressure on the distribution and transmission of electricity.

During the first four months of this year alone, China invested Rmb122.9bn (US$17bn) in its power grid projects, a 24.9 per cent year-on-year increase. That compares with the $3.5bn spend announced last October by US President Joe Biden’s administration, which covers 58 projects across 44 American states.

China’s forecast capital expenditure is set to rise from around $102bn this year to $157bn by 2030, according to data from Rystad Energy, a research group.

Despite China’s huge spending programme, however, over the past year more than 100 counties and cities in five different provinces have suspended new small-scale solar operations from connecting to distribution lines.

Demonstrating that limits have been reached in many regions, at least 12 of China’s 34 province-level administrations have either encouraged or demanded solar operators use battery storage, to ease the burden on the local grid.

Yunnan, the debt-ridden south-eastern province, is facing a potential shortfall of about 10 per cent in power supply this year despite doubling the installed capacity of renewable energy last year, according to local media reports.

The situation is similar in Qinghai, in the country’s north-west, where most of the power generated by the region’s solar farms is wasted during the day. The province is forced to purchase power from coal-fired power stations in neighbouring provinces to meet demand in the evening.

“The current level of spending is not catching up with how fast China’s solar and wind new capacity additions are growing,” says Xuyang Dong, a China energy analyst with Climate Energy Finance, a think-tank.

Column chart of Renewables as % of power generation showing China's renewable energy is catching up with fossil fuels

Over the past decade, China has accounted for more than one-third of the world’s transmission grid expansion, and globally China has the highest proportion of transmission lines under 10 years old, the International Energy Agency reported.

That includes more than 500,000km of lines connecting the country’s western and northern provinces, which are rich in energy resources, and the biggest demand centres in the country’s east.

Rising power needs to drive artificial intelligence, data centres and electric vehicles are accelerating a longer-term rise in electricity’s share of the country’s energy use — up from 12 per cent in 2006 to 19 per cent in 2023, Dong noted.

Electricity demand growth in the first four months of 2024 was 7.4 per cent year on year, ahead of first-quarter GDP growth of 5.2 per cent.

“With the increasing electricity demand due to ‘electrification of everything’ . . . it is essential for China to prioritise power grid building, upgrading and modernisation, as well as deploying enough battery storage capacity, in order to plateau coal-use in the near future,” she added.

Against this backdrop Beijing has again increased spending on the electricity grid hardware and the software and market systems needed to efficiently deliver power across the country of 1.4bn people.

Despite this acceleration, Fitch Ratings predicts that in the short term China’s solar and wind power curtailment rates will rise as the aggressive speed of renewable energy additions outpaces the upgrades to the power system.

China accounted for 65 per cent of global wind capacity in 2023 and 60 per cent of global solar capacity, according to Wood Mackenzie, the research group.

Fitch analysts noted that as renewable energy capacity additions continued to break records, solar curtailment rates at a national level had doubled in the first quarter of this year to 4 per cent.

Ken Liu, head of China renewables, utilities and energy research at UBS, said a key challenge for the country was the improvement of the dispatch system, or software that controls electricity flows to residential, commercial and industrial users.

Liu expects as much as 15 per cent of China’s total grid capital spending to be allocated to this software. Another 15 per cent will go to ultra-high voltage lines, 30 per cent to local level distribution systems and the remaining 40 per cent to building more transmission lines, he estimated.

“The grid has to be more advanced,” he said. “From a demand perspective, electrification has happened faster than a lot of people expected . . . and AI development is much faster than people expected.”

But Liu also warned that China was battling years-long delays for supplies of transformers — a switch that allows voltage to be stepped up or down.

The share prices of two key companies in the sector, Sieyuan Electric and Shanghai Huaming Power Equipment, have surged more than 600 per cent and 300 per cent in the past five years, respectively.

“It turns out that it is difficult to make these transformers . . . everything has to be tailor made,” he said. “This transformer order delay is longer than [waiting times for world leading] Nvidia’s chips.”

A boom in energy storage, mostly via large battery packs for grid-level storage, should over the long term also alleviate the supply-demand mismatch on China’s grid. Goldman Sachs analysts have forecast a 70-fold increase in battery storage in 2030 from 2021 levels.

Climate Energy Finance analyst Dong also points out that a “notable shift” has taken place in the scale of solar in China last year.

Utility-scale solar rose to 120GW from 36GW the year before, overtaking smaller-scale distributed solar — mostly rooftops — which grew to 96GW from 52GW. Over time, this shift is expected to further alleviate some pressure from local electricity distribution systems.

President Xi Jinping has laid down the dual target of China reaching peak carbon emissions in 2030 and carbon neutrality by 2060. Overcoming the grid constraints will be crucial if the demands of the country’s powerful leader are to be met.

Climate Capital

Where climate change meets business, markets and politics. Explore the FT’s coverage here.

Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here



Source link

Content Disclaimer and Copyright Notice
Content Disclaimer

The content provided on this website is sourced from various RSS feeds and other publicly available sources. We strive to ensure the accuracy and reliability of the information, and we always provide source links to the original content. However, we are not responsible for the content’s accuracy or any changes made to the original sources after the information is aggregated on our site.

Fair Use and Copyright Notice

This website may contain copyrighted material, the use of which has not always been specifically authorized by the copyright owner. We believe this constitutes a “fair use” of any such copyrighted material as provided for in section 107 of the US Copyright Law.

In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.

Leave a Reply

Your email address will not be published. Required fields are marked *