Implementing the National DSM Regulations in China: Taking Actions at the Local Level
Posted August 4, 2011
On November 4, 2010, China’s Central government enacted national demand-side management (DSM) regulations. Under the Regulations, grid companies are required to use a portion of their electricity revenues to develop DSM programs, and must meet the savings target of 0.3 % of the sales volume and 0.3% of the maximum load compared with the previous year. By enacting the Regulations, China has taken a significant step toward having grid companies lead China’s efforts in improving energy efficiency. In China, the State Grid Corporation of China, supplies approximately 88% of the total electricity, the other grid company, the China Southern Power Grid, supplies the rest. Both of them are state-owned. The Regulations will, therefore, have great impact throughout China if they are successfully implemented. (See here for Barbara Finamore’s earlier blog on the national DSM regulations.)
Successful implementation of the national DSM regulations largely depends on the local authorities who are responsible for designing local policy tools, setting savings targets for the local grid companies and establishing assessment mechanisms. Right after the Regulations were enacted, local authorities started shaping up corresponding local policies and regulations. Ningxia Autonomous Region and Jiangxi Province are the first two who have issued DSM implementation plans at the local level. The two Plans are slightly different from each other in terms of organizational structure, funding mechanism, and other details such as target setting and reward-penalty system. Based on what we see from Ningxia and Jiangxi examples, local authorities do have the flexibility of using their own policy tools that reflect local specific conditions.
Below provides some highlights of Ningxia and Jiangxi’s Plans:
Ningxia was the first mover who announced its ‘Strengthening DSM Implementation Work Plan’ right after the national DSM regulations came out last year. (See here for the document in Chinese.)
Organizational Structure: Ningxia Economic and Information Commission (EIC) is the government body who is responsible for DSM work. The DSM Leading Group is to be established under the Ningxia People’s Government. The DSM Office under the DSM Leading Group is affiliated with the Ningxia EIC. The EICs at the county and city levels are required to establish DSM Leading Groups and Ningxia Grid Company shall establish DSM Center to coordinate with all the Leading Groups.
DSM Targets: Ningxia has set very specific targets for the next 3 years (2011-2013) which include: energy savings of 500 GWh, savings in electric bills of 250 million RMB, CO2 emissions reduction of 50,000 tons, SO2 emission reduction of 2,500 tons and peak load reduction of close to 60 MW. Ningxia also announced to have 8 projects with 5 enterprises in 3 counties in one city throughout the year of 2011 to implement pilot activities.
Funding mechanism: There are three sources of funding for Ningxia to support DSM programs: 1) a surcharge of 0.001 RMB/kWh from the public utility surcharge, 2) differential pricing and 3) DSM Special Fund to be established. The collected fund is to be used for promotions and education, incentives for pilot projects, efficient products R&D, retrofits, procurement of efficient products, subsidies for enterprises affected by interruptible load and grid company’s load management system establishment.
Reward-penalty mechanism: Though the Plan did not specify in detail, Ningxia is to establish a mechanism to evaluate the DSM work to provide reward or charge penalty to energy intensive large-scale users. Under this mechanism, the users are required to take efficiency measures. Enterprises, which do not comply with the DSM regulations and whose energy consumption is above the municipality’s average level, will be charged penalty through electric pricing.
In July 2011, Jiangxi Province also issued the ‘Jiangxi DSM Regulations Implementation Plan’ together with the ‘Jiangxi DSM Special Fund Management Measures’. (See here for the document in Chinese.)
Organizational Structure: Jiangxi Provincial Energy Bureau, which is under the Jiangxi Provincial Development and Reform Commission (DRC), is in charge of overall DSM implementation, including designing DSM standards and policies, setting goals and targets and establishing a sound DSM operating mechanism. Power divisions of the People’s Government above the county level takes charge of implementing DSM programs in their jurisdictions. Under the provincial energy bureau, Jiangxi Provincial DSM Office is to be established. The Office will be responsible for DSM related coordination.
DSM targets: The Energy Bureau shall announce the year’s DSM target and implementation plan by January 31st every year. Based on the Bureau’s target and plan, each district and city administrations shall submit their DSM implementation plan which incorporates local conditions to the Bureau by end of February every year.
Funding mechanism: Only one source of funding has been identified – a surcharge of 0.002 RMB/kWh from the public utility surcharge. All the utilities should submit the total amount of surcharge to the provincial finance bureau on a monthly basis by the 15th of the following month. The fund takes two forms: one is grants (no more than 50% of the total project investment) and loans (no more than annual total interest payable of the project owner). The collected fund is to be used for load management, pilot and demonstration projects, orderly power use subsidies, promotion and training, evaluation and researches. Jiangxi is also considering peak-valley differential pricing, but plans to implement it gradually after a thorough feasibility study.
Technology-specific approach: Jiangxi’s Plan listed ten DSM technologies that are encouraged to use under the provincial support. The ten technologies include:
- Power load management technology and devices
- Energy storage technologies such as electric storage and electric heat storage
- Energy efficient lighting technology
- Heat pump technology
- AC motor frequency control technology
- Motor system energy efficiency
- Energy efficient transformer technology
- Reactive power auto-compensation technology
- High-power low-frequency smelting technology
Load Management in DSM
Historically, DSM implied load management in China, while it is more about end-use energy efficiency in the U.S. Though the national DSM regulations have set out the rules for grid companies to take part in end –use energy efficiency improvement through DSM, both Ningxia and Jiangxi Plans show that DSM still involves load management to a great extent in China: Ningxia and Jiangxi put emphasis on ‘orderly power consumption’, which implies that grid companies should ensure stable electricity supply according to the prioritized order – for example, the residential electricity use is given the first priority. Difference in perception of DSM still exists between China and the U.S. China’s concerns on social stability and economic growth may explain the emphasis on load management and orderly power consumption both in the national DSM regulations and local implementation plans. Though the DSM regulations are a great achievement for China, in a longer term, we hope to see a change in perception of DSM as ultimately reducing the load through end-use energy efficiency.
Ningxia and Jiangxi have set great examples for other provinces and municipalities, who will announce their own DSM implementation soon. After the national DSM regulations were enacted in November 2010, only Ningxia and Jiangxi have announced their corresponding plans within a nine-month period. There are still 4 more municipalities, 4 autonomous regions and 22 provinces that are to announce their DSM implementation plans. We saw some difference between Ningxia and Jiangxi’s Plans, and as other provinces and municipalities announce their plans, we will see more variations among them. When all the local plans come out, it would be quite interesting to observe how the various approaches work and compare successes and challenges in different regions.
 Ningxia is located in the northwestern part of China with a population more than 6 million people. More than 90% of Ningxia’s energy consumption comes from industry, and heavy industry energy consumption account for more than 65% of the industrial energy consumption. (Find more information and data on Ningxia Economic and Information Commission website at www.nxetc.gov.cn )
 Jiangxi Province is located in the southern part of China with a population of more than 44 million people. Approximately 68% of Jiangxi’s energy consumption comes from industry, and heavy industry energy consumption accounts for about 80% of the industrial energy consumption. (See Jiangxi Provincial Energy Bureau Website for more data at http://nyj.jxdpc.gov.cn )