Special Planning | Zero-Carbon Park Mechanism Reform is the Breakthrough for Local Energy Transition

Zero-carbon parks are a huge disruption to the traditional centralized energy system.

 

2025 On June 30, the National Development and Reform Commission, the Ministry of Industry and Information Technology, and the National Energy Administration jointly issued the first zero-carbon park policy document, "Notice on Carrying out the Construction of Zero-Carbon Parks," which clearly defined the energy use and emission standards, application procedures, and key tasks for park construction. Provinces such as Shandong, Sichuan, and Jiangsu quickly followed up with pilot construction plans for zero-carbon parks in their regions.

 

The author believes that setting standards and application procedures for zero-carbon parks is very necessary for their construction, but more importantly, it is essential to fully recognize the significant value of zero-carbon parks as a form of distributed energy system in accelerating energy and industrial transitions across China. If local governments can address the mechanism obstacles of zero-carbon parks and deepen mechanism reforms, it will have a leverage effect in solving local energy transition and carbon reduction issues, creating a favorable institutional environment and market space for the 15th Five-Year Plan's energy transition and low-carbon technology and industry development.

 

 

 

Energy Transition System

Bottlenecks Increasingly Prominent

 

 

Currently, the core content of energy transition driven by climate change is to shift the existing high-carbon energy system dominated by fossil fuels to a zero-carbon energy system dominated by renewable energy. Promoting large-scale development of renewable energy to replace fossil fuels is an important path to achieve this transition.

 

Over the past decade, China has made remarkable achievements in energy transition, mainly reflected in the "scale expansion" of related indicators. From 2014 to 2024, wind power generation increased 5.6 times from 150 billion kWh to 991.6 billion kWh; photovoltaic power generation increased 32.4 times from 25 billion kWh to 834.1 billion kWh. In 2024, the combined installed capacity of wind and photovoltaic power reached 141 GW, exceeding the 2030 target of 120 GW six years ahead of schedule. Additionally, sales of new energy vehicles (including pure electric and plug-in hybrid vehicles) surged from 74,800 units in 2014 to 12.866 million units in 2024, a 171-fold increase over ten years.

 

Basically, almost all countries started the first phase of energy transition (referred to as Energy Transition 1.0) with large-scale development of renewable energy. During this period, policy focus was mainly on expanding the scale of renewable energy.

 

However, the rapid increase in new energy installed capacity and the short-term rapid growth of fluctuating wind and solar power grid integration have quickly "consumed" the limited "redundant regulation capacity" of the existing power system. Since early 2024, more and more provincial and municipal grids have issued "red lights" to distributed photovoltaic grid connections, and issues such as power restrictions on large wind and solar bases in the west and insufficient transmission capacity have become prominent. This actually indicates that "system bottlenecks" have become the main contradiction in the current energy transition. Energy transition policies should adapt to this shift by focusing on promoting "system transition." Otherwise, without significant improvement in the power system's "flexibility" or "regulation capacity," continuing to emphasize new energy "scale expansion" in policies will exacerbate problems in the energy transition and increase costs.

 

 

 

Energy Transition Should

Enter the New 2.0 Phase as Soon as Possible

 

 

A prominent feature of Energy Transition 1.0 is developing renewable energy based on the existing energy (power) system. Therefore, the scale of renewable energy development, especially fluctuating wind and solar power, depends on the "redundant regulation capacity" of the existing energy (power) system. In this sense, the rapid growth of wind and solar installed capacity during China's Energy Transition 1.0 phase, besides related incentive policies, implicitly assumed that the power system still had redundant regulation capacity. As this capacity shrinks, the energy transition must quickly move to the 2.0 phase.

 

The basic characteristic of Energy Transition 2.0 is focusing on "system transition" to drive large-scale renewable energy development. The key to energy system transition is enhancing system flexibility. This phase should advance system flexibility improvement from two directions simultaneously.

 

On one hand, improve the flexibility of the existing centralized power system through mechanism innovation and technological transformation, further enhancing its ability to integrate large-scale wind and photovoltaic power without changing the current network architecture. For example, by improving ancillary service market mechanisms to identify the potential for flexibility upgrades in coal power units and fully realizing their value; by optimizing regional grid interconnections and dispatch rules to deeply tap the low-cost regulation potential of the existing power system.

 

On the other hand, given the increasing number and scale of user-side distributed energy resources (DERs) such as distributed photovoltaics, distributed storage, electric vehicles, and heat pumps, enhance the distribution network's ability to integrate distributed energy through market mechanism innovation and technological transformation. This will turn DERs, which place great pressure on balancing the traditional centralized power system, into flexible resources usable by various distributed energy systems based on the distribution network. From China's practice, only by strengthening these two aspects of "system transition" simultaneously can the power system's flexibility be improved more economically, thereby providing broader space for large-scale renewable energy development.

 

Analyzing from the underlying logic of energy transition, there is a 3.0 phase after 2.0. Phase 2.0 aims to better and more economically integrate more "large-scale" wind, solar, and distributed renewable energy resources (DERs) by mechanism innovation and technological transformation, tapping and realizing large-scale centralized flexibility (such as coal power flexibility and pumped storage) and distributed flexibility in the power system.

 

Energy Transition 3.0 shifts the flexibility focus to user-side distributed non-electric energy resources, vigorously developing various distributed energy systems to more economically enhance the distribution network's ability to integrate fluctuating distributed wind, solar, and flexible resources.

 

For the power system, the key in this phase is that the traditional centralized power system centered on the transmission grid gradually shifts to a future power system centered on the distribution network, which in turn is user-centered. These users include distributed power systems (such as microgrids) and distributed energy systems of different scales and levels built on various distributed energy, prosumers, and energy users. Numerous homes, buildings, communities, and parks based on smart energy management systems become the basic units of various distributed energy systems.

 

In summary, "system transformation" is the core connotation common to both the 2.0 and 3.0 stages of energy transition. The difference lies in that the 2.0 stage focuses on the transformation of the power system, while the 3.0 stage involves coordinated transformation of both electric and non-electric "systems." From the practice of energy transition in China, due to the lag in power system transformation relative to the rapid growth of intermittent wind and solar power, combined with the rapid decline in wind and solar power costs and the decreasing costs of electric and non-electric energy conversion and balancing, the technical feasibility and economic advantages of distributed energy systems have become increasingly prominent. Therefore, zero-carbon parks, as a special carrier connecting energy transition stages 2.0 and 3.0, will become a key lever for advancing local energy transition.

 

 

 

Unique Advantages of Zero-Carbon Parks

 

 

From the logic of "system transformation," the current energy transition centered on power transformation essentially involves the power system seeking technically reliable and economically feasible "flexibility resources" and "system balancing solutions" to cope with a high proportion of intermittent wind and solar power and a future massive amount of distributed renewable energy resources.

 

The transformation from centralized power systems to distributed power systems, and from distributed power systems to distributed integrated energy systems, is all based on this logic.

 

As a distributed energy system, zero-carbon parks have significant cost advantages and greater flexibility in the comprehensive balancing of multiple energy types compared to purely distributed power system balancing. The core of this advantage lies in multi-energy coupling and the ability to convert energy forms.

 

First, reducing dependence on expensive electrical energy storage. Although electrical energy storage (such as lithium-ion batteries) responds quickly, it is costly and has certain lifespan limitations. Distributed energy systems can greatly reduce reliance on pure electrical storage by converting surplus electricity into other forms of energy storage (such as thermal or cold energy). Typically, the cost of thermal storage is only 1/5 to 1/10 that of electrical storage, and replacing electrical storage with thermal storage reduces initial investment by more than 60%.

 

Second, multiple energy form conversions improve system flexibility and redundancy. Distributed energy systems can use combined heat and power (CHP), electric boilers, heat pumps, electric chillers, gas turbines, and other equipment to achieve mutual conversion among electricity, heat, cold, and gas energy forms, providing multiple balancing options. When a single energy source (such as electricity) experiences supply-demand imbalance, it can be resolved by converting to another energy form. This not only diversifies peak shaving and valley filling methods but also enhances comprehensive energy utilization efficiency through multi-source complementarity and increased system resilience. Multi-energy coordination can reduce system operating costs by 20% to 30%; building thermal storage provides "equivalent virtual energy storage" through thermal inertia, reducing real-time grid balancing pressure.

 

Third, optimizing energy flows effectively reduces wind and solar curtailment. Through multi-energy coupling and storage, electricity that cannot be consumed during peak periods of variable renewable energy (VRE) generation can be converted into other forms of energy (such as heat, cold, hydrogen), effectively absorbing wind and solar curtailment and improving renewable energy utilization.

 

In summary, as a form of distributed integrated energy system, zero-carbon parks' core advantage lies in breaking the limitations of single-dimensional electrical energy balancing. Through multi-energy conversion among heat, electricity, and cold, combined with low-cost thermal storage technology, balancing costs are shifted from the high-priced "electricity domain" to the low-priced "thermal domain," achieving higher efficiency and lower-cost balancing.

 

 

 

Challenges Faced by Zero-Carbon Parks

Key Mechanism Barriers

 

 

The essence of industrial systems and mechanisms is to coordinate the interests of different participants, achieving a "balanced" state among them to promote healthy industrial development. Zero-carbon parks face many energy mechanism barriers to healthy development. However, from the underlying logic of energy transition, the key mechanism barrier hindering the healthy development of zero-carbon parks is that the existing energy system and mechanisms are formed around a "fossil-fuel-dominated large energy system," unable to balance the fundamental conflicts of interest between large energy systems and numerous distributed energy, zero-carbon parks, and various distributed energy systems, thereby hindering the sustainable development of zero-carbon parks and distributed energy systems.

 

 

The traditional large energy system dominated by fossil fuels mainly consists of traditional centralized power and thermal systems. These traditional centralized power and thermal systems operate as a unidirectional flow system from production through transmission to users. Based on this system, the naturally monopolistic power grid and thermal pipeline enterprises are strictly regulated by government professional regulatory agencies regarding their costs and revenues. The fixed charge portion in two-part pricing does not fully cover the fixed costs of power grids and thermal pipelines; a significant portion of fixed costs (30%-70%) must be recovered through (electricity and heat) sales volume.

 

Once zero-carbon parks are truly implemented, it means that a considerable portion of the original users of the "large energy system" become competitors to the large power grid or large thermal network. Because part of these users' electricity or heat "sales" in the large system becomes "self-produced and self-consumed" within zero-carbon parks or distributed energy systems, the fixed costs carried by the reduced sales volume in the large system's power grid or thermal pipeline cannot be recovered, directly harming the interests and stable service capabilities of the "large system."

 

For example, if a zero-carbon park can match 60% of its electricity and heat demand internally among park members, only 40% still requires supply from the large power grid and thermal system. Assuming the existing pricing structure and revenue sources remain unchanged, this means that the fixed costs carried by 60% of electricity and heat sales volume in the large power grid and thermal pipeline cannot be recovered.

 

If the fixed cost portion of the lost sales volume in the "large system" is fully transferred to the remaining 40% sales volume or fixed charges, the result will either accelerate the complete grid disconnection of these zero-carbon parks, causing the large system to fall into a "death spiral" of (user disconnection and increased charges), or prevent zero-carbon parks from being implemented, forcing their members to return to the large system. Obviously, neither outcome is beneficial to the healthy advancement of energy transition.

 

 

 

Opportunities for Deepening Zero-Carbon Park Reform

Reform Opportunities

 

 

In breaking the mechanism barriers of zero-carbon parks and deepening their mechanism reforms, local governments are the main actors and should actively assume primary responsibility for reform. This is not only because zero-carbon parks have local "characteristics" and related energy system and mechanism reforms mostly fall under local government authority, but also because zero-carbon parks provide localities with an opportunity to build local distributed energy systems that form low-carbon energy, industry, and economic aggregation advantages based on a "system" rather than a "project" logic.

 

The technical and economic conditions for zero-carbon park development are increasingly mature, essentially initiating the "deconstruction" of traditional centralized large energy systems. This objectively provides local governments with an opportunity to build local zero-carbon energy systems or platforms, thereby offering broader market space for traditional industry low-carbon transformation and emerging low-carbon technologies and industries.

 

Because the more zero-carbon energy consumed by the local zero-carbon energy system, the greater the development space for emerging low-carbon technologies and industries, and the smoother the low-carbon transformation of traditional industries.

 

To transform this opportunity into a genuine advantage for local low-carbon industries and low-carbon economic development, local governments need to integrate various local resources according to the logic of energy transition to form aggregated advantages, break down related institutional barriers, and support the development of zero-carbon parks and various distributed energy systems.

 

First, focus on the horizontal aggregation advantages of local resources on the user side to offset the scale economy advantages of single resources and technologies in large systems. It is especially important to note that services and support for zero-carbon parks or various distributed energy systems should be provided through horizontal system aggregation rather than vertical aggregation. For example, concentrating local wind and solar resources into a local investment company is a form of vertical aggregation and cannot form a local "system advantage."

 

Second, leverage the advantages of local governments in resolving institutional barriers. Apart from electricity, the authority to reform policies and institutional barriers related to heat, water, and building energy consumption mainly lies with local governments. Making full use of these institutional and policy reform resources not only benefits the development of distributed energy systems but also helps gain certain negotiation advantages with the "large power system."

 

Third, from the perspective of system transformation, achieve distributed integrated optimization of land, rooftops, renewable energy resources, and user demands through organizational and institutional innovation. This provides greater space for renewable energy development, low-carbon manufacturing industry growth, and the low-carbon transformation of traditional manufacturing. It also potentially enables coordinated advancement of energy transition, industrial development, ecological civilization construction, rural revitalization, and common prosperity goals at the institutional level.