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Power Market Reform in China: Lessons from Guangdong

In Collaboration with Chung-Han Yang and Hao Chen

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Reforming the Chinese Electricity Supply Sector

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Abstract

Guangdong is the largest and the most economically successful province in China. In 2017 Guangdong contributed more than 27.1% of Chinese exports, 10.9% of GDP, 8.1% of the population (c.112 m) and 9.5% of electricity consumption in China. Guangdong has relatively high final electricity prices in China (for residential and most industrial and commercial customers) and is a net importer of power from other provinces. It contains the Shenzhen special economic zone which allows the introduction of new market measures not currently rolled out across China.

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Notes

  1. 1.

    These data are drawn from the website of National Bureau of Statistics(NBS), http://www.stats.gov.cn/

  2. 2.

    S ee Cheng (2016).

  3. 3.

    Se e IEA (2019, p. 38).

  4. 4.

    Chau et al. (2011). See also Wen (2017).

  5. 5.

    China National Development and Reform Commission (2015a). ‘国家发展改革委关于深圳市开展输配电价改革试点’ 发改价格【2014】2379号Retrieved from: http://jgs.ndrc.gov.cn/zcfg/201411/t20141104_639639.html

  6. 6.

    See https://pm.gd.csg.cn

  7. 7.

    Guangzhou Power Exchange Center (2017a). 《南方区域跨区跨省月度电力交易规则(试行), Retrieved from: https://www.gzpec.cn/main/index.do

  8. 8.

    Bui et al. (2002) and also Andrews-Speed (2013).

  9. 9.

    See also Xinhua Finance (2015). Shenzhen given nod to pilot new power transmission, Available at: http://en.xfafinance.com/html/Industries/Utilities/2015/40163.shtml

  10. 10.

    Se e Reinhold Cohen (2015).

  11. 11.

    C heng et al. (2016).

  12. 12.

    Ch eng et al. (2016). See also Liu, D. (2017). ‘电力市场、碳排放权市场和绿色证书市场的协调发展’.Electricity market, carbon market and green certificate mechanisms development, industry perspective, China Electrical Equipment Industry, 2017.07.

  13. 13.

    See ICAP Status Report 2017.

  14. 14.

    S ee Pike and Zhe (2017).

  15. 15.

    W ang et al. (2016).

  16. 16.

    S ee China5e Research Centre (2016); China National Development and Reform Commission (2015b). ‘电力体制改革解读’. Analysis of Electricity Institutional Reform, Remin Publisher, Beijing.

  17. 17.

    Zhang (2017). See als o Zhang and Xu (2017). ‘中国能源大省电力市场建设经验分析’. Electricity Market Construction Experience of Major Provinces of Energy in China. Electric Power, 2017, 50(4): 7–10.

  18. 18.

    See People’s Government of Guangdong Province (2017a). ‘广东电力市场交易基本规则(试行)’ Retrieved from: http://www.nea.gov.cn/2017-01/20/c_135999956.htm

  19. 19.

    S ee Guangzhou Power Exchange Center (2017b).

  20. 20.

    Se e also Yang et al. (2017). ‘广东电力市场需求侧响应交易机制研究’. Research on Demand Response Trading Mechanism in Guangdong Electricity Market, Guangdong Electric Power, 30(5), 25–34.

  21. 21.

    Across the whole of the China Southern Grid area grid investment amounted to 77.5 bn RMB in 2016.

  22. 22.

    Source: US EIA.

  23. 23.

    S ee Chick (2007, pp. 57–83) who discusses the history of marginal cost pricing in the electricity industries of Britain, France and the US.

  24. 24.

    See, for example, Hurlbut et al. (2017) who discuss lessons from MISO’s experience for China.

  25. 25.

    S ee Stoft (2002, pp. 202–314) who discusses the complete set of energy markets and ancillary services markets.

  26. 26.

    Andre ws-Speed et al. (2003).

  27. 27.

    Zeng et al. (2004). See als o Bessembinder and Lemmon (2002).

  28. 28.

    S ee APX et al. (2013) for a description of EUPHEMIA.

  29. 29.

    Ibid.

  30. 30.

    M ansur and White (2012).

  31. 31.

    See Stoft (2002, pp. 93–106) for a discussion of auction designs for electricity markets. He argues against using untested market designs. Stoft (2002, p. 101) has a discussion of the limited circumstances under which pay-as-bid might be preferred to a single price auction in electricity. For a more detailed discussion of discriminatory price auctions versus single price auctions, see Krishna (2010, pp. 173–184).

  32. 32.

    Li and Shen (2016). G uangdong Electric Power Trading Center yesterday officially launched mainly acts as a ‘matchmaker’, Top News. See also South China Energy Regulatory Bureau of National Energy Administration of PRC China (2015). ‘广东省电力大用户与发电企业直接交易扩大试点工作方案’ Retrieved from: http://nfj.nea.gov.cn/adminContent/initViewContent.do?pk=zwgk1492

  33. 33.

    Regulatory Assistance Project (RAP) (2016). S ee also Sung (2017). ‘广东电力市场改革和售电策略探讨’. Guangdong electricity market reform and sale strategy, Mechanical and Electrical Information, 2017 June, 89–90.

  34. 34.

    On 7 November 2017, China NDRC just published Guangdong’s transmission and distribution charges for 2017–2019《国家发展改革委关于广东电网2017–2019年输配电价的通知》(发改价格〔2017〕969号) http://shupeidian.bjx.com.cn/news/20171107/859803.shtml See also China National Development and Reform Commission (2016a). ‘国家发展改革委 国家能源局关于印发《电力中长期交易基本规则(暂行)》’ 发改能源〔2016〕2784号Retrieved from: http://www.ndrc.gov.cn/zcfb/zcfbtz/201701/W020170112319053238252.pdf See also China National Development and Reform Commission (2017). ‘国家发展改革委关于印发《省级电网输配电价定价办法(试行)》’ 发改价格〔2016〕2711号Retrieved from: http://www.ndrc.gov.cn/fzgggz/jggl/zcfg/201701/t20170104_834333.html

  35. 35.

    See China National Development and Reform Commission (2015a). ‘国家发展和改革委关于深圳市开展输配电价改革试点’ 发改价格【2014】2379号Retrieved from: http://jgs.ndrc.gov.cn/zcfg/201411/t20141104_639639.html

  36. 36.

    At $1 = 6.64 RMB.

  37. 37.

    See China Electric Council (2017) 告别无序竞争 电力市场呼吁售电专业化时代http://www.cec.org.cn/xinwenpingxi/2017-10-30/174433.html

  38. 38.

    China National Development and Reform Commission (2017). ‘国家发展改革委关于印发《省级电网输配电价定价办法(试行)》’ 发改价格〔2016〕2711号Retrieved from: http://www.ndrc.gov.cn/fzgggz/jggl/zcfg/201701/t20170104_834333.html

    China National Development and Reform Commission (2017). 国家发展和改革委 《关于深化电力现货市场建设试点工作的意见》的通知, 发改办能源规〔2019〕828号, retried from: http://www.ndrc.gov.cn/zcfb/gfxwj/201908/t20190807_943963.html

  39. 39.

    Tung and Huang (2017). ‘美国 PJM 电力市场及对广东电力改革的启示’ Experiences in PJM Market in the United States: A Good Reference for the Power Market Reform in Guangdong Power Grid, Yunnan Electric Power, 2017, 45(1). See also Zhang et al. (2015), ‘售电侧市场放开国际经验及其启示’ International Experience and Lessons in Power Sales Side Market Liberalization, State Grid Energy Research Institute. Retrieved from: http://www.aeps-info.com/aeps/ch/reader/create_pdf.aspx?file_no=20151128001&flag=1&journal_id=aeps&year_id=2016

  40. 40.

    Please see the latest progress of spot market pilots in China at http://www.nea.gov.cn/2017-09/05/c_136585412.htm See also Tsai et al. (2017). “英国电改专家怎么看待中国电改,给了什么建议?——专访剑桥大学能源政策研究所副所长迈克尔·波利特教授” Interview with Professor Michael Pollitt, Energy Observer, Retrieved from: http://www.eothinker.com/eo/show.php?itemid=569

  41. 41.

    S ee Ofgem (2017).

  42. 42.

    S ee Ofgem (2016) which reports that most power that is traded in Great Britain is traded in OTC (over-the-counter) contracts, not via power exchanges.

  43. 43.

    See M. Harrison, ‘Independent Energy collapses with customers still owing £119 m in bills’, The Independent, 8 September 2000. Available at: http://www.independent.co.uk/news/business/news/independent-energy-collapses-with-customers-still-owing-pound119m-in-bills-699827.html

  44. 44.

    Se e Taylor (2007).

  45. 45.

    See M. Harrison, ‘Generators exposed after collapse of TXU Europe’, The Independent, 20 November 2000. Available at: http://www.independent.co.uk/news/business/news/generators-exposed-after-collapse-of-txu-europe-128536.html

  46. 46.

    For a discussion in a European context, see Marino et al. (2011).

  47. 47.

    S ee Jamasb and Pollitt (2007).

  48. 48.

    Se e Lohmann (2001).

  49. 49.

    Se e Hermann and Pond (2012).

  50. 50.

    See Wen (2017). Sung (2017). ‘广东电力市场改革和售电策略探讨’. Guangdong electricity market reform and sale strategy, Mechanical and Electrical Information, 2017 June, 89–90.

  51. 51.

    See the official website of SESS深圳市深电能售电有限公司 (in Chinese) available at: http://www.sz-sess.com/index

  52. 52.

    See the official website of China Resource Power (华润电力) available at: http://www.cr-power.com/en/

  53. 53.

    See China Resources Power (in Chinese) ‘售电公司那么多,谁已经开始行动了?’ available at: http://www.360doc.com/content/16/0514/11/30627394_559016726.shtml

  54. 54.

    See National Business Daily (2015). ‘科陆电子、比亚迪入股民营售电公司’ available at: http://finance.ifeng.com/a/20150327/13586347_0.shtml

  55. 55.

    People’s Government of Guangdong Province (2017a). ‘广东电力市场交易基本规则(试行)’ Retrieved from: http://www.nea.gov.cn/2017-01/20/c_135999956.htm; People’s Government of Guangdong Province (2017c). ‘广东电力市场建设实施方案’, Retrieved from: http://dp.meizhou.gov.cn/show/index/630/15611; See also Shu et al. (2016a, b).

  56. 56.

    ‘China National Development and Reform Commission and National Energy Administration (2016)’, 电力发展 ‘十三五”规划(2016–2020 年)’ NDRC, NEA: Electricity Sector Development under 13th Five-Year Plan (2016–2020), 25 December, 2016, Retrieved from: http://www.sdpc.gov.cn/zcfb/zcfbghwb/201612/P020161222570036010274.pdf

  57. 57.

    See the official website of Guangdong Electric Power Design Institute Co. Ltd. (广东电力设计院) available at: http://www.cccme.org.cn/shop/cccme8977/index.aspx

  58. 58.

    See Pollitt (2004) for a discussion of the case of Chile where wholesale electricity market prices have been fluctuating up and down (driven by water scarcity) since 1982. Paredes (2003) discusses the links between price fluctuations and performance in the case of Chilean public services.

  59. 59.

    Se e Newbery and Pollitt (1997) for an analysis of the impact of the introduction of a wholesale power market in England and Wales on operational and investment efficiency.

  60. 60.

    CMA (2016, pp. 183–188).

  61. 61.

    Se e Mansur and White (2012) for an analysis of benefits of market extension in PJM.

  62. 62.

    N g (2016).

  63. 63.

    S ee China Light and Power Group (CLP) (2016).

  64. 64.

    S ee China Southern Power Grid (CSPG) (2016), Corporate social responsibility report 2016. Retrieved from: http://www.csg.cn/. See also Wang et al. (2006).

  65. 65.

    Se e Ho et al. (2017).

  66. 66.

    Zh ang et al. (2014).

  67. 67.

    Se e Chen (2018). The 2017 figures for payments to generators in Guangdong are: coal −0.4505 RMB/kWh (source: http://news.bjx.com.cn/html/20170418/820743.shtml), gas −0.745 RMB/kWh (source: http://shoudian.bjx.com.cn/news/20171010/854086.shtml), wind −0.61 RMB/kWh (source: http://news.bjx.com.cn/html/20151215/691707-2.shtml) and solar −0.85 RMB/kWh (source: http://news.bjx.com.cn/html/20161227/799707.shtml)

  68. 68.

    See Guangzhou Power Exchange Center (2017a). 《南方区域跨区跨省月度电力交易规则(试行)》, Retrieved from: https://www.gzpec.cn/main/index.do. See also Meng, T. Li, C. & Chang, T. (2016). ‘未来广东电力市场下实时调度规则思考’ Guangdong Science & Technology, 2016, 25(16).

  69. 69.

    See Shu et al. (2016a). ‘基于优化理论市场化的日前电力市场机制设计’ Day ahead Electricity Market Design Based on Market Interpretation of Optimization Theory, Automation of Electric Power Systems. Vol. 40, No. 2.

  70. 70.

    Five pricing zones across Guangdong in addition to Shenzhen.

  71. 71.

    See National Energy Administration China’s official announcement on 13 November 2017 ‘广东各价区输配电度电价最低-5.16分/千瓦时’ Retrieved from: http://www.nea.gov.cn/2017-11/13/c_136749039.htm

  72. 72.

    See NDRC’s official announcement on 22 December 2016b publishing NDRC Price Reform Document 2016 No. 2711 “省级电网输配电价定价办法(试行)” Retrieved from: http://www.ndrc.gov.cn/gzdt/201701/t20170104_834330.html

  73. 73.

    On 7 November 2017, China NDRC just published Guangdong’s transmission and distribution charges for 2017–2019《国家发展改革委关于广东电网2017–2019年输配电价的通知》(发改价格〔2017〕969号) http://shupeidian.bjx.com.cn/news/20171107/859803.shtml

  74. 74.

    See NDRC Guangdong office’s Price Reform Document 2017 No. 498 ‘广东省发展改革委关于调整销售电价等有关问题的通知’ Retrieved from: http://www.gddrc.gov.cn/zwgk/zdlyxxgkzl/djml/xxml/201710/t20171017_433270.shtml See also NDRC Guangdong office’s Price Reform Document 2017 No. 498 ‘广东省发展改革委关于调整销售电价等有关问题的通知’ Retrieved from: http://www.gzns.gov.cn/zwxxgk/zdlyxxgk/jghsf/201707/P020170726493877075556.pdf

  75. 75.

    See People’s Government of Guangdong Province (2017b). ‘广东电力市场监管实施办法(试行)’ Retrieved from: http://www.nea.gov.cn/2017-01/20/c_135999956.htm. See also Sun and Su (2017). China, The Energy Regulation and Markets Review (Edition 6), Edited by David L Schwartz, Law Business Research for a discussion of the government institutions overseeing the energy sector.

  76. 76.

    The first legal case regarding the applicability of the Act to the power sector appeared in Shanxi in June 2017, when the regulator applied the Act to several generators. This is being challenged by the generators who are challenging whether the Act can apply given that there is not a fully competitive electricity market. See http://finance.sina.com.cn/roll/2017-08-08/doc-ifyitapp2997520.shtml; http://news.xinhuanet.com/2017-06/06/c_1121092318.htm; and https://hk.saowen.com/a/ba4f85af87d5d5a78c9572a60e62b11de7ac497c60818c08dad5a55649576c81

  77. 77.

    Li a nd Yu (2017).

  78. 78.

    Yudean is 24% owned by China Huaneng Group and 76% by the People’s Government of Guangdong Province (see http://www.gdyd.com/site/yudean/gsjj/index.html).

  79. 79.

    See also Yang et al. (2017). ‘广东电力市场需求侧响应交易机制研究’. Research on Demand Response Trading Mechanism in Guangdong Electricity Market, Guangdong Electric Power, 30(5), 25–34. Pang, P. (2016). ‘电力市场化改革背景下电力需求响应机制与支撑技术’. Electric Power Demand Response Mechanism and Support Technology Under Electric Power Market Reform, Guangdong Electric Power.

  80. 80.

    S ee Zhang (2017) for a commentary on this figure.

  81. 81.

    With thanks to Phil Chen for explaining this in a note: ‘Clearing mechanism of Guangdong Power Market in 2016’.

  82. 82.

    On suggestions for good auction design, see Klemperer (2002) an d Ausubel and Cramton (2011).

  83. 83.

    Feng (2016a). ‘从云南方案看新电改隐患’ Yunnan local pilot and challenges for China’s recent power sector reform, China Energy, Retrieved from: http://www.cnenergy.org/yw/zc/201602/t20160205_270260.html

  84. 84.

    See Zhang (2017). See also Tung and Huang (2017). ‘美国 PJM 电力市场及对广东电力改革的启示’ Experiences in PJM Market in the United States: A Good Reference for the Power Market Reform in Guangdong Power Grid, Yunnan Electric Power, 2017, 45(1).

  85. 85.

    Se e Feng (2016a, b) and discussions in Cheng et al. (2018) and Liu et al. (2019).

  86. 86.

    Zh ang et al. (2014).

  87. 87.

    Se e DECC (2015, p. 9).

  88. 88.

    Guangzhou Power Exchange Center (2017a). 《南方区域跨区跨省月度电力交易规则(试行)》, Retrieved from: https://www.gzpec.cn/main/index.do

  89. 89.

    For a discussion in the context of California, see https://www.eia.gov/electricity/policies/legislation/california/assemblybill.html

  90. 90.

    S ee FERC (2004) for a discussion of this in the context of setting up an independent system operator in the US. Henney (1994) presents the background to the establishment of the power pool in Great Britain on 1 April 1990.

  91. 91.

    Se e Adib et al. (2013) for a discussion.

  92. 92.

    Document No.9 is a policy document, not a law. Some local governments say that sometimes they do not know whether they should just follow policy documents and ignore the content of current Electricity Act (1996). There is therefore an urgent need to revise the current legal frameworks for China’s electric industry in line with the policy goals of the No.9 document. See China Electric Council http://news.bjx.com.cn/html/20161129/792530.shtml

  93. 93.

    Zhang and Dai (2018). S ee als o Wilson, Yang, and Kuang (2015).

  94. 94.

    Se e Henney (1994, 2011) for a discussion of the reform process in the UK.

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    Michael G. Pollitt

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Appendix: How Changing Infra-Marginal Bids Changes the Auction Results in the 2016 Power Market Auction Design

Appendix: How Changing Infra-Marginal Bids Changes the Auction Results in the 2016 Power Market Auction Design

What If R2 (the second and third units of retail demand) had bid −100, instead of −50. Panels A to D change and the R2 receives a bigger discount. See Figs. 3.10 to 3.13 for the calculations. R2’s discount was originally −170.8; it is now −268.8. All other prices are changed.

Fig. 3.10
figure 10

Retailer (green) bids and generator (blue) offers, with maximum trading volume (red)

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Fig. 3.11
figure 11

Calculation of system discount charge

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Fig. 3.12
figure 12

Allocation of system discount charge to winning bidders

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Fig. 3.13
figure 13

Calculation of final prices paid to winning retailers and generators

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If G1 (the two cheapest units of generation) had bid −350, rather than −400, then they would end up receiving higher payments. Figures 3.14–3.17 show the calculations. G1’s original payment was a discount of −234.3; it now becomes −206.8. Note all other final prices are changed.

Fig. 3.14
figure 14

Retailer (green) bids and generator (blue) offers, with maximum trading volume (red)

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Fig. 3.15
figure 15

Calculation of system discount charge

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Fig. 3.16
figure 16

Allocation of system discount charge to winning bidders

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Fig. 3.17
figure 17

Calculation of final prices paid to winning retailers and generators

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Pollitt, M.G. (2020). Power Market Reform in China: Lessons from Guangdong. In: Reforming the Chinese Electricity Supply Sector. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-39462-2_3

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