China plans national power market by 2030 to boost decarbonization efforts

China plans to set up a uniform power market by 2030 and launch a national power exchange 'when the time is ripe', moves that are key to the large-scale adoption of renewables and the decarbonization of the world's largest power sector.

The country's top economic planner National Development and Reform Commission, or NDRC, and the National Energy Administration end-January published "guidelines for accelerating the development of a uniform national power market mechanism."

The NDRC provided a roadmap to establish a power market with electricity flowing across an integrated national power grid. It officially proposed the creation of a national power exchange for the first time.

The guidance tackles bottlenecks that hinder China's cross-regional power trading, critical for boosting renewables' utilization rates. The country's existing fossil fuels-based power grids lack the capability to manage intermittency and are unable to respond to real-time changes in electricity demand and supply.

China's power sector reforms, in progress for decades after it opened of its economy and liberalized its power market, have mostly focused on the reorganization of state-run power generation and transmission utilities, and state-owned enterprises.

The NDRC proposes to significantly increase the scale of market-based cross-regional trading of renewables-based electricity, while keeping prices for electricity supplied to residential, agricultural, and public service sectors stable.

"NDRC and NEA will work with related authorities to develop uniform trading rules, covering requirements for market entry and exit, the types of products, as well as operation and settlement rules," the NDRC said, adding that technology and data standardization will be conducted between different power exchanges.

The plan aims to reshape the roles played by central and provincial governments, power grids, generation utilities, retailers, and individual consumers in the power system.

The country expects to set up a preliminary national power market by 2025, allowing national and provincial and regional power markets to operate together. The preliminary market design would support medium term, long term, spot trading and ancillary services.

The launch of a national power exchange will depend on the readiness of infrastructure networks and connectivity among provincial power exchanges and local grids. It will eventually enroll generation utilities, power retailers, power consumers and eligible investors into a uniform marketplace.

The NDRC also said that the renewables-based power market will develop alongside China's emissions trading.

Cross trading

The regional power markets in the Beijing-Tianjin-Hebei area, Yangtze River Delta area and the Greater Bay area (covering Guangdong, Hong Kong, and Macau) will support interregional and medium-term to long-term power trading, the NDRC said.

China has already initiated several pilot programs for trading renewables-based electricity, but it is yet to set up a national power market like the ones in Europe.

"When the time is ripe, provincial power exchanges shall be supported to merge with the national power market," the NDRC said. "Alternatively, several provincial power exchanges may integrate into a regional power market first, and then merge with the national market."

The power exchanges in Beijing and Guangzhou are already involved in cross-regional power trading. The Beijing Power Exchange Center is partly owned by State Grid, while China Southern Power Grid has a 66.7% share in Guangzhou Power Exchange Center.

Renewables support

The new system will give priority to renewables-based electricity for trading and distribution, according to the plan, with pricing mechanisms facilitating the development of new energy sources and storage. Renewables, such as solar, wind, biomass, and hydropower, are among the new energy sources.

"By 2030, new energy shall be fully covered in market-based power trading," the NDRC said. "A level playing field shall be created and market participants shall have the freedom to choose fuel sources."

Medium and long-term trading mechanisms will be developed to suit new energy sources, and companies will be encouraged to sign medium and long-term contracts for new energy-based power supplies and participate in spot trading for new energy.

A spot power market will convey clearer price signals based on accurate, real-time supply and demand, the NDRC said. Uniform power trading will enable consumers to adjust demand with clear price signals, and power producers with small-scale, decentralized solar and wind power will be encouraged to trade directly with consumers.

The NDRC said more types of products, standardized contracts, and trading procedures are expected to be introduced for medium-term and long-term power trading in the future.