UC Berkeley

Concerns around reliability in Chinas electricity sector have rekindled interest in a traditional solution: building more coal-fired generation. However, over the past decade Chinas electricity sector has seen significant changes in supply costs, demand patterns, and regulation and markets, with falling costs for renewable and storage generation, peakier demand, and the creation of wholesale markets. These changes suggest that traditional approaches to evaluating the economics of different supply options may be outdated. This paper illustrates how a net capacity cost metric - fixed costs minus net market revenues - might be a useful metric for evaluating supply options to meet peak demand growth in China. Using a simplified example with recent resource cost data, the paper illustrates how, with a net capacity cost metric, electricity storage and solar PV may be a more cost-effective option for meeting peak demand growth than coal-fired generation.