Commentary: How China Can Leverage Renewables to Meet Peak Summer Electricity Demand

China’s summer electricity demand usually peaks in July and August due to high temperatures and increased use of air conditioning. This year, record-breaking temperatures in May have led to an early spike in demand, with above-average temperatures expected throughout the summer, increasing the likelihood of power shortages [para. 1].

The China Electricity Council forecasts a 100-gigawatt rise in peak electricity demand, similar to the increase seen in 2022, which resulted in power shortages and blackouts. However, 2023 has seen a positive development with over 50% of China's energy capacity now coming from renewable sources. This increased renewable capacity offers hope for managing the high demand expected in summer 2024 [para. 2].

In 2022, a severe drought exposed issues in China’s rigid inter-provincial electricity trading system. Regions like Sichuan, a major hydropower producer, had to send power to other areas even while facing shortages themselves. This year, reforms introduced by the National Energy Administration allow for more flexible trading, where power-sending provinces can purchase renewable energy from receiving provinces during off-peak periods [para. 4-5].

Inter-provincial electricity trading is now seen as a vital strategy for alleviating summer electricity deficits. Provinces are increasingly exploring long-term power exchange agreements. For instance, Guangdong and Fujian have an exchange agreement that balances their differing peak electricity demand periods. Zhejiang and Anhui leverage geographical and time-based trading to mitigate daily peak load pressures [para. 6-7].

Technological advancements have fortified these trading mechanisms. In May 2024, the commissioning of a new cross-provincial interconnection device between Jiangsu and Zhejiang enabled real-time power exchange, laying the groundwork for future regional trading in the Yangtze River Delta [para. 8].

Time-of-use (TOU) pricing now incorporates renewable energy generation characteristics. Previously driven solely by demand patterns, this year's adjustments reflect the need to match solar output with electricity demand. Provinces like Hubei and Zhejiang have adjusted their TOU pricing, making midday periods cheaper to encourage consumption aligned with solar generation. Shandong's TOU pricing now incentivizes usage during specific morning hours to better absorb solar energy [para. 9-10].

The TOU pricing differentials have increased, with nearly half of China's provinces now having peak-valley price gaps exceeding four times the valley price. For example, Shandong's peak-to-valley ratio has grown to 20 times in 2024, encouraging demand-side responses that smooth load curves and support the use of energy storage systems and electric vehicle charging [para. 11].

Efforts to reduce energy and carbon intensity are pressing, as seen in the State Council's 2024-2025 Energy Conservation and Carbon Reduction Action Plan. Local governments have implemented measures to manage peak summer electricity consumption, especially in energy-intensive industries, by restricting their usage first. This year, there's the added pressure of meeting energy and carbon intensity targets alongside managing local electricity loads [para. 13-15].

Prioritizing green electricity offers these industries an alternative, especially as renewable energy consumption does not count towards energy intensity targets. Guangdong, for instance, promotes integrated renewable energy projects in data centers [para. 16].

China faces the dual challenge of ensuring energy security and meeting climate goals. While coal power will still play a significant role during peak periods this year, the expansion of renewable energy presents a sustainable path forward. Market-based mechanisms, flexible grid operations, and demand-side response programs can further optimize resource allocation and reduce fossil fuel dependency, making renewable energy a central element of China's power strategy [para. 18-20].