Academic journal article Energy Law Journal

Smart Grids in China: Industry Regulation and Foreign Direct Investment

Academic journal article Energy Law Journal

Smart Grids in China: Industry Regulation and Foreign Direct Investment

Article excerpt

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China became the world's largest market for smart grids by investing $4.3 billion in smart grids in 2013, which accounts for more than one quarter of the $14.9 billion spent globally.1 Simply put, smart grids are modernized power grids integrated with information technology and other modern technologies, which enable the two-way flowing of electricity and information between power providers and consumers, increase the stability and efficiency of a power grid, and better incorporate the intermittent renewable energy to the power grids.

On November 12, 2014,2 President Xi Jinping and President Barack Obama signed the China-U.S. Joint Announcement on Climate Change and Clean Energy Cooperation, in which China set a target to increase total energy consumption generating from zero-emission sources to around 20% by 2030. This means to meet the target, China needs to create an extra 800-1000 gigawatts of clean energy, such as solar, wind, nuclear, and other zero emission sources by 2030.3 In order to accommodate the large amount of renewable energy into its grid, China must robustly upgrade its current grid system. Smart grids are particularly important as they not only increase the capability of the grids to integrate large-scale renewable energy, but they also enhance several other low-carbon energy technologies, including electric vehicles, distributed generation, and demand response.4

With the anticipation that there are great opportunities in China's smart grid industry, China is becoming the target of many foreign investors.5 While many foreign companies are interested in the Chinese market and want to seize this huge business opportunity, their concerns are probably as great as their interest.

Although the Chinese economic reform- which started in 1978-introduced market principles into China and has changed the landscape for a lot of industries, it has much less influence on the power grid industry. This industry is traditionally under the strict control of state-owned enterprises and is still subject to the planned economy model. 6 But after President Xi Jinping took office, he carried out reforms in the electric industry to build a more market-oriented mechanism.7 So how is the smart grid industry regulated? What is the government's attitude towards foreign direct investment in this industry?

The author analyzes the reasons for China's moving from a traditional power grid to a smart grid, followed by an introduction of the investment in smart grids in China (Part II); because smart grids are modernized power grids, the general regulatory mechanism over power grids still applies. The author explains the regulatory bodies, major market players, and the basic market structures (Part III) as a background for understanding the regulation over smart grids. While the government targets smart grid as a prioritized industry, policies on smart grids are spread over a lot of different documents. The author classifies and analyzes these policies (Part IV). Then the author discusses the market access and incentives for FDI in the smart grid industry (Part V) and the author explains that despite these positive policies, many challenges remain (Part VI). The final section concludes the article (Part VII).


A. Definition of Smart Grids

Although the term "smart grid" is widely used, as the International Energy Agency (IEA) explains, smart grid evolves with the development of technologies and it is adjusted to fit into the system of every country or region.8

Nonetheless, there are some common features defining the scope of smart grids. Generally speaking, a smart grid is a modernized electricity network that integrates information, communication, and other advanced technologies to realize the two-way flow of electricity and information between the power plants and consumers and all points in between9 In contrast to traditional power grids, smart grids have the following advantages: they (1) are able to accommodate large-scale intermittent renewable energy, and distributed energy generation; (2) enable peak-shaving and energy saving by demand response, energy storage, plug- in and hybrid electric vehicles, and other technologies; and (3) increase the reliability and efficiency of electricity transmission and distribution. …

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