China has introduced its first rules to govern a national power spot market.
These “basic rules”, endorsed by the National Development and Reform Commission (NDRC) and National Energy Administration (NEA), are poised to “accelerate the construction of a national unified power market system and promote the optimal allocation of resources on a larger scale”, the NEA explains.
Electricity trading in China is currently characterised by medium-to-long-term (MLT) deals between power generators, users and sellers, China Dialogue recently explained. In the last five years, more than 80% of market-traded electricity has been traded within provinces rather than between them.
The government has been setting up more flexible, inter-provincial and inter-regional spot markets, so power can be traded across the country at prices determined by supply and demand. The aim is to improve the reliability and efficiency of power supply while accelerating consumption of renewable energy.
The first batch of eight provincial spot market pilots were announced in 2018 and have since completed long-term trials, with the second batch of six beginning in 2021.
In 2022, a guiding opinion document issued by NDRC and NEA set the goal of building a “unified electricity market system by 2030, on the basis that existing provincial-level electricity markets will be retained”.
On the day the basic rules were released, power industry sources told Caixin: “In the past, there has been no formal basic rules for spot trading in the electricity market, and the provincial pilots learnt from each other in formulating the rules.” The rules summarise the problems and experience in the first and second batch of pilots, they added.
The rules state critical objectives for building the national power spot market in the near future, including “the integration of renewable energy sources into the electricity market and the design of market mechanisms tailored to their unique characteristics”. They encourage “the active participation of entities engaged in distributed power generation, load aggregation, energy storage, virtual power plants, and other emerging business models”.
The basic rules standardise market price limits and operational requirements, and refine the transaction process. They put forward requirements for information disclosure and technical support systems and standardise some of the terminology related to power spot markets.
The NDRC says that next “regions already engaged in the trial operation should leverage the rules to refine and enhance their regulatory framework, which will involve innovative forays into the integration of new energy sources and new market participants. Regions that have not yet opened the spot market will refer to the basic rules to carry out the preparation of the electricity spot market rule system and market construction and operation”.
Read China Dialogue’s recent two-part series of articles on the current state of China’s electricity market and why power spot markets are key to China’s new energy system.