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Opinions on further promoting the pilot program of developing electricity spot markets (draft for comments)
Original title: 国家能源局综合司关于征求进一步推进电力现货市场建设试点工作的意见的函
Links: Source document (in Chinese) (link).
Opinions on further promoting the pilot program of developing electricity spot markets
(draft for comments)
In order to follow the spirit of the 19th CPC National Congress and to implement the plans of the Central Economic Work Conference, we shall speed up the development of the electricity market system in accordance with relevant requirements specified in the Several Opinions of the CPC Central Committee and the State Council on Further Deepening the Institutional Reform of the Electricity Market (Zhongfa [2015] No. 9) and supporting documents. In light of the progress achieved in the pilot projects of developing electricity spot markets (hereinafter referred to as “pilot projects of electricity spot markets”), we hereby put forward the following suggestions for pressing ahead with the pilot project of developing electricity spot markets。
I. Overall requirements
(1) Overall considerations
We shall implement the decisions and plans of the 19th CPC National Congress on moving faster in improving the system of socialist market economy and further deepen the market-oriented reform of the electricity market. We shall follow the basic laws of market economy and power system operation, and build a well-functioned electricity market with perfect functions by combining mid-to-long-term electricity trading with spot trading. In addition, we shall establish market-oriented mechanisms of balancing and pricing to ensure a future energy system that is clean, safe, efficient and low-carbon。
(2) Basic principles
Adhere to market forces。Establish and improve the spot trading mechanism, further give play to the role of the market in determining prices, and guide the production and consumption of electricity with flexible market price signals. We shall tap into the vitality of market players, enhance the flexibility of the power system, and develop energy in a clean and low-carbon way。
Suit measures to local conditions。Factors such as the power supply and demand, mix of electricity sources and the structure of grids, transmission and reception, basis for market-oriented reform and socio-economic development of different regions should be considered. Based on the reality of local communities, we shall study and formulate the plan of developing electricity spot markets for them, and encourage the application of differential approaches in different regions。
Ensure comprehensive and orderly planning。Coordinate the relationships between planning and market operation, immediate approaches and long-term strategies, intra-provincial development and inter-provincial one, mid-to-long-term and spot transactions. In addition, after adopting overall plans, we should implement them step by step, and in a proactive but steady and orderly manner。
Ensure safety and reliability。We shall conduct practical and detailed market simulations so as to expose loopholes in advance before effectively preventing and controlling risks。We shall innovate and promote the connection of transactions with system operation, and deal with emergencies in the electricity market carefully to ensure the safe and reliable supply of electricity。
2. Properly formulating plans for developing electricity spot markets
(1) Scientifically discuss electricity market models。We shall select models of electricity market which are suited to local conditions and which feature optimal openness, compatibility and expandability。In principle, in those regions with less frequent grid congestion and high market concentration on the generation side, we shall opt for a decentralized model as a start；in those regions with rather frequent grid congestion or large share of renewable energy, a centralized model will be a good choice to start with。
(2) Properly select electricity spot market composition。A spot market is mainly for day-ahead, intra-day and real-time trading of electric energy。Time-of-use (TOU) market clearing rates will be formed through competition. It will be supported by ancillary services transactions such as reserve capacities and frequency regulating services. The electric energy market lies in the core of electricity spot markets. In accordance with the selected model of electricity market, each region can establish their day-ahead, intra-day and real-time market (or real-time balancing mechanisms) synchronously or step by step。In principle, in those regions following a decentralized market model, developing real-time markets (or a real-time balancing mechanism) can be a start；in those regions with centralized model, day-ahead markets (or a day-ahead pre-clearing mechanism) and real-time market can be good choices。
(3) Properly define the main participants in electricity spot markets。Main participants shall include power generation enterprises, power supply enterprises (including local grids, wholesale counties, high-tech industrial parks and economic and technological development zones, pilot projects of incremental power distribution network, etc.), power selling enterprises, and power users who direct participate in spot transactions, etc。In principle, all kinds of market participants shall participate in ESMs, and each pilot region shall clarify the specific ways of their participation according to their plan of power generation and consumption。
(4) Market construction in regions with favorable characteristics。Pilot electricity spot markets projects shall meet the national requirements on coordinated regional development and serve the major strategies such as coordinated development of the Beijing-Tianjin-Hebei area, the development of the Yangtze River Economic Zone, and the development of the Greater Bay Area of Guangdong, Hong Kong and Macao. In accordance with the requirements of building a unified and open market system that enables orderly competition, we shall create favorable conditions for intra-market transactions and market integration in the future, so as to further promote consumption of clean energy in a broader scope。
3. Coordinated planning of electricity spot markets linking mechanisms
(5) Coordinate inter-provincial trading and provincial (regional or municipal) spot markets。Parties of all kinds of mid-to-long-term priority power generation contracts across regions or provinces and parties to mid-to-long-term market transactions need to agree in advance to settle their transactions based on transaction curves。The day-ahead inter-regional or inter-provincial power transmission curve, which has been validated by safety checks, shall serve as the boundary condition of the electricity spot markets of the recipient provinces, and the deviation part shall be settled at the spot market prices of the recipient provinces。Before the national government regulations on inter-regional or inter-provincial power transmission plans are released, the power grid enterprises of the recipient provinces or other representatives of the enterprises authorized by the government may directly enter into tripartite mid-to-long-term contracts with the power generation and transmission parties. The contract will stipulate the typical power transmission curves and the conditions for using power transmission capacities。
(6) Comprehensively coordinate the government-authorized contracts with electricity spot markets。For the capacity derived from annual preferential power generation, preferential power consumption and planned power generation on which regulations have not been eased, we shall establish mechanism of government authorized contracts; power grid enterprises shall enter into annual contracts for difference to promote fair and reasonable settlement。In regions with a large share of preferential power generation, we shall encourage relevant parties to explore the mechanism for power grid enterprises to enter into government authorized contracts with market users。
(7) Comprehensively coordinate mid-to-long-term transactions and the electricity spot markets within each province。We shall ensure that mid-to-long-term transactions can be made by signing one or various forms of contracts, such as physical contracts and contracts for difference (CFDs)。The electricity contracts formed in mid-to-long-term bilateral transactions can be decomposed into time-of-use (TOU) curves by both parties to such transactions。For the mid-to-long-term transactions subject to physical contracts, their decomposition curves shall be given priority for clearing in the spot market on the premise of meeting the safety constraints of power grids。
(8) Comprehensively coordinate the power ancillary service market and electricity spot markets。In order to adapt to the electricity spot trading, we shall actively promote the development of ancillary service market, and promote the market-oriented reform of compensation mechanism for ancillary services such as frequency regulation and reserve power systems。We shall try to establish a mechanism for power users to sharing ancillary service costs, and encourage third parties such as energy storage facilities to participate in ancillary service market。
4. Establishing a sound mechanism for operating electricity spot markets
(9) On the consumption side, guide electric power users to participate in making offers in an electricity spot markets in an orderly manner。We may allow the generation side to make unilateral offers when the market is not well developed, market players are not mature enough and metering facilities are not widely used；And users can take the offers and follow prediction curves or declare only volume instead of prices。In areas where conditions are better, users can be encouraged to make offers for both volume and prices gradually。Both the spot prices generated through unilateral declaration on the generation side and the prices generated through bilateral declaration on both sides shall be directly used as the settlement spot prices on consumption side, so as to guide power users to nurture a system-friendly habit in using electricity。
(10) Establish a spot trading mechanism to promote clean energy consumption。At the initial stage of the market development, we can allow renewable energy users to declare power volume (i.e. curves) without offering prices to participate in the electricity spot markets, and price takers shall be given priority for market clearance to prioritize the consumption of clean energy. Each pilot region for electricity spot markets shall study and clarify the timetable for orderly arranging participants of the clean energy market to enter into the electricity spot markets by declaring both volume and prices。
(11) Properly select the mechanism for spot market price formation。According to the grid structure and severity of congestion in each pilot region, these may opt for pricing mechanisms such as system marginal prices (SMP), zonal marginal price (ZMP) and location-based marginal price (LBMP)。Areas with numerous congested lines and high congestion costs may opt for a LMP mechanism；areas with fewer congested lines and low congestion costs may opt for a ZMP or LMP mechanism。For the regions that have opted for ZMP or LMP mechanisms, they shall properly allocate the congestion surplus or cost among market participants。The pilot regions may explore and carry out flow transmission rights (FTR) trading according to their needs。When designing price formation mechanism in electricity spot markets, avoid increasing cross-subsidizing among market participants。
(12) Set price limits in electricity spot markets in a scientific manner。When setting spot market price limits, we shall follow the basic principles of promoting peak load shifting and consuming clean energy on the consumption side while preventing abnormal price fluctuation。When setting the upper limit of prices, we may refer to the user outage loss settings, and the lower limits of price may be lower than the variable cost of renewable energy. It is necessary for us to avoid setting unreasonable upper and lower limits that risk constraining the price signals to play their due role。
5. Enhancing the capacity for operating electricity spot markets
(13) Establish and improve the relevant working system for operating electricity spot markets。Market operators shall strengthen the formulation of relevant work systems and constantly improve market operation management and control。We shall establish the norms for power market operation by clarifying the relevant duties of dispatching agencies and trading institutions. We shall establish a system for managing confidential information related to market operation, standardize information exchanges and procedures of use, and prevent key information leakage. We shall establish an avoidance system for key positions and personnel in market operation so as to effectively achieve market neutrality and level the playing field for market participants。
(14) Improve the organizational capacity of market operation agencies。Under the guidance of the major authority in charge of the pilot programs, grid enterprises shall speed up the optimization of the organizational structure of the main participating operators of spot market, strengthen the development of professional teams and enhance the training of full-time personnel. We shall ensure the thorough research on spot market rules, building market system and operation management so as to meet the needs of spot market development and operation。
(15) Strengthen the management of power system operation。We shall strictly implement the requirements and follow the operation control standards on power grid safety, and standardize the calculation and use of reserve capacity and frequency adjustment. We shall strictly calculate transmission limits of grid blocking section in accordance with the guidelines for safety and stability of power system；in the case of grid failure and unbalanced supply and demand, dispatching agencies may deal with the abnormal situation according to the rules formulated beforehand to ensure the safety of system operation。
(16) Improve the disclosure mechanism for market information。According to the principle of supporting transactions, trading institutions shall collect information of all market participants and disclose such information on electricity spot markets based on different time requirements to the public in a unified manner. Such information include but not limited to trading rules, announcements of transactions, available capacity of transmission channels and the market information on completed transactions. The regions that adopt LMP shall provide information on electricity market, including power transmission sections, grid topology, LMP power tariffs, shut-down of equipments, operation of non-market power units, etc., so as to guide the active and effective involvement of market participants and ensure an open, equal and just market。
6. Standardizing the platforms for operating electricity spot markets
(17) Standardize the functioning of technical support systems。By drawing reference to the requirements of the Guidelines for Spot Transaction and Spot Settlement Functions of Electricity Market Operation System (Trial), we shall build an information platform suitable for the development of electricity spot markets。Market operators shall help market participants learn about the functional modules of electricity spot markets technical support systems, clarify the objective functions and the calculation process, and they shall formulate necessary specifications for this purpose；They shall analyze the performance of the systems, address the existing problems and risks of the iteration systems, and well conduct the work related to periodic recording, summarizing and disclosing. In addition, they shall constantly standardize and improve the functions of the technical support systems。
(18) Standardize the process of developing technical support systems。We shall make unified security standards for the technical support systems, functional specifications, data model and interface specifications, and establish a multi-system, multi-platform data sharing mechanism。The technical support systems shall be subject to bidding procedures and supervision。
(19) Standardize the operation and management of technical support systems。Before the trial operation of such systems, power regulatory authority shall organize third-parties to verify the clearing software. At all stages of system operation, a fair, standardized and transparent working mechanism shall be set up。System adjustment that truly necessitates human intervention shall be done in accordance with market rules。with adjustment strictly filed and information disclosed to market participants；The standards for setting key market parameters and their valuation in the system shall be implemented only after the approval of the electricity market management committees；In addition, logs shall be set up for the adjustment of key market parameters, and new values of the parameters shall be disclosed to market participants in time。
7. Improving supporting mechanisms for electricity spot markets
(20) Establish a mechanism for adjusting tariffs according to the changes in electricity spot markets。We shall take into account the settlement of government authorized contracts as a whole. According to the price signals formed in the electricity spot markets, we can dynamically adjust all user tariffs which are decided by the authority in a quarterly cycle, and solve the problem caused by dual-track pricing on the consumption side step by step。
(21) Improve the transmission and distribution pricing mechanism to match the electricity spot markets operation。The cost of system access should be calculated according to the access location of power generation side and load side。We shall improve the pricing mechanism of inter-provincial transmission, intra-provincial transmission and distribution which is compatible with the pricing mechanism of electricity markets。
(22) Improve the long-term supply support capacity in the power system。We shall persist in well evaluating and analyzing the long-term supply capacity of power systems, balancing cost reduction and stable supply, and design a reasonable market mechanism to effectively guide investment into the power sector. We shall speed up research and establish a capacity compensation mechanism or capacity market in a timely manner, so as to ensure the long-term capacity adequacy of the power system。
(23) Enhance the supervision of the electricity market。We shall effectively strengthen the scientific supervision of the electricity market, improve the organizational system of market supervision and balancing the role of market supervision and industry self-discipline. We shall comprehensively use credit supervision and administrative management means to supervise the market participants’ behavior in implementing market rules, particularly the market participants’ ability in executing market power, market manipulation, violation of market rules and other actions, so as to maintain market order。
(24) Evaluate electricity spot markets operation performance。National Development and Reform Commission and the National Energy Administration are responsible for organizing and formulating an evaluation indicator system for electricity spot markets。In order to safeguard market operation, ensure market operation efficiency, social welfare increase and clean energy consumption, we shall conduct an all-round post-evaluation on the operation of electricity spot markets, the implementation of power market rules, and the operation of technical support systems, so as to summarize and continuously improve market mechanism in a timely manner。
8. Make efforts in organizing the program of electricity spot markets construction
We should clarify the division of labor for all pilot regions in developing electricity spot markets as soon as possible。Relevant government departments in pilot regions, relevant local branch offices of the National Energy Administration (NEA), relevant power grid enterprises and power trading institutions shall, in accordance with the division of work, cooperate in the following tasks：
(1) Speeding up the research on and formulation of spot market development plans and operational rules; speeding up the development of relevant technical support systems for spot markets；
(2) Formulating a set of trial market operation schemes, including。conducting market simulations, identifying problems, and improving market rules and technical support systems in a timely manner；
(3) Strengthening market tracking, analysis, monitoring and early warning; continuously improving rules and systems to ensure the smooth and sustainable operation of spot markets；
(4) Preparing market contingency plans, guarding against potential risks。Handle such risks in a scientific and orderly manner to ensure the safe and reliable supply of electricity.。
In case of any major problem, please report to the National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) in a timely manner。
