What are the difficulties in promoting a national unified electricity market?

China Energy Storage Network News: On January 18, 2022, the "Guiding Opinions of the National Development and Reform Commission and the National Energy Administration on Accelerating the Construction of a National Unified Electricity Market System" (hereinafter referred to as the "Guiding Opinions") was issued. It caused a huge uproar, and online support was overwhelming. The electricity market ushered in broader development opportunities.

Subsequently, on March 3, 2022, the National Development and Reform Commission and the National Energy Administration issued the "Notice on Accelerating the Construction of the Electricity Spot Market" ([2022] No. 129), which clarified the overall requirements for accelerating the promotion of the electricity spot market, accelerating the promotion of users to fully participate in spot market transactions, accelerating the promotion of various types of qualified power sources to participate in the spot market, coordinating medium- and long-term electricity transactions and spot transactions, coordinating electricity ancillary service transactions and spot transactions, and making effective connections between inter-provincial markets and intra-provincial spot markets, and orderly promoting the participation of new energy in market transactions.

Since the first power system reform was launched in 2002, and the second power system reform started in 2015, each reform has targeted the power market. Under the system of authorized monopoly in the five provinces and regions operated by the Southern Power Grid and the 26 provinces and regions operated by the State Grid, why has a unified national power market system, or even the southern market in the Southern Power Grid's area, or the northern market in the State Grid's area, not been established to this day?

What are the difficulties in establishing a unified national electricity market system? Can it be effectively promoted?

■ Tang Yu, Zhao Rongmei, Wang Jin, special commentator, Intercontinental Energy Consulting Institute

Policy guidance, establishing a unified national market

In 2002, the State Council issued the Notice on Issuing the Electricity System Reform Plan (Electricity Reform Document No. 5), which officially launched the first electricity system reform after the reform and opening up. This reform can be summarized as the 16-character policy of "separation of power plant and grid, separation of primary and auxiliary, separation of transmission and distribution, and bidding for access to the grid". This electricity reform has achieved certain results in "separation of power plant and grid, separation of primary and auxiliary", but "separation of transmission and distribution, and bidding for access to the grid" has never started. Whether in the vicinity of power plants, regions, provinces, cross-provinces, cross-regions, or nationwide, the electricity market system and market mechanism have not been started. Across the country, there is a coexistence of power shortages and power outages. On the one hand, water, solar, and wind power are abandoned, and on the other hand, there are intermittent "power cuts".

In March 2015, the "Opinions of the CPC Central Committee and the State Council on Further Deepening the Reform of the Electricity System" ("Electricity Reform Document No. 9") launched the second reform and launched 6 supporting documents, hoping to solve the problems of the lack of trading mechanism, the price relationship has not been straightened out, and the market-based pricing mechanism has not yet been fully formed. Six years have passed, and the reform of the electricity market has made great progress. Some pilot provinces have developed rapidly in the provincial market, and have accumulated rich experience in medium- and long-term and spot transactions. However, cross-provincial and cross-regional transactions and the construction of a unified national market are still difficult.

The Guiding Opinions aims to achieve three major goals: first, to share and optimize the allocation of power resources on a larger scale; second, to improve the stability and flexible adjustment capacity of the power system; third, to promote the formation of a new power system with stronger new energy consumption capacity; and expect that by 2025, the national unified power market system will be initially established, the national market will operate in coordination with the provincial (autonomous region, municipality)/regional market, the medium- and long-term power, spot, and auxiliary service markets will be integrated and jointly operated, the cross-provincial and cross-regional resource market allocation and green power transaction scale will be significantly increased, and the market transaction and price mechanism that is conducive to the development of new energy, energy storage, etc. will be initially formed. By 2030, the national unified power market system will be basically established.

Transmission and distribution system, supporting a unified market structure

After nearly 20 years of rapid development, State Grid and China Southern Grid have invested in the construction of a strong system of high-voltage, ultra-high-voltage and UHV transmission networks across provinces and regions.

At the same time, the State Grid, the Southern Grid and a few relatively independent local power grids have also invested in the construction of a distribution network system with wide coverage, reasonable layout and strong technology in various provinces, autonomous regions and municipalities, which distributes electricity locally or in stages according to voltage to various users.

Distribution networks can be divided into high-voltage distribution networks and low-voltage distribution networks according to voltage levels; they can be divided into urban distribution networks, rural distribution networks and enterprise distribution networks according to power supply areas; and they can also be divided into main networks and distribution networks according to functions.

Table: Basic data of China's power grid and Europe's power grid

Note: The data for State Grid and China Southern Grid are from the 2020 reports of the two companies; ENTSO-E, the European Network of Transmission System Operators for Electricity, is the association for the cooperation of the European transmission system operators (TSOs). The 42 member TSOs, representing 35 countries, are responsible for the secure and coordinated operation of Europe's electricity system. The data are from its 2020 annual report.

Internationally, the advancement of the North American and European electricity markets provides a reference template for my country.

The European interconnected power grid consists of five synchronous power grids: Continental Europe, Northern Europe, the Baltic Sea, the United Kingdom, and Ireland, coexisting with two independent power grids in Iceland and Cyprus. The imbalance of energy and power resources among European countries is very large, even more than that of China. The huge differences in power generation capacity between countries have fostered a huge demand for cross-border power transactions.

Today, the European power market is relatively mature, with high frequency and large volume of cross-border power transmission, forming a high-density and short-distance power grid structure. At the same time, due to the rapid development of new energy power such as photovoltaic and wind power in European countries, the flexible direct current transmission technology and intelligent level of the European interconnected power grid have been improved, fully guaranteeing the grid connection, transmission and consumption of new energy power in the European power market.

Europe's power distribution network has a high degree of coverage, many and scattered operators, and a well-developed distribution network. Its distribution operators are roughly divided into four different trading associations, namely Eurelectric, EDSO, GEODE, and CEDEC. The members of Eurelectric and EDSO are mostly large and medium-sized distribution operators, while the main members of GEODE and CEDEC are small distribution operators. Among them, Eurelectric has the largest number of members, with more than 30 formal members, including nearly 2,500 distribution operators.

Compared with European and American power grids, especially the European interconnected power grid, both as a whole and in individual countries, State Grid and Southern Grid have significant advantages in terms of asset scale, operating income, and technological accumulation. Among them, the cross-provincial and cross-regional transmission system and the distribution system in provinces, cities, autonomous regions, counties, towns and villages have laid a solid foundation for accelerating the construction of a unified national electricity market.

Regarding the three major goals of the Guiding Opinions, the European and American electricity markets have provided a paradigm for my country, and the strong national transmission and distribution network system established by State Grid and China Southern Grid can fully support the advancement of the three major goals.

Cross-provincial transactions, game competition among relevant entities

In fact, the social and economic benefits of sharing, mutual assistance and optimal allocation of electricity resources on a larger scale have long been proven. It is conducive to improving the stability and flexibility of the power system and the ability to absorb new energy. Why is it so difficult to promote it in the operating areas of both the State Grid and the Southern Grid?

This is related to China's unique power system, whose typical characteristics are "fragmentation", "fragmentation game", "block competition" and "central-local game".

"Article" refers to the power grid. Power grid enterprises set up branches or power supply bureaus in provinces, cities, regions and counties, and specialize in various businesses related to transmission and distribution of power in accordance with the powers and responsibilities granted by the Electricity Law, including investment, construction and operation of the transmission and distribution network in the operating area, power supply and sales business, and related ancillary services.