Guangdong will start year-round spot trading next year

China Energy Storage Network News: After all industrial and commercial enterprises enter the market, the total scale of Guangdong's power market will increase to 550 billion kWh in 2022. At the same time, Guangdong's power market will change from a "price difference model" to an "absolute price model".

"In principle, starting from January 1, 2022, the southern (starting from Guangdong) electricity spot market will enter a year-round continuous settlement trial operation." The "Notice on Matters Related to Electricity Market Transactions in 2022" (hereinafter referred to as the "Notice") recently issued by the Guangdong Provincial Energy Bureau and the Southern Regulatory Bureau of the National Energy Administration shows.

In short, the spot market forms an electricity price every 15 minutes. The electricity prices are different in different places and at different times, which can reflect the time and location characteristics of the electricity commodity price. Electricity is restored to a commodity, so there is a consensus in the industry that "there is no market without spot".

In 2018, the southern power spot market (starting from Guangdong) took the lead in launching a settlement trial run in China. After going through daily settlement, weekly settlement, monthly settlement, and long-term settlement, the Guangdong power spot market started a year-round settlement trial run to lay the foundation for formal operation. After experiencing this year's "turbulent test" of severe wholesale-retail price inversion and soaring fuel prices, how does the Guangdong power spot market adapt to new changes?

The number of users entering the market has increased significantly, and trading rules have changed

This year, Guangdong's power market has been turbulent. Due to factors such as the sharp fluctuations in fuel prices and restrictions on trading rules, market construction has been put to a great test. The "Notice" takes this as a reference and has made significant changes.

The Guangdong Provincial Energy Bureau and the Southern Regulatory Bureau of the National Energy Administration released the "Guangdong Province 2022 Electricity Market Trading Arrangement Plan (Draft for Comments)" earlier, which shows that the planned trading scale of Guangdong's electricity market is 34 million kilowatts. The "Notice" shows that after all industrial and commercial enterprises enter the market, the total scale of Guangdong's electricity market will increase to 550 billion kilowatt-hours in 2022. According to statistics from the Guangdong Power Trading Center staff, there were about 30,000 market users in Guangdong Province before, and about 4.8 million new industrial and commercial users were added, resulting in a significant increase in total annual electricity consumption.

Another significant change in the Notice is that the Guangdong power market has shifted from a "price difference model" to an "absolute price model." Industry insiders pointed out that under the "price difference" model, the catalog sales price for users will be reduced by the same amount as the amount of yuan/kWh that power generation companies give up on the basis of the national approved electricity price. This move did not change the profit model of the power grid company's unified purchase and sales. The power generation side was restricted by a fixed price and fell into a "zero-sum game" of bargaining with the power sales company over the price difference.

The above-mentioned staff of Guangdong Power Exchange Center stated that under the absolute price model, the power grid company has shifted from a unified purchase and sales model to a transmission and distribution price collection model, restoring the commodity attributes of electricity while also forming a good connection with the time-of-use electricity price policy.

In addition, Zhang Ji, chief trading officer of China Energy, pointed out that relevant government departments have improved and filled many loopholes in the rules. "The Notice stipulates that retail contracts with different periods are allowed to be signed, and at the same time encourages the addition of primary price linkage clauses such as coal and gas, which has significantly improved market liquidity."

Cultivate market players and strengthen market supervision

The maturity of market players is a necessary and sufficient condition for market participation. Faced with the recent overwhelming number of policy documents, many users told reporters that they "can't understand" and "are digesting the explosion of information."

Industry insiders pointed out that users are accustomed to "extensive" electricity price reduction contracts, forming the Party A mentality of "you get discounts on the wholesale side, you must give me a price reduction on the retail side", and even regard electricity price reduction as a policy subsidy. After the National Development and Reform Commission issued the "Notice on Further Deepening the Market-oriented Reform of Coal-fired Power Generation On-Grid Electricity Prices (Development and Reform Price [2021] No. 1439)", electricity has been reduced to a commodity, and users need to adapt and be scientifically guided.

Jiang from Guangdong Power Sales Company pointed out that the development of the power market requires the joint progress of all participants. "In the past, users really knew very little about the market, had no understanding of or concern about the power market, and even did not manage their own accounts and paid little attention to the electricity bill settlement. These situations are all business management risks for enterprises. If the situation remains the same next year, they will inevitably suffer losses and pay tuition fees."

If the "novice" users who have just entered the market are "freshmen", then the "senior students" such as power generation companies and power sales companies that have been "experienced" in the power market for many years also need to "make up lessons". Zhang Ji pointed out that whether it is a power generation company or a power sales company, the company that adapts to the new market situation as soon as possible will occupy a favorable position in the competition; while market players with insufficient service capabilities, trading technology and risk awareness will gradually be eliminated by the market.

In addition to the two ends of the sale and the users, the power grid companies and the competent authorities as "pipeline providers" have even greater responsibilities. Zhang Ji pointed out that the competent authorities should urge power grid companies to disclose market information in a timely manner and help market players make correct decisions. Jiang further pointed out that after the implementation of the spot market, the market has become more complex and professional, and more in-depth and detailed supervision is also needed. Severe crackdowns should be made on unfair behaviors that undermine the market to ensure that the power market discovers real price signals, achieves optimal resource allocation, eliminates excess resources, and encourages scarce resources to increase investment.

Improve while running and straighten out market relations

The Notice clearly states that the spot implementation plan and market trading rules will be revised and the technical support system will be improved in accordance with the "operation and improvement" approach. So, what revisions will there be in the Guangdong power market next year?

The reporter learned that in May last year and August this year, tens of billions of yuan of high "blockage fees" were generated during the trial operation of Guangdong's spot market settlement, and how to relieve them has attracted much attention. Industry insiders pointed out: "In the early stage of the spot market construction, all pilot areas gradually released power generation and consumption plans to achieve a smooth transition of market construction, so the plan and the market will coexist for a long time. In this context, the settlement of power generation and consumption between the plan and the market will generate unbalanced funds. In addition, the unbalanced funds also include deviation costs caused by factors such as blockage surplus and cost compensation. With the entry of industrial and commercial users and new energy users into the market, the amount of this fee will be reduced, but it still needs to be properly handled throughout the year."

Staff at the Guangdong Power Exchange Center pointed out that the construction of the power market needs to adapt to the large-scale access of new energy. "With the rapid development of new energy in Guangdong Province, it is urgent to further improve the market-based trading mechanism for new energy participation, use market mechanisms to guide the consumption and utilization of new energy, and promote the clean and low-carbon transformation of the power structure."

The above-mentioned industry insiders pointed out that the access of new energy will increase the cost of the entire power system. In order to adapt to the intermittent nature of new energy, it is necessary to use traditional power sources, energy storage, pumped storage, etc. to provide flexibility services. These types of power sources are the "main force" of the ancillary service market, and their construction and operation require funds. "The current relationship between the spot market and the ancillary service market has not been straightened out, which may expose many contradictions in future operations and is also an area that urgently needs to be repaired. In addition, new 'equipment' such as capacity markets, financial transmission rights, and power futures are also urgently needed."

The staff of Guangdong Power Exchange Center further pointed out that the construction of the power market should be well connected with the carbon market, green certificate market and other mechanisms. "At this stage, each market operates separately, the functions overlap, and the role is not fully played. It is necessary to promote the organic integration and unified and coordinated development of multiple markets to jointly play a role in carbon reduction."