Accelerating China’s Fossil Fuel Plant Retirement and Renewable Energy Expansion via Capacity Mechanism

Abstract

The capitalization and lifetime of coal-fired power plants as well as political support for them are the largest impediments to decarbonisation, particularly in China. We introduce a market-oriented capacity remuneration mechanism to transform current coal capacity into an essential tool to support renewable electricity integration. This mechanism will not only reduce CO2 emissions but also backstop renewable electricity in the near-term to improve system reliability. Using generation and emissions data from the SWITCH-China model, this paper calculates the reserve economic value and its development pathway for the current legacy coal capacity. Our results show that more than 500 gigawatts (GW) of coal capacity can continue to serve as the reserve capacity by 2050, and this contributes 25% of the total reliable capacity required by the system. In contrast to the aggressive strategy of retiring all coal capacity, this pathway could save the China's power system at least US$100 billion in fixed-asset investment costs.