Power Grid and BESS Investments in China are far ahead of Europe
With the development of renewable energy sources and the progression towards Net Zero plans, electrical grids are becoming increasingly important. In Europe’s fragmented energy system, grid development, including the increase of cross-border capacity, would support interconnections between regions, promote markets, help avoid network congestions, and ultimately prevent blackouts. In China, as in many other places, including Europe, the grid represents a major constraint to progress towards a green transition and China exemplifies how the progress can be achieved.
A recent article in the Financial Times https://on.ft.com/3VVqy7B provides an excellent comparison of power grid and renewable energy development in China versus Europe and other regions. China is investing more than $800 billion over the next six years to alleviate strains on the energy system as the country rapidly transitions from coal power to renewable sources. During the first four months of this year alone, China invested $17 billion in its power grid projects, a 24.9 percent year-on-year increase. This contrasts with the $3.5 billion announced last October by the Biden administration in the US, covering 58 projects across 44 states.
The comparison with European or US investments is striking. In 2020, annual grid investments were comparable across all three regions (slightly above $50 billion in China and the US, and slightly below $50 billion in Europe). However, the growth rates differ significantly. By 2030, China is expected to achieve more than $150 billion in annual investments compared to just under $90 billion in Europe and around $100 billion in the US.
Despite China’s massive spending program, there are already signs of increasing pressure on electricity distribution and transmission. Over the past year, more than 100 counties and cities in five provinces have suspended new small-scale solar operations from connecting to distribution lines. Yunnan, the debt-ridden southwestern province, faces a potential power supply shortfall of about 10 percent this year despite doubling its installed capacity of renewable energy last year, according to local media reports. Similar situations are observed in other regions of China. Additional power demand in China is set to grow rapidly, driven by the needs of artificial intelligence, data centers, and electric vehicles, accelerating a longer-term increase in electricity’s share of energy consumption.
President Xi Jinping has set dual targets for China to reach peak carbon emissions by 2030 and carbon neutrality by 2060. Overcoming grid constraints will be crucial to meeting these targets. In the short term, China’s solar and wind power curtailment rates may rise as the rapid pace of renewable energy additions outpaces upgrades to the power system. In 2023, China accounted for 65 percent of global wind capacity and 60 percent of global solar capacity, according to research group Wood Mackenzie. Interestingly, according to Ken Liu, head of China renewables, around 15 percent of the investment in network development will go towards software solutions that control electricity flows.
The boom in energy storage, mostly through large battery packs for grid-level storage, should also help alleviate the supply-demand mismatch in electricity grid in the long term. Utility-scale solar capacity in China rose to 120GW from 36GW the previous year, surpassing smaller-scale mostly rooftop PVs batteries, which grew to 96GW from 52GW. In comparison, Germany, with its ambitious Net Zero plans, has utility-scale batteries in their infancy, currently at only 1.2GW, while rooftop battery capacity stands at 6GW. German projected growth rates for utility-scale power storage are high, reaching 26GW by 2030 according to the German Network Agency, though other sources like the Fraunhofer Institute predict higher growth rates. But even with higher rates the capacity of German large-scale batteries projected for 2030 is below the capacity already achieved in China this year.
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