Power industry carbon reduction path

The necessity of carbon emission reduction in China's power industry

The power sector is key to reducing carbon emissions. Whether it is the change of demand side, the innovation of domestic power supply and energy supply, or the development of carbon management industry, it is closely related to the power industry. Based on the McKinsey Global Carbon Neutral model, the global power sector needs to reduce carbon emissions by more than 99% by 2050 in order to achieve the 1.5 ° C target, which means that the power sector has to reach almost "net zero emissions". We believe that this goal, while challenging, is achievable.

China's electricity demand on the road to carbon neutrality

Total electricity demand is an important topic for carbon neutrality. In addition to the demand growth brought about by economic development, under the carbon reduction target, large-scale electrification of various industries and the popularization of electrolytic hydrogen production will further promote the demand for electricity. In the long term, China's electricity demand will grow at an average annual rate of 2%, and the total electricity demand in 2050 will be about twice that of 2020. Direct electricity demand will grow steadily until 2030, driven by three main drivers: increased industrial production activities, the electrification of buildings, and the introduction of electric vehicles. Between 2030 and 2050, the growth rate of industrial electricity demand and building electricity demand will slow down, and the electricity demand of the transportation industry will show faster growth due to the acceleration of the promotion of electric vehicles.

Power mix with carbon capture and storage (CCS) technology

Based on projections of total electricity demand, the McKinsey Global Energy Insight Electricity Model estimates the electricity mix with carbon capture and storage in 2030 and 2050 under a 1.5 ° C scenario. Total installed power capacity will increase from about 2,000GW in 2020 to about 8,700GW in 2050, of which about 71% will be contributed by renewable PV and wind power, while coal, based on CCS technology, is likely to fall to 6% of total generation capacity between 2030 and 2050 (see Figure 2). At the same time, hydropower, nuclear power, gas turbines and power storage installations will bear the base load and ensure the flexibility of the power system. In addition, the regional power mix will be more diversified in 2050, with power installations in Northwest, Northeast and North China significantly concentrated in photovoltaic (more than 40% of PV installations), while eastern China is more inclined to wind power (61% of wind installations).

The proportion of wind power and photovoltaic power generation will reach 62% and 83% in 2030 and 2050, respectively. Calculations in the case of carbon capture and storage show that a shift from a coal-based power system to one based on renewable energy sources such as wind and light is critical to China's quest for carbon neutrality.

Potential challenges and countermeasures of electric power transformation

There is still a long way to go to achieve "zero carbonization" of electricity. McKinsey believes that to achieve a cost-optimal power structure under the 1.5 ° C scenario, China's power industry needs to overcome three major challenges. We believe that with the joint efforts of the Government and enterprises, we can effectively deal with the problem.

Challenge 1: Improve the flexibility of the power system: photovoltaic and wind power will become the main energy sources in 2050, accounting for 83% of the entire society's electricity generation, and given that photovoltaic and wind power have poor continuity, geographical limitations, prone to short-term surplus or shortage, will make the flexibility of the power system is further threatened. McKinsey believes that power system flexibility should be enhanced by building capacity in three areas.

Increase the transmission and distribution capacity of the grid: Under the optimal cost scenario, the total transmission capacity will need to be increased from about 150GW in 2019 to about 600GW in 2050, and the new transmission capacity will be mainly used for cross-regional power supply connecting North and East China, and South and East China to meet the electricity demand in coastal areas. This requires the central government to formulate policies, make top-level planning, balance the interests of multiple parties, provide support for the large-scale development of trans-provincial power grids, and strengthen cross-provincial overall planning and cooperation. At the same time, we will continue to promote distribution reform and accelerate the construction of incremental distribution networks. Recently, the National Development and Reform Commission in the "Eight Proposals on Further Improving the implementation of the Incremental distribution Business Reform Policy" Reply letter, further clarified the administrative status of the incremental distribution network, allowing renewable energy, distributed power supply to access the incremental distribution network with the appropriate voltage level, which can effectively help the consumption of renewable energy. It also solved the practical difficulties of "lack of power" in the incremental distribution network, and greatly boosted the confidence of relevant developers. At the same time, the industry should also actively apply smart grid technology to achieve the collection and management of real-time data of power grid transportation, and improve the energy level of the power grid system. This requires not only the development of grid digital technology, but also the acceleration of the promotion of market mechanisms in the power industry.