Four trends of market-oriented reform of my country's power grid in 2020

In 2020, a new round of power system reform entered its fifth year. In accordance with my country's goal of establishing a market system reform with "laws to rely on, separation of government and enterprises, standardized entities, fair transactions, reasonable prices, and effective supervision", since December 2019, the National Development and Reform Commission and the National Energy Administration have issued consecutive documents. The documents involve regional and provincial power grid transmission and distribution price determination, fair and open power grid supervision, and full guaranteed purchase of renewable energy by power grid companies. my country's power grid reform efforts have been stepped up again.

Since 2019, my country's grid-side market-oriented reform has been steadily advancing, with breakthroughs in transmission and distribution prices, incremental distribution networks, shareholding reform of power trading centers, and opening of the power sales market, and the policy foundation has been improved. In 2020, my country's grid-side power market-oriented reform will usher in a multi-faceted opportunity period. All power companies should make full use of the reform opportunity window to explore development models, upgrade and transform, and achieve a win-win situation for their own economic and social benefits.

Progress of my country's grid-side market-oriented reform in 2019

In 2019, my country's grid-side market-oriented reforms advanced steadily and achieved breakthroughs in four aspects, laying a good foundation for the 2020 reforms.

Breakthrough 1

The cost supervision and audit system for transmission and distribution prices is further refined

As the previous round of provincial power grid transmission and distribution price approval time expires, a new round of transmission and distribution price cost supervision and audit has started. On May 24, 2019, the National Development and Reform Commission and the National Energy Administration issued the "Transmission and Distribution Pricing Cost Supervision and Audit Measures", which revised 17 articles of the "Transmission and Distribution Pricing Cost Supervision and Audit Measures (Trial)" formulated in 2015. Comprehensive analysis shows that the specific revisions are mainly concentrated in three aspects: cost supervision and audit constraints, transmission and distribution pricing cost classification and audit methods, and supervision and audit standardization.

On February 5, 2020, the National Development and Reform Commission issued the "Pricing Methods for Provincial Power Grid Transmission and Distribution Prices" and the "Pricing Methods for Regional Power Grid Transmission Prices", which revised the "Pricing Methods for Provincial Power Grid Transmission and Distribution Prices (Trial)" in 2016 and the "Pricing Methods for Regional Power Grid Transmission Prices (Trial)" in 2017. Analysis shows that the new round of transmission and distribution price cost supervision is more scientific and detailed, effectively curbing excessive investment in the power grid, and will play an important role in reducing power costs on the power grid side and rationalizing the price formation mechanism.

Breakthrough 2

Although the incremental distribution network reform has experienced twists and turns, key projects have been implemented one after another

The reform of my country's incremental distribution network is progressing steadily. At the beginning of 2019, the National Development and Reform Commission and the National Energy Administration issued the "Notice on Further Promoting the Reform of Incremental Distribution Business". In June, the National Development and Reform Commission announced the list of the fourth batch of incremental distribution business reform pilots. In October, the fifth batch of incremental distribution business reform pilots began to apply, with the deadline being December 31, 2019. The various dispatched agencies of the National Energy Administration have accelerated the pace of issuing power business licenses (power supply). Among them, the dispatched agencies of the Southern Energy Regulatory Bureau, the Central China Energy Regulatory Bureau, and the Northeast Energy Regulatory Bureau have reduced the approval process, improved efficiency, and ensured the steady progress of the incremental distribution network pilot. The first power business license (power supply) was issued for the incremental distribution network in many provinces.

Statistics from the Power Media Data Research and Development Center of China Power Media show that as of now, 380 pilot projects have been identified in four batches across the country. The progress of important nodes such as planning, owner determination, power supply scope, administrative licensing, and power sales licenses of the existing pilot projects varies. 202 pilot projects have completed planning, 233 pilot projects have completed owner selection, 130 pilot projects have determined the power supply scope, 106 pilot projects have obtained power business licenses (power supply category), and 75 owner units have registered as power sales companies.

In 2019, my country's incremental distribution network reform experienced twists and turns. On the one hand, key incremental distribution network projects were implemented one after another, and the incremental distribution network projects of Chongqing Liangjiang New District 220 kV Guanyintang Substation and Anhui Zhongyi Power Sales Company invested and constructed 110 kV Xingsheng Substation were put into operation, opening up a new situation for the incremental distribution network reform; on the other hand, social investment entities were not enthusiastic enough, and some investment entities withdrew one after another, and 24 national incremental distribution network pilot projects were cancelled by the National Development and Reform Commission.

Breakthrough Three

The shareholding reform of the power trading center has started

In accordance with the requirements of Several Opinions on Further Deepening the Reform of the Electric Power System (Zhongfa [2015] No. 9), the reform of the electric power system promotes the relative independence of power trading institutions and their standardized operation. In 2019, my country's power trading centers launched a comprehensive shareholding system reform. According to statistics from the China Power Media Power Media Data Research and Development Center, of the 34 power trading centers in my country, 25 are wholly owned by power grid companies, and only 9 adopt a shareholding system. Among the 9 mixed-ownership trading centers, in addition to the State Grid and the Southern Power Grid, Huaneng Group and China Resources Group hold the largest shareholdings.

Breakthrough Four

The electricity sales market fully liberalizes the power generation and consumption plans of commercial power users

The pace of liberalization of my country's electricity sales market accelerated in 2019. On June 22, the National Development and Reform Commission issued the "Notice on Fully Liberalizing the Relevant Requirements for Power Generation and Consumption Plans of Commercial Power Users". The document stated that the power generation and consumption plans of commercial power users will be fully liberalized, and small and medium-sized users will be supported to participate in market-based transactions.

The scope of commercial electricity users includes other large industries and general industrial and commercial electricity users, except for urban and rural residents' daily electricity consumption, public services and management organizations, electricity users in agriculture, forestry, animal husbandry and fishery, and factory electricity and line losses necessary for power production.

In the second half of 2019, various provinces have introduced relevant measures. According to statistics from the China Power Media Power Media Data Research and Development Center, as of now, 15 provinces, autonomous regions and municipalities in my country, including Yunnan, Hunan, Hebei Southern Power Grid, Shaanxi, Jibei, Chongqing, Xinjiang, Hubei, Liaoning, Jilin, Ningxia and Guizhou, have announced the full liberalization of power generation and consumption plans for commercial power users.

Trends in my country's grid-side market-oriented reforms in 2020

Trend 1

The pace of independence of power trading center accelerates

In 2020, the shareholding reform of power trading centers in the State Grid area will be further accelerated. Since the beginning of the year, power trading centers in Tianjin, Jiangsu, Liaoning, Hunan, Shandong, and Jilin have launched measures to increase capital and expand shares. It is expected that in 2020, the scope of shareholding reform of power trading centers will be further expanded and gradually cover the whole country, and the pace of independence of power trading centers will be fully accelerated.

Trend 2

The pace of pilot construction of incremental distribution networks is accelerating

As of December 31, 2019, the application for the fifth batch of incremental distribution network pilot projects in my country has been completed. In 2020, the National Development and Reform Commission will announce the list of the fifth batch of pilot projects. In view of the progress of the first four batches, the number and scope of the fifth batch may be reduced, but the pace of the National Energy Administration's issuance of power business licenses (power supply) will be greatly increased. Since 2018, Liaoning, Zhejiang, Jiangxi, Shandong, Henan, and Sichuan have successively become the targets of the National Development and Reform Commission for the reform of incremental distribution networks. In 2020, the National Development and Reform Commission will increase its urging for the reform of incremental distribution networks.