Power grid purchased electricity and market electricity "compete on the same stage"

China Energy Storage Network: Since the second half of 2021, multiple policy documents at the national level have made clear arrangements for "grid companies acting as agents for power purchases." For example, the National Development and Reform Commission's "Notice on Further Deepening the Market-oriented Reform of Coal-fired Power Generation On-Grid Electricity Prices" (hereinafter referred to as "Document No. 1439") in October 2021 requires that all localities orderly promote all industrial and commercial users to enter the power market, and that power grid companies act as agents for users who have not yet purchased electricity directly from the power market; at the same time, the "Notice on Organizing the Implementation of Power Grid Companies Acting as Agents for Power Purchases" (hereinafter referred to as "Document No. 809") issued by the General Office of the National Development and Reform Commission also requires that localities, in light of the development of local power markets, continue to narrow the scope of agency power purchases.

The reporter learned that as of now, many places including Beijing, Shanghai, Guangdong, Gansu, Shandong, Jiangsu, Hubei, Guizhou, and Xinjiang have actively promoted the implementation of the above policies and have successively issued documents to launch power grid agency electricity purchasing services.

However, in reality, the power purchasing prices of power grid companies in many places are lower than the monthly clearing prices announced by local power trading centers. Many interviewees said frankly that on the one hand, this has brought resistance to entities participating in market-based transactions, such as power sales companies; on the other hand, the price advantage that power grid companies temporarily have is not conducive to achieving the policy's original intention of "continuously narrowing the scope of power grid companies' power purchasing agents." "The next step should be to establish relevant rules to effectively promote power grid companies to purchase power in a market-based manner, and to clarify the timetable to promote the gradual withdrawal of power grid companies, so as to achieve the policy's original intention of 'all industrial and commercial users entering the power market.'"

Transitional policy measures

Why was the power purchasing agent mechanism born? Document No. 1439 proposed that all localities should orderly promote all industrial and commercial users to enter the power market, purchase electricity at market prices, and cancel the industrial and commercial catalog sales electricity prices. "The introduction of the power purchasing agent system is precisely to achieve the goal of 'rapidly promoting all industrial and commercial users to enter the market in a short period of time and conducting price transmission through the market'." An electricity reform researcher analyzed to reporters.

Document No. 1439 clearly states that all users with 10 kV and above who have not yet entered the market must enter, and other users must also enter as soon as possible. Users who have not yet purchased electricity directly from the power market will have power grid companies purchase electricity on their behalf, and the agency purchase price is mainly formed through centralized bidding or competitive bidding.

"Due to the immaturity of relevant policies and technical conditions, there are still some 220V and 380V low-voltage users across the country who have not yet been orderly transformed to adopt time-of-use metering. For these users, the power grid needs to purchase electricity on their behalf for the time being. Users above 10KV do not have the problem of time-of-use metering, so we must promote all of them to enter the market." Zhang Chuanming, chairman of Jiuzhou Energy, pointed out that "purchasing electricity on behalf of others" is only a transitional policy arrangement that should not last too long.

Low purchasing power prices dampen market enthusiasm

The composition of the power purchase price of power grid companies varies from region to region. Zhang Ji, chief trading officer of China Energy Group, said that the power purchase price generally includes the power purchase fee, deviation power fee, ancillary service fee sharing and the new profit and loss equivalent to the kilowatt-hour power price to ensure the stability of residential and agricultural power prices. "The most influential ones are the power purchase fee and deviation power fee. The former is related to the market wholesale price, and the latter is related to the accuracy of the power grid's power forecast."

Taking Guangdong Province as an example, when power grid companies act as agents to purchase electricity, they determine the settlement price between them and power plants based on the electricity purchase cost of the power sales company at the wholesale side. "In market-based transactions, the greater the amount of electricity consumed, the lower the purchase price. Since the users who purchase electricity on behalf of others are often small and medium-sized users, when the price that power grid companies purchase electricity from power plants is equal to the wholesale price of the power sales company in the market, the agency purchase of electricity will have a greater price advantage." Zhang Chuanming analyzed that in this way, these users may lose their enthusiasm for participating in market-based transactions, which is not conducive to the gradual withdrawal of purchasing electricity on behalf of others in the next step.

In addition, priority power generation will also affect the level of proxy power purchase prices. Document No. 809 clearly states that the power of priority power generation (excluding coal-fired power generation) in various places that implement the policy of guaranteed quantity and price will continue to be purchased by power grid companies according to the current price mechanism to ensure the power supply of residents and agricultural users. In places where there is surplus power that cannot be released temporarily, the surplus power can be temporarily used as the source of power purchase by power grid companies.

"If the amount of priority power generation does not match the amount of priority power consumption, a difference will be created. In the process of allocating this difference, it is very likely that the local agency power purchase price level will be lower than the market electricity price level due to different allocation methods." Zhang Chuanming pointed out.

"In addition, power grid companies in some regions still control power sources, dispatching rights, trading rights, and transmission lines. With the support of low electricity prices from agent power purchases, they are bound to squeeze the living space of other market players." An interviewed expert further pointed out.

Electricity purchasing agents should also participate in the market

"Only when the price of purchased electricity is higher than the market average can we guide market players to participate in market-based transactions and achieve the goal of allowing all industrial and commercial users to enter the market," Zhang Chuanming pointed out.

"At present, market-oriented users still continue their previous thinking habit of 'benchmarking the catalog electricity price' and often benchmark the grid's purchasing price when negotiating with power sales companies. This means that power sales companies can only reach an agreement with users when the electricity price is lower than the purchasing price." Zhang Ji pointed out.

"According to the spirit of relevant policies, the electricity used by power grid agent users should be market-based electricity. Therefore, power grid companies should participate fairly in market transactions such as bidding and listing, just like other market players. If special treatment is achieved through unequal competition, it will go against the purpose of power reform," Zhang Ji further said.

Industry insiders believe that Document No. 809 clearly points out that the scope of power grid companies' power purchasing agents should be gradually reduced, and how to gradually phase out power purchasing agents is the key issue to consider in the next step. "Power grid companies' power purchasing agents should be strictly controlled, after all, the main responsibility of the power grid is transmission and distribution," said Shen Xianyi, co-founder of Xianjian Energy.

"To gradually get power grid companies to withdraw from agency power purchasing, we must first clarify the types of power purchasing by the power grid, the time limit for agency, how to gradually withdraw, how to promote the time-sharing metering transformation of low-voltage users, and who will supervise, etc." Power industry expert Zhan Shuguang pointed out that the relevant timetable and regulatory measures urgently need to be established.