Guangdong (Southern) Power Market: Current Situation, Challenges and Suggestions

Guangdong (Southern) Power Market: Current Situation, Challenges and Suggestions

Jing Zhaoxia

(School of Electric Power, South China University of Technology, Guangzhou 510641)

Abstract: This article is a summary of Professor Jing Zhaoxia's speech at the "2019 Annual Meeting and Academic Exchange Meeting of the Guangdong Energy Research Association" (December 27, 2019, Guangzhou), which has been appropriately expanded. The current status of the construction of the southern (starting in Guangdong) regional electricity spot market is introduced, the challenges faced and the key issues to be resolved are analyzed, and some solutions are proposed. The key analysis contents include the top-level design of the power market, the coordination of efficiency and fairness goals, the division of labor between the market and the government, the way the government plays a role, the mechanism to ensure the long-term sufficiency of power generation, the coordination of the electricity energy market and the transmission market, and the construction of the regional market. For the southern regional power market, a development path from "local spot market + regional common spot market" to "regional unified spot market" is proposed.

Keywords: Guangdong power market, Southern region power market, Spot market settlement trial operation

1. Introduction

能源体制改革是能源革命的重要内容之一，而电力市场改革是能源体制改革的关键内容。广东积极响应国家能源体制改革、电力市场改革的要求，并取得了显著的成效。

The power market reform currently underway in my country is the second round of reforms in my country's power industry since the founding of the People's Republic of China. The first round of reforms began around 2000, realizing the separation of power plants and grids, and China Southern Power Grid was established under this background. The second round of power market reform can be traced back to the State Council's "Decision on Cancelling and Delegating a Number of Administrative Approval Projects and Other Matters" issued on May 15, 2013, which canceled the administrative approval of the "pilot program for power users to purchase electricity directly from power generation enterprises". Local governments subsequently issued a series of policies to support direct transactions between power generation enterprises and large users, and power market transactions gradually became active. On March 15, 2015, the Central Committee of the Communist Party of China issued No. 9 [2015] "Several Opinions on Further Deepening the Reform of the Power System" (hereinafter referred to as Document No. 9), which made an overall design for my country's new round of power market reforms and promoted a series of reforms such as retail competition, incremental distribution networks, medium- and long-term transactions, and spot market construction.

In the first round of my country's power market reform, under the background of separation of power plants and grids, many provinces and regions including Zhejiang, East China and Northeast China carried out pilot reforms of bidding for access to the grid, and some regions carried out continuous commercial operation. The southern region held a simulation operation of bidding for access to the grid with the participation of some power plants, but no commercial operation was carried out, and the relevant simulation bidding rules were relatively simple.

In the second round of power market reform in my country, Guangdong has taken the lead in the country in the establishment of a centralized competitive market, reform of the power sales side, and construction of the spot market, and has achieved a series of results. In particular, on May 15, 2019, the settlement trial operation of this round of power market reform was carried out for the first time in the country, providing very valuable experience for power market reform in other regions.

At present, the construction of the power spot market is in full swing across the country, but it has also entered a deep water zone and faces many problems. This article briefly analyzes the current situation and existing problems of the Guangdong power market and briefly discusses the solutions to some problems.

2. Results of Guangdong’s power market reform

In this round of power market reform, Guangdong actively reformed and explored, played the role of a reform pioneer and leader, and made great contributions to the construction of a power market mechanism with Chinese characteristics [1-16]. Analysis from the three aspects of leadership, innovation and effectiveness.

2.1 Leading the way in power market reform

In this round of electricity market reform, Guangdong has been the first to benefit in many aspects and has become a pioneer, playing a leading and guiding role in the national electricity market reform.

1) Offline centralized bidding for electricity was launched in December 2013, and in March 2016, power sales companies were introduced as market participants in centralized bidding for the first time in the country.

2) The market mechanism for frequency regulation auxiliary services based on frequency regulation mileage and frequency regulation accuracy was established, and a simulation trial operation began in December 2017;

3) On August 30, 2018, the country’s first electricity spot market trading rules, “Southern (Guangdong Start) Electricity Market Operation Rules System (Draft for Comments)” (hereinafter referred to as the “Rules System”), were released, forming a “1+8” model of electricity spot market rules system.

4) On May 15, 2019, the first spot market settlement trial run of this round of electricity market reform was carried out, obtaining first-hand information and accumulating a lot of valuable experience.

2.2 Innovation of power market reform plan

my country's power market reform faces a complex external environment, including China's unique political and economic system, environmental protection and new energy consumption policies, and the country's requirements for reducing costs and electricity prices. Under these constraints, Guangdong has made many explorations and innovations on how to quickly promote power market reform. Whether it is direct trading, medium- and long-term trading rules, or spot market rules, many papers have conducted detailed analysis. Here is a brief summary. For detailed content, you can refer to the relevant literature.

2.2.1 Direct trading and medium- and long-term electricity market construction

Guangdong has done a lot of exploration in direct electricity trading and medium- and long-term market construction [1-16]. The medium- and long-term market here refers to the trading market before the spot market, which uses annual/monthly electricity as the trading subject.

1) No “capacity deduction” in direct transactions[17]

In the early direct trading rules, many provinces had relevant provisions for "capacity deduction" in their rules to solve some special problems under the "plan + market" dual-track system. In the case of "market first, plan later", market-based trading is first carried out according to the set market-based trading electricity situation, and then the relevant competent departments will allocate the remaining electricity among the units according to the allocation rules under the planning system, taking into account the unit type, capacity, energy consumption, etc. In the rules of most provinces, when allocating planned electricity in the later stage, the electricity obtained through competition in the market-based link will be "capacity deducted" according to a certain method, which will objectively reduce the planned electricity share of units that have obtained a large market share in the competitive market, which is not conducive to market competition. In Guangdong's direct trading rules, when allocating planned electricity, "capacity deduction" is not made for units, which greatly increases the intensity of competition.

2) Adopting a price difference model in medium and long-term transactions[1]

Medium- and long-term transactions face two challenges: on the one hand, under the long-term planned economic system, both the grid-connected electricity price on the power generation side and the catalog electricity price on the user side contain a large amount of cross-subsidy components; on the other hand, when promoting direct transactions and medium- and long-term transactions, independent transmission and distribution prices have not yet been determined. In this context, direct transactions between large users and power plants in Guangdong, as well as subsequent medium- and long-term power transactions, all adopt a price difference model, that is, the power generation side and the user side declare the reduced value based on the grid-connected electricity price and catalog electricity price under the planned system in the bidding, and determine the clearing result based on the level of the price reduction. This method will reduce the efficiency of resource allocation in the market, but it solves the problem of rapid promotion of power transactions under imperfect related supporting mechanisms.

3) Price difference refund mechanism for centralized bidding[1]

In the medium- and long-term centralized bidding transactions of Guangdong in 2016, the "price difference return mechanism" was adopted. The key difference between different centralized bidding rules lies in the different pricing/settlement mechanisms. The basic principle of the settlement rules is that "the settlement price for producers is not lower than their quotations, and the settlement price for consumers is not higher than their quotations". Any settlement mechanism that meets this requirement is a feasible method. MCP (Marginal Clearing Price) pricing and PAB (Pay as bid) pricing are two common and commonly used settlement methods. In the medium- and long-term centralized bidding market in 2016, Guangdong adopted a special settlement mechanism: first, all market surpluses were distributed to the supply side and the demand side according to a certain proportion, and then the total surplus of the supply side/demand side was distributed to specific market entities according to the proportion of the "price difference electricity fee" quoted by the power generation/user. Although the evaluation of this method is highly controversial, and some experts have pointed out the problems of this method, it objectively activated the market in the early stage of market construction and promoted the development of power sales companies.