Power market shortcomings hinder the development of renewable energy

At present, the electricity market has not yet reached the point where resource allocation is truly regulated by market means. The electricity market pricing mechanism is not sound and there is a lack of a free choice market, resulting in the low proportion of renewable energy.

The goal of establishing an electricity market in my country is to solve the problem of resource allocation efficiency. As long as this goal is achieved, unnecessary energy transformation costs can be avoided as much as possible and the actual social costs of energy transformation can be made explicit.

The reporter learned at the "Third International Electricity Market Summit" that the inter-provincial spot transactions in my country's electricity market have played a positive role in utilizing the surplus capacity of inter-regional channels and promoting the consumption of renewable energy through bidding mechanisms such as two-way quotation, centralized clearing, and marginal settlement. However, the current electricity market has not yet reached the point where resource allocation is truly regulated by market means. The market-based pricing mechanism for electricity is not sound and there is a lack of a free choice market, resulting in a low proportion of renewable energy.

Lack of market mechanism restricts development

The "China Renewable Energy Development Report 2018" released by the China Hydropower Planning and Design Institute on June 26 pointed out that as of the end of 2018, China's installed capacity of various power sources was 189,948 million kilowatts, of which the installed capacity of major renewable energy power generation was 72,896 kilowatts, accounting for 38.4% of the total power installed capacity.

With the growth of renewable energy, its consumption has become a "chronic problem" in the power industry in recent years. In May this year, the National Development and Reform Commission and the National Energy Administration issued the "Notice on Establishing and Improving a Guarantee Mechanism for the Consumption of Renewable Energy Power", which set the responsibility weights for the consumption of renewable energy power for each provincial administrative region and market entities within the region.

Industry experts pointed out that the ultimate goal of the renewable energy power consumption guarantee mechanism is to achieve energy structure optimization and unsubsidized development of renewable energy. However, in the context of the immaturity of the power market, how to efficiently interact between market factors and renewable energy has become a new problem. In this regard, Lu Yichuan, director of the Clean Power Project of the Energy Foundation, believes that the current difficulties encountered by renewable energy in the power market are the lack of certain mechanisms in the power market and the unresolved contradictions between power sources.

Lu Yichuan gave an example, saying that in the deep peak load ancillary service market, in order to allow wind power with a price of 0.4-0.5 yuan/kWh to participate in transactions, the power grid system must pay 1 yuan/kWh of "peak load service cost" to thermal power. "When some clean energy is traded at 0.03-0.05 yuan/kWh, there are still a large number of thermal power units trading at the benchmark electricity price. Moreover, thermal power units that have undergone flexibility transformation have more opportunities to enter the deep peak load market."

The reporter learned at the meeting that the fundamental reason for the above phenomenon is that my country's power market ignores the fact that division of labor and complementarity are the foundation of the market. "When my country establishes the power market, it will set up a separate market for a certain type of producer with advantages or disadvantages in division of labor. For example, due to the low proportion of renewable energy, some trading market platforms only have renewable energy, and are not allowed to compete with other non-homogeneous energy sources for marginal costs. This practice is not to establish a market, but to destroy the foundation of the market's existence." Industry experts said.

Lu Yichuan also pointed out that the balance of power operation should be considered from the perspective of the entire system. "If a certain power source deviates, the reward or punishment will depend on whether the deviation direction is what the system needs. However, in the operation of my country's power market, no matter whether the power source deviation is required by the system or not, it will be fined." He believes that deviations that do not affect the system platform should not be punished, otherwise the entire system will become a penalty tool and will not really play the role of meeting the needs of power operation.

Resource allocation efficiency is the key

As the current electricity market mechanism hinders the development of renewable energy, many experts point out that improving or even reshaping the market may solve the core problem.

Frederick Weston, director of the policy program at Ruibo Energy Think Tank, once said that China's renewable energy market has great potential. If the regulatory framework and market mechanism are further improved, the market may open up. "It is necessary to continue to improve policies, regulatory frameworks, market trading infrastructure and existing pricing dynamics to open up new opportunities and accelerate the demand for renewable energy."

When discussing the development of spot markets with a high proportion of renewable energy in the future, Michael Davidson, a researcher at the Belfer Center's Environment and Natural Resources Program at the Harvard Kennedy School, suggested that if the electricity market wants to promote the development of low marginal cost energy such as renewable energy, it should rely more on capacity mechanisms and consider reshaping the basic market.

But can improving or reshaping the market fundamentally solve the current development dilemma of renewable energy? In this regard, Lu Yichuan said that we should not overestimate the role of the market in the development of renewable energy. At this stage, what my country needs is a barrier-free and freely selectable market to allocate resources.

"The market is only a necessary condition for renewable energy, but not a sufficient condition. It cannot solve the problems brought about by renewable energy or even the energy transformation itself." Lu Yichuan believes that the goal of establishing an electricity market in my country is to solve the problem of resource allocation efficiency. As long as this goal is achieved, unnecessary energy transformation costs can be avoided as much as possible, and the actual social costs of energy transformation can be made explicit.