UC Berkeley

The energy-only-market implemented in China cannot strongly support large-scale renewable energy expansion because the renewable energy expansion may disorderly phase out non-renewable power capacity. However, non-renewable power capacity, particularly the coal-fired power capacity in China, can provide vital power system adequacy needed by renewable energy expansion. We introduce capacity payments to orderly retire current coal-fired power capacity by transforming some of it into reserve capacity in order to support renewable energy expansion. Using generation and transmission expansion results from the SWITCH-China model, this paper proposes an orderly retirement path based on the assumption of implementing capacity payments. Our results show that roughly 100-200 gigawatts (GW) of coal-fired power capacity can continue to serve through 2050, and most of it is used as reserve capacity. Capacity payments of 400-700 billion yuan are needed to achieve this retirement path, and a higher adequacy requirement needs higher payments.