The Three Gorges Dam in Sichuan province generates a massive quantity of electricity. With an installed capacity of 18.3 gigawatts of power, it is the largest electricity generating plant in the world. Yet a planned 20GW wind farm in rural Gansu will eventually surpass even that – the only problem is that much of the energy it is set to create will go to waste.
The Chinese power grid currently lacks the capacity to move the considerable amounts of energy being produced in wind farms in western China to the coastal load centers. In fact, more than 20 percent of China’s wind power capacity was idle last year because it couldn’t be connected to the grid, according to the state-run China Wind Energy Association.
The difficulty of transmitting the electricity generated by these projects will only get worse. Beijing has established the goal of generating 100GW (which would supply 8 percent of the nation’s total electricity needs) by 2020, up from roughly 12GW at the end of 2008. To try to solve this problem, the Chinese government is turning to smart grid technology.
The technology will be implemented in two stages. By installing digital monitors throughout the system, utility companies can locate problems before they interrupt service, which improves the reliability, capacity and efficiency of electric transmission. During this stage, new Ultra High Voltage (UHV) electric lines will replace many existing lines and the increased digitized control of the grid will allow intermittent energy sources, such as wind and solar power, to be more fully utilized.
However, this use of the smart grid is best described as a technological upgrade of the existing grid than an entirely new system.
The second stage of smart grid implementation focuses on empowering consumers to be more efficient-energy electricity users. By providing them with real-time information about energy use – such as how much electricity is used by their refrigerators while making ice and at what cost – huge gains in energy efficiency can be realized.
Led by the State Grid Corporation of China, the largest electricity transmission company in the world and the sole electricity provider for all but five Chinese provinces, the Chinese plan is the world’s most ambitious to date. The aim is to have the system up and running by 2020, at an estimated cost of US$6.53 billion. The first phase, focused on developing standards and planning, is set to last until 2011. The second phase, from 2011-2015, will focus on transmission, constructing UHV electric lines to transport electricity, and digital monitoring systems to make the grid more reliable and easier to fix. The final and most ambitious phase will focus on distribution and the customer.
"China’s challenge is bringing electricity to their entire population and electrifying the economy so the standard of living can improve," explains David Mohler, chief technology officer of Duke Energy, one of the largest electric utilities in the US. "They are focusing on electric generation and building a strong, secure transmission method to efficiently bring energy from the remote generation sites to the load centers in cities." Yet, in Mohler’s eyes, China is still a long way from catching up on the distribution part of smart grid technology, and even in the initial goal of improving transmission they face significant hurdles. In short, China needs to dedicate money, technology, and political will to a distant goal.
Finding the money
The money part is the easiest to solve. While it is not yet clear where all of the funding for the plan will come from, the State Grid, which holds a near-monopoly on electricity transmission in China, has already pledged to invest approximately US$37.6 billion. Industry experts believe the company, with the help of the government, will also provide the rest of the money needed.
"In China, the money will come from the government and government-owned companies," explains Wang Yue Ping, an energy and power system consultant at research firm Frost & Sullivan. "Some of it will come from the sale of debt, but much of the rest will come from the government budget and electricity companies’ profits." Even if the government does not come up with the full amount, finding the money should not be difficult. China is awash with cash, and with strong government support behind the smart grid plan, the private sector is eager to invest.
In fact, General Electric CEO Jeffrey Immelt recently announced that the company would heavily collaborate with State Grid on the project, while Intel has reached an agreement with the government to use its servers for grid simulations. IBM has opened up a software development center in Beijing to work specifically on smart grid applications.
However, the goals of Chinese utility companies like State Grid are different from the profit-focused approach of foreign MNCs, with company bosses beholden to the state rather than shareholders. "The managers at these utility companies are evaluated by their ability to complete the goals of the nation, not to make money," says Tristan Edmundson, founding partner of clean-tech intelligence firm Mint Research. "They already lose a lot of money."
However, China’s desire to develop its own home-grown version of smart grid technology instead of importing foreign products could be a major stumbling block, especially in the later stages of implementation. At present, Chinese companies have not developed the technology needed for the distribution and consumer aspects of smart grid.
While many technologies are already available, or are currently being developed by foreign companies, some worry that China may purposely slow down the implementation process to allow domestic companies to catch up with foreign technology.
"China has the technology to build a first-stage grid [transmission system], but to reach the kind of efficiencies [it needs], the technology is not available in China," says Edmundson. "The United States has the technology for the second stage. The cynic in me doubts whether America is ready to give up competitive advantage in such an important industry and, also, whether the Chinese would be willing to make enough concessions to make it easier for US companies to do work and win contract bids." However, the initial technology for smart grid is simple enough to allow Chinese companies to take the lead.
"Smart grid is not rocket science. If a company makes switches, all they have to do is add some communication aspects and put in some software and then you have a smart grid switch," explains Chan.
In addition, China has the advantage of a unified agenda. While political infighting and special interest lobbying in the US and Europe are slowing down the implementation process, in China orders flow down from the top. The fact that China has publicly announced such an ambitious plan bodes well for its successful implementation; if they are unsuccessful, the government will lose face globally.
"Initially, China will be faster in implementation," says Chan. "They want to show the world that they are leading in this area. It is a very clear-cut tone you hear from the Chinese state organizations and this is an opportunity for them to really step up to the plate and lead the world." According to Chan, China will be able to make the first big step while the US and Europe are still arguing among themselves.
Despite a top-level decree, however, some experts are concerned that implementation might be delayed because of uncertainties about how the technology will affect other industries, especially telecommunications, warns Frost & Sullivan’s Wang. A smart grid could eventually lead to reliable, cheap and fast internet access through power lines, cutting out a hugely important revenue stream for cable and telephone companies.
However, the main challenge facing full implementation is the energy market itself. While the first stage of smart grid focuses on transmission from power-generating sites to load centers, the end goal of bringing more information to the consumer about their energy use will be especially difficult in China.
Because the demand for energy is so high and the supply is so low, and because it is a completely state-run industry, Chinese energy consumers are not active in the market: They have no choice of provider or price. For the smart grid to reach its full potential, it requires consumers to adjust their electricity usage based on the market, but without monetary incentives to turn on a washing machine at an off-peak time or to draw power from a private solar panel during a peak time, the energy efficiency aspect of smart grid will be lost.
"For smart grid to deliver the full benefits, you are talking about letting the customer play the market – China has nothing of that kind," says Chan. "All the customer sees is one rate, all the time. If the customer can’t participate in the market they will not get the full benefit of smart grid." He believes that the government is aware of the problem, but that Chinese political culture is not quite ready to change the approach.
Not a panacea
Although a smart grid, if successfully implemented, can lead to huge leaps in energy efficiency and environmental protection, it’s not a catch-all solution. Wind power and other renewable energies will be able to be hooked up to the grid, but they will still need to be backed up by numerous coal-fired power plants – and China is getting more and more addicted to coal.
In 2000, China used 650 billion tons of coal. By 2020, that number could reach 2.17 trillion tons, according to Mint’s Edmundson. That level of coal use could be environmentally disastrous, but is seen by some as necessary to power China’s economic growth and support its intermittent renewable energy. With massive coal deposits and no uranium resources to sustain nuclear plants, China is reliant on the former for much of the nation’s energy.
There are few easy options left to decrease pollution without harming the economy, but focusing on the consumer end can help significantly.
"China’s energy efficiency industry is currently woefully underdeveloped," says Edmundson. "Energy service companies who install energy-saving methodologies and equipment in return for a percentage of energy savings face many challenges to accessing finance and projects in China." For inspiration, China could do worse than look to its neighbors, South Korea and Japan. Both countries having implemented extensive energy-saving programmes.
China has made some important steps, including implementing a 50 percent rebate programme for energy-efficient light bulb purchases, mandating energy-saving thermostat temperatures in government buildings, and rewriting the building code to require new buildings to halve their energy consumption compared to the current average.
The long haul
But enforcement is as always the bogeyman of Beijing’s policy goals. When it comes down to it, the biggest obstacle to more sustainable development is changing people’s daily living habits, and simpler projects have foundered on popular resistance.
Even so, China has no choice, economically or environmentally. Either it will leverage technology, both foreign and domestic, to ease its abject dependence on hydrocarbons, or the lights will eventually go off.
BOX: Compatibility issues
One of the key issues related to the development of the smart grid in China is whether and how it can help the industry unify around a common technology standard.
"With smart grid you want everybody to talk to one another and be able to use the same communication protocol," explains M.L. Chan, executive director of the Smart Grid Cooperative Project for the Joint US-China Cooperation on Clean Energy (JUCCCE), a non-profit organization working to accelerate the use of clean, efficient energy in China through international cooperation.
In much the same way that electronics and telecommunication companies have to be wary of standards wars in consumer products (as with Blu-ray versus HD-DVD or TD-SCDMA versus W-CDMA) with smart grid technology, companies don’t want to produce something under a standard that will soon disappear. Yet China has been developing communication and technical protocols far faster than any other nation. "In China, there is a political will to make decisions, which will be helpful with inter-operability," says Chan. "China will have one-quarter of the market set in a certain direction, so vendors will likely follow whatever China decides. I think it will help the industry a lot."