Analysis of the Functionality of the Chinese Wind Power Market
A Comparative Evaluation with Germany
Simeon Sarafow
1
, Guanwei Huang
2
,*
1,2Sino-German School for Postgraduate Studies, Tongji University, Siping Road 1239, Shanghai 20092, China
*Corresponding author
Keywords: Wind Power, Renewable Energies Market Functionality, China, Germany
Abstract: This paper examines the functionality of the Chinese wind energy market. For this analysis, the indicators
market structure, market behaviour, and market result are used. For each indicator, several criteria, which
are based on literature research, are tested for both the Chinese and the German wind energy market and
then are evaluated in a comparative manner. Finally, on the basis of the most serious challenges in the
Chinese wind energy market, that are revealed by the comparative analysis, measures are deducted with
support from expert’s opinions. The measures are meant to provide potential solutions for the improvement
of the functionality of the Chinese wind power market.
1 INTRODUCTION
China is well aware of the importance of the
environment. China recently ratified the Paris
Agreement(Volvovici et al. 2016) and emphasized
the importance of the environment in its strategic
orientation, namely its Five Year Plans (FYP)(AHK
Greater China 2016). Furthermore, a change in the
energy sector towards cleaner energy generation is
planned. As a result, China is not only the country
that has the worldwide highest annual investments in
renewable energy technologies but also the
worldwide highest installed capacity, namely 129.34
GW in 2015. However, even though the US has only
half of China’s capacity of wind power plants, it
generates more electricity out of them(Davidson
2013; Zhang et al. 2016).
Thus, China does not utilize its available
resources - wind power and wind power plants - as
efficiently as it could. These are indices for a
malfunction in the wind power sector in China that
does not only have an effect on the Chinese air
quality in cities but also on global warming. This
study analyses the functionality of the Chinese wind
power market that seems not to provide sufficient
incentives. Germany’s wind power market is used as
a reference.
2 THEORETICAL
BACKGROUND
After the first Chinese wind power pilot project in
Rongcheng was installed in 1986, basically three
phases were run through. First, wind power projects
were dependent on foreign capital and credits and
feed-in tariffs were way below the actual costs.
Second, in the 90s there was still a significant, for
generators disadvantageous, difference between
costs and tariffs. However, the government already
intended to promote renewable energies. Finally,
after 2003 the plan for domestic manufacturing was
published to reduce production costs and promote
wind power(Yao, Herrerias 2014).
Nowadays China is the country that has the
highest newly installed capacity in 2015 with 48.5%
of the globally installed capacity and the largest
amount of cumulative capacity with 33.6%
worldwide. For 2016 30.83 GW newly installed
capacity was planned which is slightly less than
2015. An approximately steadily increase is
expected until 2017 when a decreasing growth is
predicted due to the decreasing feed-in tariff.
On the other side, offshore wind power is still
not very meaningful despite its increasing growth
rate and 306.5 MW newly installed capacity in
2015.The total installed capacity was about 1 GW
and therefore is not taken into further
account(GEWC 2016).
3 METHOD
The analysis of the Chinese wind power market
follows the pattern displayed in Figure 1.
Figure 1: Methodological approach (own representation).
The first step is the consideration of the
functionality in terms of excessive market power of
single generators. Therefore, three different areas are
taken into account, namely the market structure, the
market performance and the market results which
represent the standard classification of market
functionality tests(Ellersdorfer 2009; Peters 2000).
Based on a literature review, possible criteria that
serve as indicators for the functionality are taken
into account for each area. They are described first
before their usability for the purpose of this thesis is
checked based on the feasibility, i.e. the complexity,
the informative value, the applicability for the
Chinese circumstances and most importantly on the
availability of required data which is significantly
the limiting factor when it comes to research topics
that are that sensible. Data availability is checked
using literature review as depicted in the previous
parts plus using interviews with international and
Chinese experts.
The selected criteria are provided with necessary
data to conduct a statement about the single aspects.
However, since there is no standardized
classification of functionality and isolated statements
are hard to interpret by themselves, the German
wind power market is used as a reference, i.e. is
evaluated regarding the same criteria as China, so
that a comparative statement can be drawn. Since the
outcomes of the different areas cannot be considered
separately, the results of all criteria assessment are
evaluated holistically to determine the result and
statements about the market functionality in
comparison to Germany.
4 RESULTS
The table below shows an overview of the results of
the comparison between China and Germany
regarding all covered criteria. The status can have
the specifications “potential available”, “same” and
“lead” and describes the contribution of the
respective criteria to the functionality of the Chinese
wind power market in comparison to the German
one.
The column data quality specifies if the data
available is “medium”, “good” or “insufficient”.
Thereby the worse data quality out of the German
one and Chinese one is considered. For each
criterion, three specifications that are
straightforward to distinguish are chosen to allow a
result that is both easy to understand and clear.
The overview illustrates that the indicators for
the functionality of the Chinese market are fulfilled
in lower degree than in Germany in all aspects
except the concentration of OEMs and wind power
plant operators. Many aspects like the quality issues
or the innovation progress can be justified by the
fact that the wind power started to play an important
role in China only ten years ago. The improvement
of these factors may take some time. One reason
might be that the whole understanding of the
Chinese economy is undergoing a transformation
from the factory of the world towards an innovative
nation.
Other criteria show problems that are inherent in
the system like the pricing policy respectively the
not yet fully-developed market for electricity.
Another huge issue related to the market is the
powerful position of the grid companies that not
only act like monopolies but also have a huge
influence on the wind power plant operators as well
as on other aspects.
Another outcome of the overview is the fact that
the majority of the data available is not good. This is
not only the case for China but for Germany as well.
Especially trustworthy quantitative data is hard to
gather. Even several experts could not comment on
all aspects since they lack relevant information.
There are four main measures that can help to
improve the situation in China. Two of them are
physical aspects, namely the development of the
infrastructure and the elimination of overcapacities.
The development of an appropriate infrastructure
enables the transmission of renewable electricity
from the western generation to the eastern load
centers to increase the productivity. Therefore, an
integration of the existing grid systems is necessary.
Due to economic aspects, the development of the
fundamental grid should be preferred over high
voltage direct current lines and storage systems like
batteries. These additional measures are not required
until the share of renewable generated electricity
reaches 50%.
Table 1: Results of the functionality analysis(own
representation).
Criterion
Status of
China
compared to
Germany
Data
quality
Market structure
Market concentration and
propensity for concentration and
fusions
same medium
Degree of linkage
potential
available
medium
Market entry barriers
potential
available
medium
Analysis of Porter’s Five Forces
potential
available
medium
Threat of new entrants
potential
available
medium
Power of suppliers lead medium
Power of customers
potential
available
good
Threat of substitute products
potential
available
good
Market transparency
potential
available
medium
Product differentiation
potential
available
good
Market Performance Testing
Performance and result based
indices
not
applicable
insufficient
Optimization and Simulation
Models
not
applicable
insufficient
Sales and price policy
potential
available
good
Demand-related behavior
potential
available
medium
Product Improvement and
Innovation actions
potential
available
good
Risk orientation
potential
available
medium
Advertising and information
behavio
r
not
applicable
insufficient
Propensity for restriction of
competition
not
applicable
insufficient
Market Result Testing
Quality
potential
available
medium
Innovation and technological
progress
potential
available
good
Productivity and capacity
utilization
potential
available
good
Adaptation ability
potential
available
medium
Contribution to shortage and
surplus correction
not
applicable
insufficient
Even though coal fired power plants have full
load hours below 4000 hours new coal power plants
are planned. Thus, the threat of substitutes increases.
As shown in the previous part the overall capacity is
increasing faster than the economic growth
respectively the demand. To defuse the situation,
coal fired power plants have to be closed or at least
not newly build.
The third measure, an economic electricity
market that allows a more market oriented price
development is already planned and tested in pilot
areas but is not mature yet. It is important that
wholesale market prices can emerge freely so that
they help to find the most efficient allocations.
Furthermore, the market must be highly flexible
since renewable energies are volatile. One approach
can be flexible intraday markets that trade products
with a delivery period as short as 15 minutes and
late gate closures. Moreover, regulations for all
aspects of the market and especially the short term
market have to be specified.
The fourth measure, the unbundling of the grid
companies, might be the most difficult one due to
conflicting interests and their huge influence. Not
only the steps of the value chain transmission,
distribution and sale should be segregated but also a
variety of companies should be involved. Thus,
customers can choose their electricity provider and
competition is strengthened. As a further result, the
power of the grid companies will decrease and put
the wind power plant operators in a stronger
negotiation position.
4 CONCLUSIONS
The conducted analysis shows challenges regarding
the functionality of the Chinese wind power market,
which are mainly caused by the still immature
character of the developing electricity market and
the high power of grid companies. This results in a
relatively low grid connection of wind power plants
and high curtailment rates. Possible solutions –
unbundling, the introduction of more market
mechanisms and restructuring of the infrastructure
and power mix – are deducted based on the German
market. The dealing with the problems has a high
priority in China. The government introduces many
new regulations to deal with environmental
problems as mentioned in the current FYP and
China’s announced coal peak. China is currently
undergoing a transformation of its energy sector and
also continuing to open its markets to more market
power. Thus, the conducted research has a high
timeliness. Moreover, Germany functions as a role
model with regard to its energy transition. Especially
China has shown in the past that it is willing to
compare existing models of other energy markets
and adapt its own policies to the best fitting ones.
Germany with its EEG (renewable energy law) and
ARegV (incentive ordinance for grid operators) is of
high interest for Chinese officials like CNREC.
China’s political system allows the government
to implement reforms and changes in policies
relatively fast and with relatively few resistances.
The main requirement is the political willingness for
the considered change. According to expert’s and
published regulations and statements, China is
willing to change its energy system.
Another important factor is that the Chinese
population is favouring renewable energies. A
survey shows that over 90% of the interviewed
Chinese people are willing to pay more for
electricity generated by renewable energies.
However, the current Chinese power market does
not enable them to opt for such electricity.
Thus, the government and the population is
willing to change its energy system and the
population accepts that it could come at some
additional costs. The only missing part is missing
regulations to implement successful changes.
Therefore, deducted solutions could be of high
importance for Chinese think tanks that consult the
Chinese government regarding new policies.
However, due to the scope of this analysis
several data sets that would be necessary for an in-
depth analysis could not be gathered. Data
concerning the energy market are hard to acquire in
general. Since the market is highly regulated, market
actors have no interest to publish all of their data
that could be used for regulations limiting their
profits. Therefore, another analysis that is based on a
broader and deeper data fundament should be
conducted. To achieve the highest success,
cooperation with a Chinese research institute is
proposed. Thus, data gathering could be easier
because of the overcoming of language barriers.
Future research should also focus on the reform of
the Chinese energy market that had just begun when
this research was conducted and when only limited
information was available.
The planned reform of the energy market is a
further indicator that China is willing to reform its
energy system. An analysis like this one that depicts
current challenges and provides points of reference
for possible solutions might help China to overcome
its role as the global largest CO2 emitter.
ACKNOWLEDGEMENTS
I would like to show my gratitude especially to the
chair of Innovation Management & Information
Management at the Sino-German School for
Postgraduate Studies of Tongji University in
Shanghai for the support on both technical level and
organizational level.
Moreover, I would like to pay my regards to
everyone who helped to complete this paper,
especially the experts I interviewed.
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