In Beijing, the closed generating capacity will be replaced by electricity transmitted to the capital from rural coal-fired power plants closer to coal mines and carbon geosequestration sites. China calls this ‘coal by wire,’ which over time can be followed by ‘gas by pipeline,’ ‘gas by wire’ and ‘nuclear by wire.’
These, in turn, will exploit the power of markets to solve climate change. Put into a larger context, China’s ‘coal by wire’ represents the first step in developing a long-term conceptual road map for a low emission energy Asia. If we take the concept of coal by wire and scale it up, it argues in favor of building creation of a ‘Pan-Asian Energy Infrastructure’ stretching from China to Australia.
This infrastructure would deliver ‘energy by wire’ of all kinds. It would be an ‘internet of energy’ serving China, Japan, South Korea, the Association of Southeast Asian Nation States, East Timor and Australia. Two billion consumers live in these countries. They produce 40% of global Gross Domestic Product. To sketch out the evolution to ‘energy by wire,’ a good starting place is China’s ‘coal by wire’ policy for Beijing.
In implementing the policy, China paid heed to four economic theories: Comparative advantage, negative externalities (pollution), dead weight costs (inefficiencies), and network economies (markets). Together, they make a powerful combination that harnesses market forces.
Startled by the decline in Beijing’s air quality, China’s leadership is closing coal-fired power plants in the city. These are to be replaced by natural gas plants or ‘coal by wire’ power plants. ‘Coal by wire’ power plants are located closer to coal mines and carbon geo-sequestration sites.
Under ‘coal by wire,’ only electricity is transmitted to urban demand centers. The carbon pollution is left behind. The ‘coal by wire’ concept is derived from applying the ‘theory of comparative advantage.’ Under ‘comparative advantage,’ industries are located where they create the greatest value. This value is then traded. The resulting specialization leaves everyone better off. Originally conceived to encourage international trade in 19th Century Europe, ‘comparative advantage’ also offers a contemporary economic framework for solving climate change in the 21st Century.
In the case of coal, this dirty power source can create the most value by being generated away from China’s cities and closer to coal mines. Putting power plants and coalmines together reduces transport costs by transporting just the value-added electricity to the city instead of the heavy bulk commodity coal. This simultaneously reduces the ‘negative externality’ of urban coal-fired air pollution. ‘Negative externalities’ are un-priced negative outcomes — for instance the negative impact industrial river pollution has on fishermen.
Climate change is the largest ‘negative externality’ ever created. It is the result of all the un-costed carbon emissions emitted since the Industrial Revolution. In the case of ‘coal by wire’, the benefits don’t end with developing comparative advantage and reducing negative externality.
‘Coal by wire’ also eliminates the ‘dead weight’ (ie ineffcient) cost of transporting coal by narrow purpose rail. Instead, ‘coal by wire’ just transports value-added electricity over flexible, multi-purpose, interconnected power lines that can reap ‘network economies.’
China’s ‘coal by wire’ policy dates at least as far back to the Ninth Five Year Plan (1996-2000).The primary aim back then was to reduce road and rail congestion. Now that China’s infrastructure has been built up, reducing urban air pollution is more important. The full application of ‘coal by wire’ in China is still in its infancy. Few specifics have been announced. To date, only a few easily identifiable ‘coal by wire’ plants have been built in China. The two most visible are the Yangcheng and Fengtai power plants.
Yangcheng is a 2,100MW power plant in Shanxi province. It opened in 2002 and supplies power to Jiangsu province over a 740 km HVDC line. The 2,520MW Fengtai Power Plant in Anhui Province transmits electricity to Zhejiang Province. These two ‘coal by wire’ power plants, along with China’s stunning success in delivering long distance power to Shanghai and Hong Kong over HVDC from hydro dams in her interior, represent ideal examples of the future ‘energy by wire’ concept.
Urban air pollution and its negative impact on public health now jeopardize achievement of the ‘Chinese Dream’ of rising personal income and improved quality of life.
‘Coal by wire’ aims to turn this around starting (presumably) with Beijing and then spreading the idea more widely around China, wherever energy-related environmental degradation threatens urban quality of life. Technological advances and cost reductions in building long-distance electricity transmission can make this possible. China’s the clear leader.
At China’s Three Gorges Dam project, hydropower is transmitted by High Voltage Direct Current power lines over 2,000 kilometers to Shanghai. The project might be dubbed ‘hydro by wire.’ ‘Hydro-by-wire’ and ‘coal-by-wire’ are economic mirror images. ‘Hydro by wire’ brings clean energy to the city. ‘Coal by wire’ removes dirty energy from the city. The two examples provide arguments for the potential of ‘energy by wire’ of all kinds (solar, wind, natural gas, geothermal, coal, nuclear).
In future columns, Grenatec will cover this in greater detail. We will also outline how applying the ‘energy by wire’ concept exposes the poor economics of Liquid Natural Gas trade in Asia. We’ll also discuss how it can be applied to eliminating the risks of large-scale nuclear power, and how powerlines and pipelines can create a much more efficient, flexible energy delivery market in Asia. We’ll then outline how such an infrastructure could last a century or more by serving coal, gas, nuclear and renewables in turn. Finally, we’ll discuss how new market mechanisms, regional institutions and deeper geopolitical integration can emerge from this concept. Across this system will flow all kinds of energy, from solar to wind to biomass and geothermal, all balance by supply, demand, distance and carbon prices.
It will be very close to a perfect market.