Promoting the green electricity trading market mechanism requires a "three-pronged approach"

China Energy Storage Network News: The proposal to comprehensively promote the goals of carbon peak and carbon neutrality provides direction for the green and low-carbon transformation of China's industrial structure and energy structure. In September 2021, the National Development and Reform Commission and the National Energy Administration officially replied to the "Green Power Trading Pilot Work Plan" (hereinafter referred to as the "Plan"), agreeing that State Grid Corporation of China and China Southern Power Grid Corporation will carry out green power trading pilots. China has officially launched green power trading. This is another important measure to promote the development of green energy after the country launched green certificate trading.

Green electricity trading has three values

Green electricity trading specifically refers to medium- and long-term electricity trading with green electricity products as the underlying assets, which is used to meet the needs of electricity users to purchase and consume green electricity, and provide corresponding green electricity consumption certification. At the same time, it can guide users with green electricity needs to trade directly with power generation companies.

On the policy side, green electricity trading is necessary to achieve the "dual carbon" goals. Green electricity trading can reflect the environmental value of green electricity. While guiding the whole society to consume green electricity more actively, it can enhance the competitiveness of green electricity in the electricity market, achieve China's energy transformation at a lower cost, and meet environmental protection constraints. After green electricity trading is linked to the carbon market, users can choose to directly purchase green electricity to deduct the total carbon emissions, which is easier to achieve than certified emission reductions (CEER). The linkage between the green electricity market and the carbon emission rights market will be further strengthened, which can further promote the development of green electricity trading.

On the market side, the demand for green electricity is increasing and the supply cost is decreasing. On the demand side, in the process of green transformation, there are four main ways for users on the power consumption side to achieve consumption and carbon reduction: investing in distributed renewable energy, purchasing green certificates, trading carbon emission rights, and purchasing green electricity. In contrast, green electricity trading achieves electricity consumption and emission reduction by purchasing green electricity, which has lower restrictions and is the most practical way to reduce emissions, and is more in line with market needs. Although the price of green electricity is higher for electricity users, the environmental value contained in it can help companies achieve green transformation faster. On the supply side, the cost per kilowatt-hour of new energy power generation has been declining year by year, and has gradually entered the era of parity. According to relevant research results, there is still room for the construction cost of photovoltaic power generation and offshore wind power to fall in the future, while the cost per kilowatt-hour of coal-fired power generation will rise further in the future.

On the regulatory side, the green electricity market helps to establish a flexible and reliable green power grid and improve the economic efficiency of grid dispatching and operation. For a long time, China's power source and grid investment has been mainly based on planned electricity and regulated pricing. With the large-scale integration of green electricity into the grid, traditional planning methods may cause problems such as over-investment and efficiency loss. By establishing and developing a green electricity market, introducing market mechanisms to guide the flexible allocation of power resources, thereby improving the system power structure configuration and better developing the green economy. At the same time, due to the uneven distribution of China's power resources, the centralized power generation sites and centralized power consumption sites are far apart, and the congestion of grid management will increase the cost of grid dispatching. Therefore, the introduction of a green electricity trading market can ensure the high-efficiency and low-cost operation of the system, thereby achieving the green, healthy and economic development of the power grid and reducing the cost of China's energy transformation.

Three major problems need to be solved

my country's green electricity trading started in 2021. The market has just been established and there are still many problems.

First, the green electricity trading market is not mature enough. my country's green electricity trading is still dominated by the voluntary trading market, and the integration of quota mandatory trading and voluntary trading has not been achieved, which reduces the vitality of the demand side of the green electricity trading market. At present, the electricity consumers in my country's green electricity voluntary trading market are limited to large multinational corporate groups or companies with strong export demand. Green electricity does not have much appeal to the huge domestic demand enterprise group.

Second, there is a lack of a market-based trading mechanism for green electricity trading. my country's green electricity trading market has not yet fully formed a market-based pricing mechanism. At present, there are two main trading methods: one is to purchase green electricity through direct electricity trading, and the other is to purchase green electricity from power grid companies. Limited by the cost per kilowatt-hour, regional barriers and local protection obstacles, cross-regional green electricity trading has become difficult, resulting in the partial failure of the green electricity market-based pricing mechanism.

Third, the connection between the green electricity market and other policies and market mechanisms needs to be improved. After the opening of the green electricity trading market, my country has developed three important market mechanisms to promote the green and low-carbon transformation of energy: green certificate trading, green electricity trading, and carbon emission rights trading. On the one hand, there may be a problem of repeated payment of environmental fees between the green electricity trading market and the carbon trading market; on the other hand, there are also mechanism differences in the certificate-electricity relationship between the green electricity market and the green certificate market. As the "glue" connecting the green certificate market and the carbon emission rights trading market, the green electricity market needs to be further improved in terms of the connection of market mechanisms.

In view of the need for targeted solutions to the above problems, the author suggests a “three-pronged approach” to promote the construction of a green electricity trading market mechanism.

First, we should promote the diversified development of the green power trading market. First, the current trading targets of my country's green power trading market are mainly wind power and photovoltaic power. It is necessary to add trading targets in a timely manner to allow more and more efficient green power to join the green power trading market and expand the applicability of green power trading. Secondly, my country's current green power trading lacks a mandatory green power trading market with a quota system, which makes many companies lack interest and demand in purchasing green power. Therefore, in the future, my country needs to implement a quota-based green power trading system based on the maturity of the green power trading market and increase the activity of both parties in green power trading.

Second, explore new mechanisms and models for green electricity trading. my country has a vast territory and a large population, but the development of different regions is extremely unbalanced, which hinders the establishment of a unified national green electricity trading market. Therefore, my country needs to explore and establish a reasonable and complete cross-regional green electricity trading mechanism to solve this problem, realize the coordinated operation of local consumption of green electricity and cross-regional green electricity trading, and strive to build a green electricity trading price mechanism and green electricity tracking supporting mechanism under a unified market system.

The third is to promote the connection and coordinated development of different market mechanisms of "electricity-certificate-carbon". The significance of green electricity to electricity consumers lies in its green and low-carbon value, which requires the national carbon market or foreign carbon tariffs to recognize the zero-carbon characteristics of green electricity. Therefore, relevant departments in my country need to endorse green electricity so that the carbon emission reduction of green electricity can be recognized by the domestic carbon market and foreign carbon tariffs, and the high premium of green electricity can be rationalized. This is crucial to the efficient realization of the goals of "carbon peak" and "carbon neutrality".

(The author is an expert at the International Institute of Green Finance of Central University of Finance and Economics)