Analysis and thinking on power market construction based on energy transformation

In 2019, my country issued a large number of policy documents to promote the construction of the power market, and the full liberalization of power generation and consumption plans of commercial power users continued to accelerate. The construction of the power spot market achieved a breakthrough, and the first batch of 8 power spot pilot projects in China all entered the settlement trial operation stage. The power market in the south (starting in Guangdong) has carried out a complete "medium- and long-term + spot" weekly trial settlement. In 2020, the implementation of Document No. 9 of the Central Development and Reform Commission (2015) and the supporting document "Implementation Opinions on Promoting the Construction of the Power Market" has entered its fifth year. This article reviews the reform goals and key tasks, and puts forward thoughts and suggestions on the integrated development of the power market construction based on energy transformation.

Current status of power market construction

The overall construction of the power market is in the initial stage with a focus on provincial markets.

Since the new electricity reform, in the face of the transformation of new and old drivers of economic growth, local governments have taken the electricity market as a breakthrough point for supply-side structural reform in accordance with the requirements of trial implementation, with the starting point being to reduce energy prices and improve the local economic environment. Due to differences in development stages and market awareness, the pace, intensity, and speed of electricity market construction in various regions are inconsistent, forming a multi-cycle, multi-variety trading system. From a technical perspective, the choices of various provinces for the path of electricity market construction, key reform directions, market model selection, and market rules are not the same.

The "Implementation Opinions on Promoting the Construction of the Electricity Market" puts forward guiding opinions on the overall path and implementation requirements, construction goals and main tasks. However, its focus is mainly on the electric energy market (medium- and long-term transactions + spot market), covering different value products and services such as capacity market, energy market, and auxiliary service market, covering different stages of market cultivation such as short-term, medium-term and long-term, and considering the different needs of different regional power grid conditions, different power supply structures and grid structures. The systematic design of my country's complete power market system construction plan and path is still insufficient.

Differences in rules across regions create transaction barriers under institutional differences

The Opinion requires that the construction of the electricity market should maintain basic consistency in terms of the overall market framework and basic trading rules. But in fact, the trading rules of various regions vary greatly, which creates institutional barriers to the market connection and unification process. From the perspective of the medium and long-term market, there are two different price mechanisms: the price difference model and the absolute price model. The price difference model is conducive to avoiding the impact of cost differences between different types of power sources on transaction prices, reducing the impact of market-based transactions on the interests of market players, and is conducive to the integration of independent power sales companies into the electricity market system in a short period of time. It is the current mainstream provincial market direct transaction price model. Some provinces also adopt a price formation mechanism that combines absolute prices with transmission and distribution prices, government funds, etc.

The Opinions require all regions to select the electricity market construction model based on factors such as power resources, load characteristics, and grid structure, combined with the actual economic and social development. In practice, the choices of electricity market construction models in various regions are different. Taking the East China Power Grid as an example, the Fujian power spot market adopts a decentralized market model, while Zhejiang adopts a centralized market model. Taking the Northwest Power Grid as an example, the Gansu power spot market adopts a zoning electricity price mechanism based on the characteristics of network congestion, while Ningxia and other regions can adopt a node electricity price mechanism to establish a spot market. These different choices of provincial market models and mechanisms will increase the cost of power system integration, market scope unification, and provincial market integration, and are institutional barriers to the formation of a unified power market.

In the process of connecting the medium- and long-term market with the spot market, Guangdong has gone through two stages: from the price difference model to the absolute price and price model. After the conversion, the spot market adopted a unified settlement price on the user side, which resulted in different actual price differences between general industrial and commercial users and large industrial users, causing losses to power sales companies acting as agents for general industrial and commercial users in the medium- and long-term market. The Zhejiang power market was the first to realize a model of complete separation of wholesale and retail markets, that is, power sales companies and power users independently negotiate absolute prices. However, this also led to power sales companies competing for power users with a high proportion of peak electricity, while users in the four major industries with a high proportion of valley electricity were left to the power grid companies, resulting in deficits for the power grid companies. Under the current dual-track operation mechanism on the user side, decentralized decision-making reduces the space for system optimization.

The liberalization of electricity purchase options on the retail side (user side) is unbalanced and insufficient

The liberalization of the electricity sales side is an important aspect of this round of electricity reform. The right of market members to choose is the basis of market fairness and the guarantee of market efficiency. It is also an effective means to break down market barriers, make competition more sufficient, and release more social welfare. The "Opinion" proposes to improve the cross-provincial and cross-regional electricity trading mechanism and encourage power generation companies, power users, and power sales entities to buy and sell electricity across provinces and regions through competition.

In 2019, cross-provincial transactions in the Northwest region totaled 27.173 billion kWh, with direct transactions accounting for only 6.57%. First, the liberalization of the power purchase option on the retail side (user side) is concentrated in the provincial market. There is a lack of clear normative requirements at the national level for the opening of the retail side (user side) to cross-regional and cross-provincial markets. The degree of openness of inter-provincial markets in different regions and channels is unbalanced and insufficient. Second, the participation of the power sales side in inter-provincial competitive businesses is also constrained by factors such as insufficient understanding, serious trade protectionism, and imperfect market rules. The Opinions also proposed the establishment of an auxiliary service sharing mechanism involving power users, and the medium- and long-term market to carry out auxiliary service transactions such as interruptible loads and voltage regulation. At present, the market mechanism for the load side to participate in the regulation of the power system is still in the pilot stage.

The market system of cross-regional, cross-provincial and provincial coordinated operation needs to be more systematic

At present, the current status of market operation is inter-provincial transactions (i.e. cross-regional and cross-provincial transactions) and intra-provincial transactions. The inter-regional and cross-provincial market and the provincial (intra-provincial) market are two spatial dimensions of coexistence and mutual coupling. Due to the difference in the degree of market coupling, there are also some constraints on the efficiency and benefits of the optimal allocation of goods, resources and services. "West-to-East Power Transmission" is a national energy strategy. It is a major issue to ensure the efficient coordination of the DC transmission system and its supporting power sources in market operating institutions, dispatching execution institutions and different trading cycles, and to improve the efficiency and benefits of power market operation and power system operation.

The currently feasible design scheme is that in the medium- and long-term electricity market, cross-regional DC supporting power sources are included in the receiving-end power balance and priority power generation plan arrangement through medium- and long-term contracts (government-authorized contracts). At the same time, some supporting power sources participate in direct transactions in the receiving area. In the electricity spot market, supporting power sources, as price takers, declare to participate in the receiving-end market at the floor price, and clear the inter-provincial market first, providing boundary conditions for clearing the intra-provincial market. However, in the in-depth design, it is necessary to clarify the issue of efficient utilization of supporting power sources and DC systems.

First, supporting thermal power can better participate in the power balance and flexible regulation at the sending end. my country's wind, light, water, and thermal resources are concentrated in the northwest and southwest, while the load is concentrated in the eastern region. The cost of ultra-high voltage direct current transmission is relatively high. The technical characteristics of asynchronous interconnection and stable transmission of direct current transmission determine that it is mainly based on a single product (energy) and does not have the conditions to provide sufficient cross-regional system regulation capabilities. The Northwest Power Grid has 9 cross-regional direct currents with a designed transmission capacity of 54.71 million kilowatts, and plans to support thermal power of 47.84 million kilowatts, supporting wind power of 24 million kilowatts, and supporting photovoltaic power generation of 6.75 million kilowatts. In the power system with a high proportion of new energy, in order to improve the utilization rate of new energy in the whole region, it is required that the whole region's thermal power inject flexible regulation resources into the system, and the supporting thermal power needs to participate efficiently in the power balance and flexible regulation of the sending end area in the form of an independent control area. And the large-scale supporting new energy itself has been directly incorporated into the power balance of the sending end area.