Towards an optimum electricity system

A new market situation and business rules require new ways to play the game 

In Finland, for instance, for a 17,000 MW grid there is a 1200 MW coal-fired peaking plant that operates only during some very cold days each year and remains in stand-by mode for the rest. How great can its rate of capital return be?

A new market situation and business rules require new ways to play the game. However, despite the changed market, there are some who are still led to believe that the ‘good old’ solutions can provide the right answer. Many studies have compared the traditional centralized alternatives with the more modern, decentralized ones, but the results differ substantially depending on how the study is made. No wonder people – especially politicians – are confused. Some of these studies often leave out important parameters such as transmission costs and constraints, and therefore do not make reasonable comparisons and provide answers to the question of what is the overall best option.

There are also artificial barriers to constructing smaller power plants. There have been numerous cases in many countries where clever, profitable opportunities to self-generate energy were blocked by issues such as permitting and access to the grid. Despite general policies supporting cogeneration and decentralized power production, these practical barriers seem hard to remove.

TIME FOR MARKET FORCES?

The suggestion is that, because many good, profitable, money-making opportunities in distributed cogeneration are still out there, market forces should drive their expansion once the remaining artificial barriers have been removed. However, what are these market forces?

The most important market force rule says that investment decisions should be made and power plants built only when the financial return is secure and fast enough. If this is not the case, then there should be no project. Very capitalistic, very basic, very easy – but still so complicated.


A peaking power station at the Barrick Goldmine in Nevada, US

The western political system today commonly – but sometimes quite blindly – says and believes that ‘market forces’ will automatically solve everything. But the first market force rule always acts within rules set by the politicians. And their rules are to a great extent politically defined – by issues such as taxation, subsidies, norms and legislation.

China offers an opportunity for manufacturers and investors

The rapid growth of China’s electricity generating industry is well documented – perhaps 30 GW of new capacity is needed each year to match demand inflation. Perhaps less understood is the potential for on-site cogeneration as part of this growth. China already generates some 15% of its power from decentralized sources, and that proportion is set to grow, writes Melanie Slade.

The People’s Republic of China is the world’s most populous country with an estimated 1.3 billion people.1 It is the second largest energy consumer and emitter of greenhouse gases after the US.

The Government of China has recognized the need to optimize the country’s power structure

China’s rapidly growing economy has led to unprecedented growth in electricity demand over the last 10 years, with industry accounting for around 75% of consumption. Demand from the residential and service sectors continues to surge as living standards improve, though demand from agriculture is declining.

Combined heat and power (CHP) can make a major contribution to energy efficiency in China and help meet the soaring energy demand. In 2004, decentralized energy systems accounted for 15.1% of total generation and 19.1% of total capacity.2 Coal-fired steam turbine cogeneration systems providing heat to municipal district heating systems and industrial sites are popular, as are small-scale hydroelectric power schemes. CHP currently accounts for about 10% of China’s generation capacity.3

Energy conservation is now high on the Chinese Government’s agenda. It has also recognized the need to optimize the country’s power structure and to reduce the proportion of coal-fired power plants. As part of its energy strategy, the Government is participating in a number of collaborative programmes with foreign governments (such as the EU, US and UK) and multi-lateral organizations such as the World Bank and Asian Development Bank.

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