IEEE Power & Energy Magazine - January/February 2017 - 69

priced in China, these conventional units do not have any
incentive to improve their ability to provide grid flexibility.
However, China has instituted many ongoing attempts
over recent years to meet the challenge of inflexibility. The
government has been making great efforts on pilot projects
and corresponding policies called the "Energy Internet,"
which consists of four major parts:
1) integrating multiple energy system (e.g., electricity,
heat, and gas)
2) establishing a cyber-physical system and making use
of big data toward a smarter energy system
3) deregulating the energy market
4) interconnecting power grids in multiple areas.
One of the most effective policies is the "deregulation" of
the electricity market. Take the ancillary market for peak
shaving in northeast China as an example. Conventional
units, which offer flexibility for wind power, are now paid
for by wind farms and other inflexible units. This policy has
achieved great success as more than 77% of conventional
units now offer a lower minimum output level than before
the policy was established.
In addition, China is trying to solve electric power system
flexibility issues by coordinating multiple kinds of energy. A
typical example is the inflexibility caused by the linked electricity and heat production from coal-fired CHP plants. Due to
the inflexible operation of the CHP units when forced to generate large amounts of heat, they also produce electricity so
that the room left for wind generation is small, leading to wind
curtailment. This also gives rise to the problem of severe air
pollution, as coal-fired CHPs are notorious for large emissions
of NOx, SO2, and other pollutants. To avoid so much wind
curtailment, as well as pollution, the government initiated a
program called "heating by wind" to coordinate the electric
power and heating systems. This program makes use of clean
wind energy to serve heating demand, thus leaving more room
for wind integration. However, it should be noted that "heating by wind" still needs special price policies in a nonmarket
environment because the current central heating price from
conventional CHP is only one-half to one-third the cost of
the electricity heating. The wind farms that participate in the
heating need to sacrifice some of their profit to make "heating
by wind" economically acceptable to heat consumers. Many
policy-related efforts are still expected to make wind power a
cheap source for heating.

Regulatory Encouragement for Flexibility
Flexibility Options: The Possibilities
In this context of a fragmented and imperfectly aligned set
of policy instruments, policy makers now face the challenge
of encouraging flexibility options to improve overall energysystem integration and mitigate side effects. Flexibility means
exist within energy sectors (in particular, the electric power
sector), but it is also important to encourage interactions among
different energy-carrier sectors (such as electricity, gas, liquid
january/february 2017

fuels, heat, and cooling) and end-energy sectors (such as industry, residential and service sectors, and transportation). We
mention here the known flexibility possibilities (mainly originating in the electric power sector because of the absence of
massive cheap electricity storage).
The most straightforward flexibility options are
✔✔ utilizing backup reserves from flexible dispatchable
thermal plants (upward and downward)
✔✔ providing electric storage (short-term storage via multiple battery units; intermediate storage via pumphydro storage; and long-term, large-scale storage via,
perhaps, power to gas)
✔✔ expanding transmission grids
✔✔ encouraging active demand response or participation
by customers (industrial, commercial and service sectors, and residential retail customers)
✔✔ encouraging interaction with other carriers/sectors
(heating, transportation, etc.)
✔✔ curtailing superfluous RES production (because high
"power" injection peaks can be avoided at the relatively
minor cost of a bit of curtailed "energy"), which means
that priority access for renewables should be reviewed
and become part of a system-wide perspective.
A major question still to be addressed is how market designs,
policies, and regulation affect these flexibility options.

Enabling Flexibility Options:
Challenges for Policy and Regulation
As has been illustrated previously, policy and regulation
often have unexpected-and, possibly. counterproductive-
effects on overall system performance. It should, therefore,
be a part of good policy making to first study the overall
system by modeling its different parts, with much emphasis
on the interactions among the different subparts as well as
among different policies. As the behavior of the system-
including the not-always-predictable behavior of customers
and other market actors-will be strongly nonlinear, careful analysis is called for, well beyond the standard isolated
"impact assessments."
First and foremost, policy makers should encourage correct system cost evaluation and, consequently, appropriate pricing to guide consumers. As a general rule, market
requirements should provide sufficient freedom for market
participants to play their roles while eliminating any loopholes overly creative individuals or organizations can abuse;
this means that carefully considered boundary conditions
and/or justified constraints must apply. Also as a rule, varying prices can influence customer behavior, and real-time
pricing can steer markets in a desired direction. All customers connected to the electric grid need to contribute to its
costs. Following the principle of cost-reflectiveness, a gridconnection tariff should be based (at least partly) on the connection capacity or maximum annual capacity used (in kW)
rather than on energy consumption (in kWh). This applies,
in particular, to customers with much self-generation.
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