Optimize Grid Planning and Investment Management to Facilitate the Development of the New Power System

Digital Energy Storage Network News:

Recently, the Second Meeting of the Central Commission for Comprehensively Deepening Reform reviewed and adopted the Guiding Opinions on Deepening Power System Reform and Accelerating the Development of a New Power System (hereinafter referred to as the Guiding Opinions). Meanwhile, the National Energy Administration released the Blue Book on the Development of the New Power System (hereinafter referred to as the Blue Book), specifying the overall framework and key tasks for building the new power system. This marks that the development of the new power system has entered a phase of accelerated advancement.

Building the New Power System Raises Higher Requirements for Grid Planning and Investment Management
The Guiding Opinions calls for accelerating the development of a new power system that is clean, low-carbon, safe, adequate, cost-effective, supply-demand coordinated, flexible and intelligent. It stresses the need to improve institutions and mechanisms adapted to the new power system. Based on China’s resource endowments and regional characteristics, the Blue Book defines a three-stage development pathway for the new power system and systematically designs an overall framework of “strengthening the development of four major systems and enhancing three-dimensional innovation support”.

Both the Guiding Opinions and the Blue Book emphasize that the development of the new power system relies on optimized and innovative supporting policies, institutions and mechanisms. In particular, it is necessary to strengthen the overall coordination and supervision of multiple links including power planning, construction, operation, trading and pricing, as well as unified management of various elements such as coal-fired power, new energy, energy storage and power grids. As the core platform of the power system, optimizing and improving management mechanisms for grid planning, investment and electricity pricing can provide solid institutional guarantees for accelerating the development of the new power system.

Existing Grid Planning and Investment Management Still Need Further Improvement
First, coordination between grid and power source planning needs to be strengthened.

The development of new energy exceeds planning expectations and fails to match grid absorption capacity. In some provinces and regions, the installed capacity of operational and approved new energy projects has even surpassed the targets set in the 14th Five-Year Plan. Unregulated expansion of new energy has substantially increased demand for additional transmission and distribution capacity, pushing up transmission and distribution investment and adversely affecting the utilization efficiency of power grids.
Misalignment exists in the scheduling of planning and construction for source-grid projects. New energy planning is mainly expressed in terms of regional newly-added capacity without specific allocation to individual projects, making it impossible for supporting transmission projects to be incorporated into plans in a timely manner. In addition, the construction cycle of new energy power stations is roughly one year, while supporting grid transmission projects require at least two years or more. Such mismatch in construction timelines easily leads to problems where “power is generated but cannot be delivered”.
Second, supporting mechanisms for grid investment supervision need to be clarified.

The scope of grid planning should be appropriately expanded to better align with the scope of grid investment supervision. In accordance with the requirements of cost supervision and review for transmission and distribution pricing, grid investment covers all reasonable expenditures for transmission and distribution services, including grid infrastructure, production technical renovation, marketing technical renovation, scientific and technological innovation, and digitalization projects, all of which shall be incorporated into planning and go through approval and filing procedures. At present, no national-level provisions define the full-scope boundary, depth requirements and technical standards of grid planning, resulting in inconsistent implementation among provincial authorities and grid enterprises and undermining planning outcomes.
Review and management requirements for some investment projects under full-scope grid planning remain unclear. Approval and filing requirements for grid infrastructure projects of 35kV and above are relatively clear, yet other investment projects are fragmented, diverse and highly specialized, lacking policy basis such as implementation rules in practical execution.
Third, the transmission and distribution pricing mechanism needs further refinement.

The identification mechanism for major policy-driven investment remains to be improved. The pricing method takes newly increased electricity output from incremental investment as a constraint for pricing investment recognition. Major policy-driven investment is fully included in effective assets without being subject to the constraint of fixed assets per unit of electricity. The third regulatory cycle clarifies that supporting projects for new energy grid connection fall within the scope of major policy-driven investment, strongly supporting the construction of the new power system. As China’s electricity growth slows down, rigid demand for policy-driven investment remains high. Investments delivering great social benefits and high ecological value, such as northern clean heating, power supply in the Three Regions and Three Prefectures, border power supply and extension of power supply investment boundaries, have not yet been classified as major policy-driven investment, imposing substantial adverse impacts on grid investment capacity.
With the accelerated development of the new power system and rapid expansion of wind and solar power, their share in total power generation keeps rising. Coal-fired power undergoes the “three-in-one transformation” to serve as the ballast for power security. The power grid is continuously improving its safety, reliability, flexibility and intelligence, which adds mounting pressure on the growth of overall power supply costs. Mechanisms for passing through and allocating transmission and distribution costs among multiple stakeholders need innovative optimization.
Multiple Measures to Optimize Grid Planning and Investment Management Mechanisms
First, promote coordinated source-grid development through multi-dimensional and targeted efforts.

While improving market trading and pricing mechanisms and guaranteeing reasonable returns for power grids, stabilize market investment expectations to facilitate the delivery of various power planning and investment projects.
Provide greater support and incentives for distribution networks, especially rural power grids, by increasing direct government investment and including investment in rural grid upgrading and intelligent transformation of distribution networks for distributed power access under the new power system into major policy-driven investment.
Establish a multi-department joint approval mechanism, appropriately parallelize and simplify review procedures for various power investment projects, promote synchronized planning, construction, commissioning and operation of power sources and grids, and raise the overall investment efficiency and benefits of the power system.
Second, establish a full-scope grid planning management mechanism.

Expand the current grid planning scope dominated by grid infrastructure projects to full-scope investment projects of all disciplines providing transmission and distribution services, and clarify the division boundary of various project types including production, marketing, science and technology, and digitalization projects.
Define the depth requirements and technical standards for full-scope grid planning. Take into account individualized factors such as investment scale, complexity of technical schemes and speed of technological change for different types of projects, and adopt differentiated requirements for planning depth and technical standards.
Third, improve review and management requirements for full-scope grid investment.

The national authorities shall promptly issue review and management requirements for full-scope grid investment, further specify the coverage of various grid investment projects through policy documents, and define general requirements on competent authorities, review procedures and documentation for each category of grid investment projects.
Guide provincial administrative authorities to adapt and implement the general requirements for full-scope grid investment review and management locally by taking into account local management realities and professional characteristics of grid investment projects, and strengthen supervision over full-scope grid investment projects.
In addition, clarify the identification mechanism for major policy-driven investment.

Define the scope of identification for major policy-driven investment. Grid enterprises are required by relevant national authorities to assume corresponding social responsibilities. Policy-driven investment that yields no electricity growth or delivers markedly lower economic benefits than normal projects shall be fully included in the scope of major policy-driven investment.
Clarify the identification methods for major policy-driven investment. For projects whose scale can be determined in advance, their investment volume shall be confirmed and incorporated in planning at the planning stage. For newly added major policy-driven investment emerging during implementation, such investment shall be rolled into revised plans, strictly go through investment review procedures, and be fully recognized as effective assets.
Meanwhile, it is recommended to build a linkage mechanism covering grid planning, investment and electricity pricing.

Establish a multi-department consultation and linkage mechanism involving energy and price authorities. This ensures that when off-plan grid investment projects for major national strategies and emergency rescue are launched, grid planning and electricity prices in new regulatory cycles can be effectively linked and costs can be passed through in a timely manner.
As the construction of the new power system speeds up and grid planning efficiency improves, demand for grid investment keeps growing. Electricity pricing in new regulatory cycles shall comprehensively consider factors including grid planning targets and investment demand to determine transmission and distribution prices with balanced trade-offs.
Finally, strengthen digital support for grid planning and investment.

Existing planning tools can no longer effectively meet the planning needs of the new power system. It is urgent to integrate digital technologies including cloud computing, big data, Internet of Things, mobile communications, artificial intelligence and blockchain. Targeting the “high proportion of renewable energy and high power electronics” features of the new power system, new planning simulation models and tools should be developed as soon as possible.
Investment projects for distribution networks, production and marketing face management challenges such as huge project volumes during review and approval. It is essential to build a government-enterprise digital channel based on digital technologies, facilitate data exchange between regulatory authorities and enterprises on investment management, realize automatic submission of application documents and real-time access to approval results.