Thermal power flexibility transformation breaks the dilemma and promotes development

China Energy Storage Network: Thermal power flexibility transformation is a key means to improve the regulation capacity of the power system. However, due to the lack of a reasonable market-based compensation mechanism for a long time, the flexibility "value" of thermal power units has been difficult to fully realize, which has greatly restricted the enthusiasm for flexibility transformation and become the biggest constraint on improving the regulation capacity of the power system.

Not long ago, the National Energy Administration revised and issued the "Regulations on the Management of Power Grid Operation" (hereinafter referred to as the "Regulations") and the "Measures for the Management of Power Auxiliary Services" (hereinafter referred to as the "Measures"), which are regarded as the fundamental solution to the cost problem of flexibility transformation of thermal power.

Experts interviewed pointed out to reporters that the two newly released policy documents have expanded the scope of ancillary service providers, further clarified the compensation method and sharing mechanism for thermal power flexibility transformation, and established a new user sharing mechanism. It will help break through the original "zero-sum" dilemma of "flexibility transformation costs are only shared within the power generation side" and promote the high-quality development of thermal power under the new power system.

Uncovering the potential of “flexible” value

Since last year, the CPC Central Committee and the State Council have successively issued important documents such as "Opinions on Fully, Accurately and Comprehensively Implementing the New Development Concept and Doing a Good Job in Carbon Peaking and Carbon Neutrality" and "Action Plan for Carbon Peaking before 2030", which clearly require the improvement of the connection mechanism between the medium- and long-term markets, the spot market and the ancillary service market, vigorously enhance the comprehensive regulation capabilities of the power system, and accelerate the flexibility transformation of existing units.

"The Central Economic Work Conference in December last year pointed out that the gradual withdrawal of traditional energy must be based on the safe and reliable substitution of new energy. In the future, the withdrawal of thermal power will mainly be reflected in the annual decline in utilization hours, and more participation in peak regulation will be achieved through flexibility transformation to cope with the instability of wind power and photovoltaics as well as extreme climate." Lin Boqiang, director of the China Energy Policy Research Institute of Xiamen University, said in an interview with reporters that after thermal power changed from the original main power source to an auxiliary power source, it would be difficult to survive relying solely on peak regulation, and it would be inseparable from the support of the electricity price mechanism.

Yuan Jiahai, a professor at the School of Economics and Management of North China Electric Power University, believes that promoting flexibility transformation is the main way to transform coal-fired power from a power supply type to a flexible and adjustable power supply. The release of the above two documents will help to give full play to the "flexibility" value of the flexibility transformation units and provide a new focus for flexibility transformation.

"The Regulations and Measures define the compensation method and sharing mechanism for auxiliary services, and clarify that when determining the compensation standard for a fixed compensation method, factors such as the cost of auxiliary power services, performance, and reasonable benefits should be considered comprehensively, and the compensation intensity should be determined according to the principle of 'compensation cost and reasonable benefits'. The market-based compensation formation mechanism follows the principles of considering the cost of auxiliary power services, reasonably determining the price range, and forming prices through market-based competition, so that flexible transformation units can obtain more substantial compensation by providing auxiliary services." Yuan Jiahai further explained.

Channeling the cost of flexibility

The reporter noticed that the Measures reclassified power auxiliary services into three categories: active balance service, reactive balance service, and accident emergency and recovery service. In addition, on the basis of conventional auxiliary services such as peak shaving, frequency regulation, and standby, new auxiliary services such as rotational inertia, climbing, stable machine cutting, and stable load shedding were added.

In Yuan Jiahai's view, the definition of rotational inertia and ramp-climbing assistance is the first time that my country has clearly put forward it. Against the background of continuous large-scale grid connection of new energy and a high degree of power electronics in the power system, the mandatory auxiliary services in the past have gradually changed into compensatory auxiliary services, reflecting the value of traditional controllable power sources in providing rotational inertia and participating in ramp-climbing regulation, and expanding the channels for thermal power to obtain reasonable profits by providing auxiliary services.

"The Measures have refined the ancillary service market segments by increasing the types of ancillary service transactions, better reflecting the capacity benefits of thermal power units. By determining profits through competition in different types of ancillary service markets, different units are guided to reasonably choose target market segments based on their own flexibility, avoiding resources that should provide different types of services from squeezing out the same type of compensation transaction space, which is conducive to guiding the overall optimization of the technical route for coal-fired power flexibility transformation." Yuan Jiahai said.

In terms of compensation methods, the Measures specify that paid power auxiliary services can be provided through fixed compensation or market-based methods, and encourage the use of competition to determine the grid-connected entities that undertake power auxiliary services. "In the past, the biggest difficulty in flexibility transformation was the lack of a sustainable compensation mechanism. Too high compensation would cause price distortions and make the policy unsustainable; too low compensation would not make up for the cost of thermal power flexibility transformation, and would not play an incentive role, hindering the construction of a new power system." Yuan Jiahai pointed out that the Measures, by introducing a market-based compensation mechanism, can effectively guide different units to give full play to their flexible adjustment capabilities.

The Measures also propose that the compensation costs should be shared by all grid-connected entities, including power generation enterprises and market-oriented power users. In Lin Boqiang's view, "only by allowing end users to share the cost of ancillary services can we break through the 'zero-sum' dilemma of sharing only within the power generation side, so that the thermal power system can survive and achieve high-quality development."

Yuan Jiahai also believes that the Measures return to the essential attributes of ancillary services and provide a fundamental solution to the cost diversion of thermal power flexibility transformation. "Ancillary services are the 'public services' of the power system, and their beneficiaries are all entities in the system, and ultimately power users. Introducing power users into the power ancillary service market and sharing the corresponding costs can greatly alleviate the cost burden on the power generation side of the new power system, thereby increasing the enthusiasm for flexibility transformation on the power generation side."

Thermal power will usher in new opportunities

The continuous increase in flexibility will be the theme of the thermal power industry throughout the 14th Five-Year Plan and even the 15th Five-Year Plan. For example, in November 2021, the National Development and Reform Commission and the National Energy Administration jointly issued the "National Coal-fired Power Unit Transformation and Upgrading Implementation Plan", which proposed that "the flexibility transformation of existing coal-fired power units should be transformed as much as possible, and 200 million kilowatts should be completed during the 14th Five-Year Plan period, and the system regulation capacity should be increased by 30-40 million kilowatts to promote the consumption of clean energy. During the 14th Five-Year Plan period, the flexible manufacturing scale of coal-fired power units will reach 150 million kilowatts."

"Reasonably determining the scale of thermal power flexibility transformation will be an important task in the next step." Yuan Jiahai stressed that in order to avoid disorderly investment and excessive transformation and waste of funds, differentiated decisions should be made based on regional differences, unit characteristics, grid structure and resource distribution, and the scale and location of flexibility transformation units in the system should be reasonably configured. "The flexibility transformation of 300,000-600,000 kilowatt subcritical units can be promoted first, so that they can obtain reasonable benefits by mainly participating in the auxiliary service market."

Some industry insiders pointed out that in the future, with the gradual improvement of the ancillary service market mechanism and the gradual adjustment of the energy substitution strategy, coal-fired power will further tap its own electricity value and gain new development opportunities in the new power system.