The relationship between my country's electricity market reform and energy low-carbon transformation

As the impact of the greenhouse effect becomes increasingly severe, responding to global climate change and achieving clean, low-carbon development has become one of the common goals of human society. At the Copenhagen Conference in 2009, the Chinese government solemnly pledged that by 2020, carbon dioxide emissions per unit of GDP would be reduced by 40% to 45% compared with 2005. The Paris Agreement adopted in 2015 made arrangements for global action to address climate change after 2020, proposing a goal of keeping the global average temperature rise within 2 degrees Celsius above pre-industrial levels (striving for 1.5 degrees Celsius). my country further pledged that China's carbon emissions will peak around 2030 and strive to peak as early as possible, and that carbon emissions per unit of GDP will drop by 60% to 65% in 2030 compared with 2005.

(Source: WeChat public account "Energy Research Club" ID:nyqbyj Author: Yuan Shun, Party Secretary and Director of the Northeast Regulatory Bureau of the National Energy Administration)

At the meeting of the Central Financial and Economic Leading Group on June 13, 2014, General Secretary Xi Jinping creatively proposed the concept of promoting the revolution in energy production and consumption: promoting the revolution in energy consumption and curbing unreasonable energy consumption; promoting the revolution in energy supply and establishing a diversified supply system; promoting the revolution in energy technology and driving industrial upgrading; promoting the revolution in the energy system and opening up the fast lane for energy development; strengthening international cooperation in all aspects and achieving energy security under open conditions. General Secretary Xi Jinping's important exposition on the new energy security strategy focuses on the overall layout of the "five-in-one" strategy and clarifies the direction of my country's clean and low-carbon energy development in the new era.

According to data released by the International Energy Agency (IEA), the total carbon emissions of the global power industry (including heat) account for more than 40% of the total global carbon emissions. Therefore, the low-carbon transformation of the energy and power industry is a key link in achieving global carbon reduction targets. Constrained by natural resource endowments, my country's power industry has long relied on fossil fuel units such as coal-fired power as its main power source. As of the end of 2019, my country's thermal power installed capacity was 1,190.55 million kilowatts, accounting for 59.2%; in 2019, thermal power generation was 5.05 trillion kilowatt-hours, accounting for 68.9% of total electricity consumption. In addition to the above direct emissions, the wave of "re-electrification" that is currently emerging around the world has allowed the power system to play a greater role in the decarbonization and emission reduction tasks in the energy transmission link and the terminal energy use link. For example, power transmission can effectively reduce carbon emissions in the coal, oil and gas transmission link; the promotion and application of electric vehicles can reduce carbon emissions in the transportation sector; the electrification of industrial and commercial heating and consumer equipment and appliances can significantly reduce carbon emissions in terminal energy use. However, the realization of these carbon emission reduction targets not only depends on the realization of "re-electrification", but also depends on the low-carbon transformation of the power industry on the electricity supply side.

Since the 1980s, many countries around the world have carried out power market reforms. Through a series of reforms in the power market trading system and the power system operation mechanism, not only has the optimal allocation of power resources been achieved through market price signals, but also the flexibility of power system operation has been improved through market means, and the consumption of low-carbon power sources represented by wind power and photovoltaics has been promoted. The market-oriented reform of the power industry has not only promoted the marketization of power price signals, created convenient conditions and incentive signals for the "re-electrification" of the power consumption side, but also helped to enhance the flexibility of power generation operation and achieve low-carbon transformation from the supply side. On March 15, 2015, the "Several Opinions of the CPC Central Committee and the State Council on Further Deepening the Reform of the Power System" was issued, marking the start of a new round of power market reform in my country. This round of reforms clearly put forward the market-oriented reform direction of "accelerating the construction of an effective competitive market structure and market system, and forming a mechanism in which energy prices are mainly determined by the market", and at the same time set controlling the total energy consumption, improving energy utilization efficiency, and promoting energy conservation and environmental protection as important reform goals. Therefore, how to promote the low-carbon transformation of my country's energy production and consumption by advancing my country's electricity market reform has become a major issue in my country's energy field.

1. The relationship between my country's electricity market reform and energy low-carbon transformation

1. The connotation of the power market

From the perspective of academic and theoretical research, electricity market transactions involve multiple disciplines such as electrical engineering, operations research, and microeconomics. In essence, the electricity market is based on microeconomic theory. On the basis of changes in market supply and demand, it causes price fluctuations of various types of electricity commodities through competition to guide resources to flow in a more efficient and reasonable direction and achieve optimal allocation of the entire power industry. In terms of the connotation of the electricity market, the essence of the electricity market is to incorporate electricity production, transmission, distribution, sales and other links into the optimal allocation chain of the entire social resources, and to improve the efficiency of the power industry and even the entire energy industry through market means.

In terms of specific connotations, electricity market transactions can be divided into medium- and long-term transactions (multi-year, year, month, week, etc.) and spot transactions (day-ahead, intraday, real-time, etc.) in terms of time scale. Market members lock in transaction prices and avoid uncertainty risks through medium- and long-term transactions; power system operators mainly use the spot market to achieve real-time balance and safe operation of power operation, and reflect the supply and demand conditions in different periods to the market through spot transaction prices. Generally speaking, medium- and long-term transactions are often carried out through bilateral negotiations or continuous rolling transactions; spot transactions are often completed through bilateral/unilateral auction mechanisms. In the last century, scholars such as Schweppe of the Massachusetts Institute of Technology proposed the node electricity price theory, which well combined the physical operation of the power system with the spot electricity transaction, and realized the integration of spot power market clearing and the day-ahead unit combination and real-time economic dispatch of the power system. At present, the seven power markets in the United States are all based on this theory. In the last century, a series of scholars in the United Kingdom and Europe focused more on reflecting the general commodity attributes of electricity, and the power markets in the United Kingdom and Northern Europe were all based on this idea.

In addition to electric energy transactions, electricity market transactions also include other transaction products such as ancillary services, financial transmission rights, and available installed capacity. Ancillary services generally refer to non-electric energy transactions provided by the power generation side and the power consumption side in order to maintain the safe and stable operation of the power system, including frequency regulation, standby, etc. Available installed capacity is generally to ensure the long-term adequacy of power system supply, and the installed capacity guarantee provided by market members. Financial derivatives such as financial transmission rights are transactions derived from the electric energy market for the purpose of risk avoidance for market members. Combining these market-oriented transactions for different objects constitutes a modern electricity market transaction system.

2. The relationship between electricity market trading and low-carbon transformation of the energy industry

The electricity market plays two important roles in the low-carbon transformation of energy: first, through market-based transactions, it promotes the improvement of the flexibility of power system operation, creates greater space for the absorption of low-carbon power sources such as wind, light, and water, and realizes low-carbon transformation from the source of supply; second, through reasonable market price signals, it realizes electricity substitution and energy efficiency improvement in many energy consumption fields such as industry, transportation, and residents, accelerates the "re-electrification" process from the energy consumption side, and replaces high-carbon emission traditional energy with low-carbon electricity from the terminal consumption side.

On the energy supply side, the advancement of power marketization reform can enable power system operators (mainly power dispatching agencies) to have more resources and capabilities to flexibly adjust the power system. Traditionally, many of the wind and solar power abandonment phenomena in my country and even around the world are caused by insufficient flexible adjustment capabilities of the power system. For example, in the past few years, my country's "Three Norths" region, especially the Northeast region, has insufficient peak-shaving capacity, and there has been a serious shortage of wind power absorption capacity during the low-power consumption period at night during the winter heating period, which has also led to a large amount of clean wind power generation potential being wasted. By promoting the marketization reform of power auxiliary services such as deep peak-shaving and start-stop peak-shaving, the flexibility of the power system in the Northeast region has been greatly improved, providing space for the absorption of clean and low-carbon energy (hereinafter referred to as "clean energy") such as wind, light, and nuclear power, and greatly improving the absorption level of low-carbon power sources, making a very obvious contribution to the decarbonization and carbon reduction of the power supply side.