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■ Date: March 23, 2022
 
【 China’s Demand Response in Action 】
 
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[Snapshot]
1. To realize carbon neutrality and maintain a sustainable green economy, China will use more renewable-energy power and further marketize the power industry. Under this background, the government has eyed managing demand-side resources, instead of heavily exploiting fossil-based resources in previous times. As an effective measure of demand-side management (DSM), the demand response (DR) has been more frequently implemented throughout the country, especially in tier-one cities.
 
2. Different from other administrative measures of demand-side management, demand response is more flexible in load resources and capital resources. It not only covers a diversity of load types, such as V2G-capable EVs and charging piles, VPP and storage system, but also leverages power markets to help participants gain revenue for joining demand response events. (See example of Hebei Grid below)
 
3. As a party who gathers and organizes load resources, load aggregators (LAs) are created to better serve DR and opens up business opportunities for various load resources and suppliers.
 
Keywords: #renerable energy #Demand Side Management (DSM) #Demand Response (DR) #   Ancillary service market (AS market) #Load aggregator #Virtual Power Plant(VPP) #Vehicle-to-Grid (V2G) #Integrated Energy Service(IES) # Energy Management System (EMS)
 
If you like this article, please also refer to our reports "Demand Response, VPP, and V2G in China" and "Smart Grid & Integrated Energy Services in China" in our data base.
Introduction
 
In 2021 Sep. – Oct., China’s North East region experienced several major power cuts, including several blackouts in public facilities and residential areas. It is the implementation of orderly power consumption (有序用电) from the local government, as a forceful measure of demand-side management. When the power shortage happens, the local government, together with the grid company, will initiate the orderly power consumption plan. In principle, they will firstly implement peak-shifting, peak-avoidance, then power rationing and lastly power cuts. The power-cut incident in North East indicates a severe situation of power supply.
 
But how could it happen? Isn’t it that China’s state-owned grid companies can plan everything? It is not like that. The North East region has largely relied on renewable energy (RE) power. Into 2021 Sep., the hydro power and wind power generation was below the expectation and power shortages occurred throughout these provinces. In Jilin, the power shortage still existed even when a power peak of 4.17 GW was already shifted and avoided. In this emergency, the local government had to ration power supplies to power users, as one measure on the demand-side management.
 
More than three provinces in North East, other provinces in East China also carried out the power rationing regulations to reduce the power demand. The large-scale implementation is shown in Illustration 1.
 
Illustration 1: the map of orderly power consumption (in Sep. 2021)
Reference: (1) Sixth Tone. 2021.9.27. Power Shortages Roil Northeast China. (2) Wechat. 2021.10.9. 拉闸限电，是给氢能崛起的一个机会！
 
On the other hand, during normal time, RE power curtailment can easily happen due to its intermittency. For both wind power and PV power, it is hard to control the output time and amount and cause power waste in the end (see Illustration 2). As more RE power is connected to the grid system, more potential curtailment will come up. Thus, to enhance the RE power efficiency and keep power balance, the demand side must be managed. 
 
Illustration 2: the power curtailment from RE power
Reference: Integral analysis
 
In China, the demand-side management is mainly a top-down flow. Its major methods include orderly power consumption, etc. However, the top-down mechanism has met the limits. As distributed generators, third-party storge systems and load aggregators join the demand side, the traditional administrative measure cannot cover all types of load participants because the operation is getting more complicated by various players. Moreover, the top-down mechanism is not flexible because it is based on planning and incompatible with increasingly-matured power market mechanism. Thus, the government has been promoting more marketized measures, mainly demand response. And this is the area that will create dynamic business opportunities. 
 
This blog focuses on the demand response (DR) and a typicla DR project as well as its inherent business opportunities, like providing V2G-capable EVs, charging piles and operating VPPs, etc.
 
Overview
 
China’s DSM history has started in 2010 by implementing a series of policies covering energy conservation, environment protection, green-power consumption, smart consumption and orderly power consumption. As the central grid connects with more intermittent RE power and distributed energy resources, the traditional top-down DSM mechanism, which are mainly administrative measures based on planning, cannot cope with more frequent and intensified power shortages and other power accidents. In a call for an agile and responsive measure, demand response (DR) has received much favor as a more marketized mechanism on the demand side.
 
What is demand response (DR)?
In general, it means that power users change their power consumption behaviors in response to the economic or administrative signal issued from the grid company. Respectively, there are 1) invitation DR, 2) real-time DR and 3) economic DR, all of which are used more often these days.
 
The recent years witnessed a rise in frequent application of the invitation mode and real-time mode across China, which are used differently by provinces. 
 
  • In the invitation mode, it is the local government that initiates a DR event to modulate a certain level of load amount at a specific time. This mode invites various types of load resources on the demand side to join the event. 
 
  • In the real-time mode, grid companies first initiated the demand response initiation and release instructions via the local demand response platform (also called the VPP platform now in some places, e.g., Guangdong). 
 
The major difference between these two is the response time. The invitation mode schedules a specific time in the future with load participants whereas the real-time mode asks the load participant to respond within several minutes.  (The workflows of these two modes in Jiangsu are shown as example in illustration 9 and 10 in the last part.)
 
As for those load participants, they will be compensated economically in the end, which can be settled at a fixed price (government-determined in the invitation notice) or in a marketized mechanism (via local load-modulation ancillary service market if there is).
 
Different from above, in the economic DR, the grid company uses electricity price signal as an economic incentive (or disincentives) to orient power users’ consumption. This mode includes peak and valley price, step price for residents and interruptible price, etc. (To read more about electricity price in China: 【China Raises Cap on Electricity Price: What has Changed and Possible Impact for Business】)
 
For example, in the peak-valley electricity price mechanism of Beijing, there are generally three time blocks for different electricity price: Peak, Flat, and Valley. The local government also uses Critical Peak Price (CPP) in July and August that is planned for a deep demand response. Thus, in this economic demand response, power users are expected to reduce consumption at peak time and encouraged to consume more at flat and valley time, based on the price signal. Power users can consume more cost-effectively with EMS system. 
 
Illustration 3: The economic demand response: peak-valley pricing mechanism (in Beijing)
References: (1) 北京市城市管理委员会.2021.12.30. 关于北京市2022年电力市场化交易工作安排的通知. (2) 国家能源局华北监管局. 2021.01.28. 关于印发京津冀绿色电力市场化交易规则及配套优先调度实施细则的通知. (3) 北京是发展和改委委员会. 2020.11.30. 北京市销售电价表.
 
Two key functions of demand response (DR)
 
One DR event can provide either or both of peak-shaving and valley-filling on the demand side, depending on the power supply situation. The table below shows an overview of major DR events in China.
 
Table 1: Overview of major demand response project
(Public info summarized by Integral)
 
  • Peak-shaving is a typical method of peak-shifting on the demand side. It means that power users stop using appliances, such as air conditioning, lightning, and other appliances. To well manage the peak-shaving, some smart and remote-control system, such as energy management system (EMS), has been getting popular. By joining peak-shaving, participants can save electricity expenditures and get compensation from the grid company.
 
  • Valley-filling is the reverse method of peak-shaving. Typically, charging and peak-shifting can help increase the load side to catch up with power supplies, in order to reduce power curtailment and avoid turning off generator machines. (There will be more maintenance costs if turning of generators frequently.) By consuming electricity at valley time, participants get cheaper price and compensation.
 
Although the table above shows more peak-shaving DR events, now many Chinese cities have used both peak-shaving and valley-filling types. In a careful look into the two types, the peak-shaving DR is mainly used to reduce power demand for power stability and power balance. Whereas the valley-filling DR is to maintain a certain consumption level to keep generators working and sometimes enhance the RE power consumption. Thus, it can be assumed that as China embraces more RE power to approach carbon neutrality, more valley-filling DR can be utilized.
 
Project: Hebei Grid’s DR in 2021 Jan.
 
Let’s check one example in the Hebei grid. In 2021 Jan, State Grid Hebei organized a DR event that only includes adjustable load on the demand side for load modulation. This event was organized to enhance power utilization efficiency, including reduction of wind power curtailment, avoid turning off generators and leverage capital in a marketized mechanism. 
 
With the access to the regional North China Load-Modulation AS market, Hebei Grid could settle the compensation payment for various load participants. Previously, the compensation is either free provided by generators or set at fixed price determined by government. In the project, the compensation is priced by the ancillary service market (AS market), which indicates a further step of the inevitable marketization of China’s power industry.
Illustration 4: the overview of Hebei Grid’s demand response
References: (1)SASAC.Gov.2018.07.30.国家电网公司创新建设智慧能源服务系统 (2) Sohu. 2021. .2. 国网河北综合能源公司“优易能”电管家“升级版”全新上线  (3) shoudian. bjx. 2021.12.15. 电量破亿！国网河北综合能源公司需求响应业务再发力 (4) mp.Weixin. 2021.1.30. 国网河北综合能源公司2020年发展侧记 (5) mp.weixin. 2021.12.31. 公司调峰辅助服务电量破亿千瓦时
 
The graph above shows the mechanism of the DR under Hebei Grid. Various types of resources can join DR events and gain revenue from the AS market.
 
Based on the DSM platform provided by State Grid Hebei IES Company, the Hebei grid company joined DR as a load aggregator, gathering and optimizing adjustable load resources to respond to DR instructions. A load aggregator (LA) is the product of DR and plays a critical role in the DR development by bringing up many business opportunities (seen later).
  • By 2022, the IES company has established a ‘load tank’ (蓄能池) of 100 MW adjustable loads from 26 power users, which is the virtual aggregation of large-quantity loads based on contracts.
  • Besides, it also provides EMS APP for power users, which can well collaborate with the DSM platform in a DR event. Through this APP (called YouYiNeng ‘优易能’), power users can easily deal with their energy management, and the load aggregator can remotely monitor and check the consumption data.
 
So what does the grid company exactly do on the DSM platform? Here a dashboard overview is provided in the graph below. In general, an operator of DSM platform can check the market info (AS market or spot market or both), review DR events (history, on-going status and upcoming notices) and monitor load resources (capacity, availability and real-time updates). The platform helps load aggregators with their decision-making and load resource management, which is the essential value provided by them.
 
Illustration 5: An overview of Hebei DSM dashboard
Reference: (1) mp.weixin.qq. 国网河北综合能源服务有限公司.2021.1.30. 掘金综合能源服务’蓝海市场’——国网河北综合能源公司2020年发展侧记
 
  1. AS trading information… It shows trading activities at the North China Load-Modulation AS market in real-time, incl. forecast and actual trading load capacity, and trading details at DR hours. Based on that, load aggregators can decide to join the market.
 
  1. DR project information… Load aggregators can check current and upcoming DR events and their participation status.
 
  1. Performance overview of participation in AS…Load aggregators can quickly check their historical participation in AS and review the responsive capacity.
 
  1. Demand-side resources…Load aggregators can monitor the load curve in real-time and compare it with the previous day’s curve. (Red curve: yesterday’s curve. Green curve: today’s curve)
 
One highlight of this project is the leverage of the AS market in the DR event. It indicates the trend that local governments have tried out more marketized mechanisms to pay the compensation in DR events. So far, Jiangsu has used bidding method, Shaanxi and Hebei have tried ancillary service markets. More advanced application is to use spot market, which is planned in Shandong, Zhejiang and Guangdong. All these attempts have been promoting DSM into a marketized direction.
 
Another noteworthy thing here is that charging piles and storage systems also joined the DR and gained revenue from AS market. It also shows the strategic importance of DR: because DR is open to various types of load resources, all these types, incl. third-party storage systems, EV charging platforms, V2G-capable EVs and Virtual Power Plants (VPPs), can access to the capital from AS market without formal registration in the market. This openness of the invitation mode will bring about more business opportunities.
 
Business Opportunities
 
Firstly, one direct business opportunity brought by these active DR events is the provision of DR platforms. So far, many private software companies have provided local state grid or governments with DR platforms. These DR platforms are generally modified based on the governments’ monitoring platforms for energy consumption by power users. As more load aggregators and VPPs join DR, they will also need platforms to manage and optimize those load resources under their umbrella. Thus, software companies can investigate the segment of secondary platforms, by satisfying the unique needs of LAs and VPPs.
 
The graph below shows the example of VPP in the northern Hebei province. The pilot is a milestone in China’s VPP development that firstly leverages ancillary service market to reward load participants under VPP. In the overview, ABB provides the VPP system including platforms (primary and secondary levels) and terminal devices.
 
Illustration 6: An overview of Jibei (冀北) State Grid VPP Pilot Project
References: (1)ABB. 冀北电力打造虚拟电厂，智慧电网促进节能增效 (2) huamod.2021.7.10. 虚拟电厂与电力市场. (3) NEW. QQ. 2020.8.19. ABB助力国网冀北电力打造虚拟电厂
 
Secondly, it is also a business opportunity to become a VPP operator, which refers to the autonomous VPP. Different from LAs, VPPs can cover more types of resources, such as distributed power generators, and manage larger-scale resources, for example on a city level or even across a province. In exchange for a stronger capability of organizing load resources, VPP operators charge participants for agency fees. Thus, VPP operators can benefit from the management services and possibly trading in the AS or spot market. Although China only has marketized VPPs under the operation of grid companies so far, autonomous VPPs are expected to come out in the future.
 
Last but not least, a third business trend comes from the V2G technology. It supports normal EVs and charging piles to send electricity back to the grid and thus EV owners can make money from the selling. V2G-capable EV owners are more incentivized to join DR for the additional revenue. Moreover, it brings new demand for V2G charging piles from the EV charging platform operators.
 
Now, the V2G industry is still in the nascent stage, but the demand from EV owners to gain economic compensation clearly exists in spite of concerns about battery’s life span. In a Shanghai DR event that involved EVs, three time slots were identified for EV owners to join DRs. If with scheduled charging or two-way charging piles (V2G-capable), EV owners can effectively choose the right timing based on electricity price and maximize their benefits from selling power to the grid and saving electricity costs.
 
Illustration 7: Three time slots for EV owners to join DR in Shanghai
References: (1) NRDC. 2020.6.1. 电动汽车与电网互动的商业前景 —上海市需求响应试点案例 研究报告 (2) News.jcrb. 2022.1.24. "充电难"调查:安装充电桩小区电容量不足咋办 (3) H3C. 2020.12.9. 新能源汽车充电桩方案
 
Operation of demand response
 
Let’s look at the operational side of initiating a DR. This part firstly explains the stakeholder in DR and then the workflow of the invitation mode and real-time mode in the Jiangsu case. In a typical DR event, there are three layers in the invitation transmission process.
 
Illustration 8: the major stakeholders in DR event
References: (1) Gov. 2017.9.26. 关于深入推进供给侧结构性改革做好新形势下电力需求侧管理工作的通知(2)Shandong gov. 2021.6.4. 关于印发2021年全省电力需求响应 - 山东省能源局
 
  • On the management layer, the DR center organizes DR events and cooperates with Power Dispatch Center (PDC) and the national DR center. All the data during a demand response will finally go to the DR center.
 
  • On the data exchange layer, the primary DSM platform releases DR instructions to the lower-level platform. The secondary DR platform, usually provided by private companies, is a media between load resources and the DSM platform.
 
  • On the participant layer, load aggregators (LAs), VPP operators and various power users received DR instruction and respond respectively. 
 
The graph above shows the major stakeholders in the invitation mode. To implement a successful DR event, the platform for info exchange is the indispensable component.
 
Below comes the Jiangsu example. Like many other provinces, Jiangsu has two types of DR events: invitation mode and real-time. 
 
In both two types, the demand response center is the key. The invitation mode is more traditional and established. Comparatively, the real-time mode doesn’t involve the provincial economy and IT committee and works for fewer steps. But the real-time mode is more technically demanding and thus needs sophisticated platforms for load participants, such as load aggregators and VPPs. It additionally requires comprehensive online monitoring, EMS and data encryption function.
 
Illustration 9: Workflow of Invitation mode (邀约型) in Jiangsu Province
Illustration 10: Workflow of real-time mode (实时响应) in Jiangsu Province
 
References: (1) MIIT-Jiangsu. 2015.6.15. 《江苏省电力需求响应实施细则》. (2) Yangzhou Gov. 2018.7. 《江苏省电力需求响应实施细则》(修订版)
 
Since the demand response rule varies by province, it is important to take a careful look into the specific case. In general, the popularity of DR measure is creating profitable opportunities for IES companies, device makers, system operators and even numerous power users, not mention those third-party storage system operators and V2G-capable charging operators who has two-way functions. As the carbon peak is coming close, it is right time to eye the commercialization on the demand side.
 
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If you like this article, please also refer to our reports "Demand Response, VPP, and V2G in China" and "Smart Grid & Integrated Energy Services in China" in our data base.
 
Should you have further questions about power / electricity industry in China and related topics, please feel free to drop us an email at info@integral.net.cn.
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