Xinjiang Autonomous Region takes major measures to vigorously promote the construction of incremental distribution network

The incremental distribution network business is an important part of the new electricity reform defined in Document No. 9 issued by the Central Government in 2015. At present, the new electricity reform is characterized by hot electricity trading and cold incremental distribution network business. Although the National Development and Reform Commission has launched five batches of incremental distribution network reform pilot applications, judging from the actual pilot results, the development of incremental distribution network business has not been smooth, and some projects have even withdrawn from the relevant pilots. On April 24, 2020, the Xinjiang Autonomous Region issued the "Notice on Accelerating the Construction of Incremental Distribution Network Projects", which for the first time defined the incremental distribution network as a public power grid, which attracted attention in the industry.

1. Reality of incremental distribution network business

"Document No. 9 of the State Council" clearly states that "social capital is encouraged to invest in the distribution business. In accordance with the requirements that are conducive to promoting the construction and development of distribution networks and improving the efficiency of distribution operations, effective ways for social capital to invest in the distribution business are explored. Incremental distribution investment business is gradually opened up to qualified market entities, and the development of distribution business in a mixed ownership manner is encouraged." The "Measures for the Orderly Liberalization of Distribution Network Business Management" stipulate that incremental distribution networks include newly built incremental distribution networks, distribution network capacity expansion and construction invested in by mixed ownership, and existing distribution networks other than the existing assets of power grid companies (State Grid, China Southern Power Grid, Inner Mongolia West Power Grid and local power grid companies) (i.e. existing distribution networks invested by social capital).

The pilot implementation of the incremental distribution reform encountered multiple difficulties. The different understandings of the incremental distribution reform have caused many difficulties in the implementation of the pilot. The prominent difficulties include: the difficulty in pilot application, and many potential projects with good conditions and prospects were rejected by power grid companies; many power grid companies regard the access system between the incremental distribution network and the large power grid as the "throat" that can strangle the incremental distribution network. In the case of social capital holding the incremental distribution network, it is very difficult to carry out the distribution area division and asset disposal; the lack of distribution price space has led to the long-term inability to recover the distribution investment; the power load is lower than expected and the prohibition of "pulling dedicated lines", making it difficult to achieve the original intention of forming a low electricity price in the incremental distribution network supply area.

As early as the end of 2017, the National Development and Reform Commission recognized this problem and proposed in the "Notice on the Guiding Opinions on Formulating Distribution Prices for Local Power Grids and Incremental Distribution Networks" (Development and Reform Price Regulation [2017] No. 2269): "If the difference between the transmission and distribution prices of different voltage levels and the actual costs is too large, the provincial price authorities may apply to the State Council price authorities for adjustment of the provincial power grid transmission and distribution price structure based on actual conditions."

II. Major measures for the new autonomous region's incremental distribution network business under the new situation

1. New situation of incremental distribution network business

The country's determination to deepen the reform of the power system and mechanism is unwavering. Faced with the above-mentioned practical difficulties, relevant state departments have successively introduced a number of measures, including standardizing the operation of trading centers and proposing a national unified power market, to promote the reform of the power system. After the recent change of leadership, the State Grid Corporation has an accurate political stance and has issued specific documents to promote the reform of the incremental distribution network; especially with the impact of the Sino-US trade war and the new coronavirus on my country's real economy, the current national macro-economy is at an important node. How to reduce the cost of energy factors and promote the rapid recovery of the real economy is the top priority at present. Therefore, whether it is the incremental distribution network business or the "delegation, regulation and service" in the power sector, it has been given a new meaning, and creating a favorable environment for the rapid recovery and growth of the real economy has become the key to the current national macro-economy.

(II) Major measures for the Xinjiang Autonomous Region to increase distribution network business

1. The positioning of the incremental distribution network as a public power grid is clarified.

The Notice, for the first time, clarified the positioning of the incremental distribution network as a public power grid from the perspective of local government documents, and clarified that the incremental distribution network enjoys the same rights and bears the same obligations as the public power grid. Under this circumstance, the incremental distribution network is allowed to access conventional thermal power, as well as wind power, photovoltaic power, hydropower, energy storage and other power sources. This is a major change, reflecting the call from grassroots governments for deepening reforms.

There is a view in the industry that dedicated lines are not allowed for incremental distribution networks at this stage because it is necessary to fairly bear the policy cross-subsidy. In the future, when the policy cross-subsidy problem is solved, the possibility of dedicated lines cannot be ruled out. To a certain extent, it can be understood as prohibiting existing power sources that have been connected to the large power grid from pulling dedicated lines to incremental distribution networks.

In fact, Document No. 9 and its supporting documents explicitly prohibit power generation enterprises and their affiliated units from laying dedicated lines in the incremental distribution networks they invest in, but do not prohibit other social capital third parties from laying dedicated lines. Similarly, cross-subsidy cannot be a reason to hinder the decline in the price of power factors. From the perspective of China's reform and development process, reform is by no means a return to absolute egalitarianism and eating from the same pot. It has always been about allowing some people to get rich first, and then driving the entire social economy to get rich and develop. The "Notice" clarifies that the incremental distribution network, as a public power grid, can be connected to relevant power sources, which is a major breakthrough. Whether new power sources can be configured within the scope of the incremental distribution network, including enterprise-owned power plants, should be determined according to planning and whether they comply with current national and local industrial policies.

2. Users in the incremental distribution network only receive the transmission and distribution price once

The Opinion clearly states that “users in the incremental distribution network will only be charged the transmission and distribution price once”, which has practical significance.

my country's electricity price system is currently based on the "stamp method", whether it is the on-grid electricity price, transmission and distribution price, or sales electricity price. This is the boundary condition of my country's current electricity price system. The stamp method refers to the same category of electricity users, when purchasing the same electricity product, although the length of the power supply cable, maintenance personnel, material costs, etc. are different, but their electricity prices are the same, and have nothing to do with the specific path of electricity transmission. This means that the price has nothing to do with the path. The physical distance of the line is related to the investment, so the logic behind the stamp method is that it has nothing to do with the investment and the corresponding operating costs (including line losses).

In this sense, the settlement of network losses between the incremental distribution network and the upper-level power grid has become a focus. When the state approves the provincial transmission and distribution price, there is only one comprehensive line loss rate and it has been included in the transmission and distribution price. The line loss between different voltage levels belongs to the category of cross-subsidy, and it is stated that "the risk of actually exceeding this line loss rate shall be borne by the power grid company, and the profit below this line loss rate shall be shared by the power grid company and the user at 50% each". When the provincial power grid transmission and distribution price is approved, the above-mentioned line loss rate when the incremental distribution network is not developed has been included. There are two ways to realize the incremental distribution network, one is new construction and the other is shareholding reform. After the incremental distribution network formed by the reform is connected to the provincial power grid, the line loss rate in the provincial power grid transmission and distribution price (included in the provincial power grid transmission and distribution price) has already included the line loss within the incremental distribution network before the reform, and has nothing to do with the property rights attributes related to the investment. The incremental distribution network project needs to pay the corresponding transmission and distribution price including line loss to the upper-level power grid, and at the same time collect the distribution price including line loss within the jurisdiction. Therefore, the amount of electricity settled between the incremental distribution network and the upper-level grid should be calculated based on the amount of electricity input from the upper-level grid by the incremental distribution network minus the amount of electricity lost. This meets the boundary condition of stamp pricing and avoids users in the incremental distribution network from paying line losses repeatedly and increasing their electricity costs. The same logic also applies to newly built incremental distribution network projects.