Speeding Up Renewable Energy Integration with Invisible Hands: Ancillary Service Market and the COVID-19 Natural Experiment

Sustaining a high-renewable electricity generation portfolio has proved to be difficult due to grid flexibility constraints. We utilize the abrupt decline in electricity demand due to the COVID-19 lockdown in China as a policy experiment to study the role of ancillary service markets (ASMs) in promoting intermittent renewable energy integration. Our results reveal that provinces with ASMs sustained a significantly higher generation of intermittent renewable energy during the COVID-19 demand shock, which amounts to 9.7 percent of average monthly intermittent renewable energy generation during the shock. A back-of-envelope analysis further shows that annual carbon emission offset from establishing ASMs in all provinces of China could amount to 13 to 17 percent of annual carbon emissions from Britain in the near future when renewable energy penetration continues to go up.JEL Classification: Q20, Q42, Q53, O13