How do Guangdong power sales companies position their profit margins under the dual-track system?

On February 6, the Guangdong Provincial Energy Bureau issued the "Implementation Plan for the First Full-Month Trial Settlement and Trial Operation of the Southern (Starting from Guangdong) Electricity Spot Market in 2020" (Draft for Comments), opening a new chapter for the Guangdong electricity market. Similar to the trial settlement and trial operation in 2019, this implementation plan was also carried out under the dual-track system (the dual-track system refers to the parallel operation of the medium- and long-term price difference market system and the spot market system). In the annual price difference market at the end of 2019 and the monthly price difference market of the corresponding month, the power sales company has purchased most of the medium- and long-term price difference contract electricity for the trial settlement period, and the retail contracts with the user side also follow the retail price difference model under the price difference transmission mechanism, leaving limited trading space under the spot market model.

Unlike the trial settlement in 2019, this monthly trial settlement has further expanded the transaction period and provided more space for spot market price discovery; secondly, different regulations and constraints have been made for two types of medium- and long-term contract electricity (difference contract electricity and absolute price contract electricity). This article does not provide a detailed interpretation of the rules here, and the following will gradually explain them as the analysis deepens. In the face of such a complex market, power sales companies must clearly grasp their own characteristics, fully combine market regulations to actively carry out transaction analysis, formulate trading strategies that are beneficial to the company's overall benefits, and accurately locate profit margins.

Sunk costs refer to expenses that occurred in the past but are irrelevant to current decisions. From the perspective of power sales companies, past expenses are only a factor that caused the current situation. Current decisions should consider possible future expenses and the benefits they bring, without considering past expenses.

In this trial settlement plan, the electricity purchase cost of the power sales company under the price difference contract has been determined to be a cost and is a sunk cost of the power sales company.

1. Conversion of CFDs to absolute prices

The electricity volume in the price difference contract signed between the power sales company and the power generation enterprise includes: the annual trading volume (annual contract centralized trading, annual bilateral negotiated trading) broken down into monthly (trial settlement month) volume, monthly bilateral negotiated volume, monthly price difference listed trading volume, price difference electricity contract transfer trading volume and price difference monthly competition trading volume.

The rules stipulate that the absolute price conversion of various price difference contracts of power sales companies shall be carried out in accordance with the principle that the electricity revenue of the price difference medium- and long-term contracts of power generation enterprises and power sales companies remains unchanged, with reference to the reference benchmark price for price difference contract conversion (0.463 yuan/kWh). That is, the absolute price of each price difference contract after conversion = 0.463-the original contract price difference.

2. Determination of the decomposition method of the power volume of the price difference contract

Among the electricity sales companies' price difference contract electricity, the annual bilateral negotiation transaction is decomposed into monthly (trial settlement month) electricity, monthly bilateral negotiation electricity, monthly price difference listing transaction electricity, and price difference electricity contract transfer transaction electricity according to the submitted curve; the annual contract centralized competition is decomposed into monthly (trial settlement month) electricity, and the price difference monthly competition transaction electricity is uniformly decomposed according to the typical curve announced before the transaction. In other words, all price difference contract electricity has been clearly decomposed into each hour, that is, the electricity position of the existing price difference contract electricity of the power sales company in the spot market is a fixed value.

3. Determination of the total holding cost of existing spread contracts

In summary, the absolute price of each price difference contract after conversion is a definite value. Based on the weighted average of the contractual electricity volume, the unit cost (P) of the total position of the power sales company's existing price difference contracts can be obtained; at the same time, based on a clear method of decomposing electricity volume, the time-sharing unit cost (Pi) of the power sales company's existing price difference contract positions can also be determined; the total cost of existing price difference contract positions = P x Q, (Q is the total electricity volume of the price difference contract).

As sunk costs, the total holding cost of the spread contract and the intraday holding cost will not affect various trading decisions under the spot mode during the trial settlement operation.

1. Convert retail spreads to absolute prices

In accordance with the principle of maintaining the monthly income of retail users unchanged, the retail price difference between power sales companies and agent users is uniformly converted into absolute prices. The converted retail contract electricity price = weighted average catalog electricity price - transmission and distribution price - retail user electricity income, where retail user electricity income = retail user full month price difference income / retail user full month electricity consumption.

2. The price difference income of power sales companies remains unchanged

This time the price difference model is converted into an absolute price, and the power sales companies' price difference and medium- and long-term contract electricity revenue will remain unchanged through the balancing settlement of the power grid companies.

The difference funds of the power sales company = ∑[(weighted average catalogue electricity price of the retail users represented by the company - transmission and distribution price) * electricity consumption of the retail users] / total electricity consumption of the retail users represented by the company - reference benchmark price for conversion of medium- and long-term contracts] * actual electricity consumption of the users represented by the power sales company.