On November 8, 2024, the 12th Meeting of the Standing Committee of the 14th National People's Congress passed the Energy Law of the People's Republic of China (hereinafter referred to as the Energy Law), which will come into force on January 1, 2025. The Energy Law for the first time clarifies the goals, requirements, and tasks of building an energy market system from a legal perspective, proposing to "construct an energy market system with diverse subjects, unified openness, orderly competition, and effective supervision, regulate the energy market order in accordance with the law, and equally protect the legitimate rights and interests of all types of subjects in the energy market".
The decision of the Third Plenum of the 20th Central Committee of the Communist Party of China is in line with the requirements of the Energy Law on building an energy market and a unified electricity market. Its promulgation and implementation will have a profound impact on the construction of a unified electricity market in China.
In recent years, China's electricity marketization reform has achieved remarkable results, and the role of the market in promoting the optimization of resource allocation on a larger scale has been continuously strengthened. In 2023, the total market traded electricity in China will reach 5.67 trillion kilowatt hours, accounting for 61.4% of the total electricity consumption and over 75% of the total electricity sales, an increase of nearly five times compared to 2016. The market trading scale will continue to grow; The construction of a unified national electricity market is progressing in an orderly manner, with a preliminary formation of a diversified competitive pattern. The diverse value attributes of electricity commodities are further emerging, and the regulatory system of the electricity market is becoming increasingly perfect. The role of the electricity market in resource allocation is constantly improving.
1、 Promote the optimization of resource allocation on a larger scale and build a unified and open electricity market system
Article 42 of the Energy Law stipulates that it is necessary to "promote the construction of a unified national energy trading market". The electricity market is an important component of China's energy market and has significant implications for building a unified national energy market.
Under the electricity market system of coordinated operation between provinces and within provinces in China, there are significant differences in market structure, rules, and trading varieties within each province, which increases the complexity of market operation and creates trading barriers for cross provincial and cross regional transactions, affecting market efficiency. It is urgent to further improve the trading mechanism and market rules, reduce market intervention, eliminate trading barriers, and enhance market operation efficiency.
One is to continuously expand the scope of business entities. Article 25 and Article 34 of the Energy Law respectively clarify the promotion of new energy development and utilization, as well as planning and development; Articles 57 and 32 specify the research, development, demonstration, promotion, application, and industrialization of new technologies such as hydrogen energy and energy storage, promote the high-quality development of new energy storage, and give full play to the regulating role of various types of energy storage in the power system.
Enhance the scale and diversity of business entities, and continuously improve market vitality. Classify and promote the entry of new energy, hydropower, nuclear power and other power generation entities into the market; Gradually reducing the scale of proxy electricity purchases and promoting more users to directly participate in electricity market transactions; Optimize the market access environment for new entities such as distributed power generation, virtual power plants, load aggregators, and new energy storage. Enhance market competitiveness, flexibility, and sustainability, and promote the development of the power system towards a more intelligent and green direction.
The second is to establish a comprehensive unified electricity market architecture. Clarify the functions and roles of electricity markets at all levels, guide the orderly connection and coordinated operation of the market. The provincial market should consolidate its fundamental role, achieve efficient operation of the provincial market, and optimize resource allocation; The inter provincial market plays a role in optimizing the allocation of resources on a large scale, further improving the cross provincial and cross regional medium - to long-term and spot trading mechanisms, and expanding the trading scope and scale; Implement major national and regional strategies such as the coordinated development of Beijing Tianjin Hebei, the integration of the Yangtze River Delta, and the construction of the Guangdong Hong Kong Macao Greater Bay Area, promote mutual assistance between surplus and shortage within the region, and optimize resource allocation.
The third is to improve the unified rules and technical standards of the electricity market. Continuously improve the basic rule system of the national unified electricity market, promote each province (region, city) to formulate supporting rules based on the unified rule system, enhance market transparency and fairness, and ensure fair competition among all operating entities within the unified rule framework.
Article 8 of the Energy Law requires that the state establish and improve an energy standard system. As an important component of energy standards, it is necessary to promote the construction of technical standards for the electricity market, achieve data sharing and system compatibility, reduce technical barriers in market transactions, improve market operation efficiency and stability, promote the development of new technologies such as smart grids, and lay a solid foundation for the high-quality development of the electricity market.
2、 Improve market functions and trading rules, and establish a safe and efficient electricity market operation mechanism
Article 42 of the Energy Law stipulates, "Promote the construction of a unified national energy trading market, establish market trading institutions or platforms with complete functions and standardized operations, expand trading methods and product scope in accordance with the law, and improve trading mechanisms and rules
At present, the connection between the medium and long-term markets and the spot market, spot market, and ancillary service market needs to be further improved. The types of ancillary service market products need to be enriched, and the financial derivatives trading in the electricity market urgently needs to be explored. The difficulty of market risk control and prevention continues to increase, and the market response and prevention measures and mechanisms are insufficient.
One is to deepen the construction and operation of the electric energy market. Deepen the continuous operation of the medium and long-term market, establish a flexible and efficient mechanism for contract adjustment and transfer transactions, and achieve continuous market opening on working days. Accelerate the construction of the electricity spot market and promote the formal operation of the spot market according to procedures. Strengthen the coordination and connection between the medium to long term and spot markets, as well as the spot and ancillary service markets, to improve the reliability, economy, flexibility, and adaptability of the power system and power market.
Secondly, we will continue to promote the construction of a power capacity guarantee mechanism. Establish a mechanism for assessing the adequacy of the power system, accelerate the construction of supporting regulating power sources and new energy bases, and guide the rational layout of supporting and regulating power projects; Promote the integration of energy storage, virtual power plants, and source grid load storage projects to enhance the comprehensive regulation capability of the power system. Actively promote the implementation of the capacity pricing mechanism, explore the establishment of a capacity market that adapts to China's energy structure and market characteristics, and improve the ability to ensure power supply.
The third is to optimize and improve the construction and operation of the auxiliary service market. Optimize and improve the trading varieties of auxiliary services, improve the trading mechanism of auxiliary service markets such as peak shaving, frequency regulation, and backup, promote the construction of auxiliary service markets such as climbing and moment of inertia according to local conditions, and explore market-oriented procurement mechanisms for primary frequency regulation, reactive power services, and black start. Reasonably determine the cost diversion mechanism and promote the standardized and orderly transmission of auxiliary service fees.
The fourth is to continuously improve the mechanism for forming electricity prices. Article 45 of the Energy Law stipulates that "to promote the establishment of an energy price formation mechanism that is adapted to the socialist market economy system and mainly determined by factors such as energy resource conditions, product and service costs, market supply and demand conditions, and sustainable development conditions," the reform of grid electricity prices should be continuously deepened, the cost supervision and review of transmission and distribution electricity prices should be continuously carried out, competitive link prices should be relaxed, the capacity electricity pricing mechanism should be improved and implemented, the electricity price formation mechanism should be continuously improved, the changes in electricity costs and the diverse values of electricity commodities should be scientifically reflected, and an energy price formation mechanism that combines market regulation and government regulation should be constructed.
The fifth is to deeply explore the potential of demand side participation in regulation. According to Article 35 of the Energy Law, demand side management should be strengthened by stipulating that energy users should use energy reasonably in accordance with safety usage norms and relevant energy-saving regulations, fulfill their obligation to save energy in accordance with the law, actively participate in energy demand response, expand green energy consumption, and consciously practice a green and low-carbon production and lifestyle.
3、 Steadily and orderly promote the entry of new energy into the market, and establish a clean and low-carbon electricity market operation mechanism
Under the "dual carbon" goal, China is accelerating the construction of a new type of power system, and new energy has become the main body of new installed capacity. As of the end of October 2024, the installed capacity of new energy power generation in China (including wind power generation, solar power generation, biomass power generation) has reached 1.325 billion kilowatts, accounting for 41.48% of the total installed capacity of power generation in the country, exceeding the proportion of coal-fired power generation by 4.51 percentage points. With the sustained and rapid development of new energy, the pressure of new energy consumption is constantly increasing. In terms of market mechanisms, it is urgent to improve the market system and trading mechanisms that adapt to the characteristics of high volatility and difficulty in predicting new energy output; In terms of green value, the green value of new energy has not been fully reflected, and the supporting policy measures that reflect the environmental value of new energy need to be improved; In terms of market consumption, there is insufficient guidance for users to consume renewable energy. We need to orderly promote the market-oriented process of promoting high-quality development of new energy.
Firstly, in accordance with Article 23 of the Energy Law, a top-level system design will be carried out in terms of the proportion of renewable energy consumption, organizational implementation, and monitoring and assessment. A minimum target for the proportion of renewable energy in energy consumption will be formulated and implemented, and the consumption guarantee mechanism will be improved. The implementation of the system will also be monitored and assessed.
Secondly, in accordance with Article 34 of the Energy Law, a green energy consumption promotion mechanism shall be established to encourage energy users to prioritize the use of clean and low-carbon energy such as renewable energy through the implementation of renewable energy green power certificates.
Thirdly, in accordance with Article 34 of the Energy Law, we will promote the improvement of energy utilization efficiency, encourage the development of distributed energy and multi energy complementary and multi energy joint supply comprehensive energy services, actively promote market-oriented energy-saving services such as contract energy management, and enhance the level of clean, low-carbon, efficient, and intelligent terminal energy consumption.
4、 Give full play to the role of the government and establish a well governed electricity market management mechanism
Article 41 of the Energy Law stipulates that "the state shall promote the independent operation of natural monopoly links in the energy sector and the market-oriented reform of competitive links, strengthen the supervision and regulation of natural monopoly businesses in the energy sector in accordance with the law, and support all types of business entities to participate in competitive businesses in the energy sector in accordance with market rules in a fair manner". It clarifies that in natural monopoly links, supervision and regulation shall be strengthened to ensure that enterprises operate within an independent and fair framework, and to avoid the abuse of market dominance; In the competitive stage, focus on promoting market-oriented development, encouraging fair competition, breaking down administrative barriers and entry restrictions within the industry, and further stimulating market vitality and participants' enthusiasm.
Articles 63 to 66 of the Energy Law specify the need to strengthen supervision and inspection of energy related work, fulfill supervisory and inspection responsibilities in accordance with the law, enhance energy regulatory coordination, establish an energy regulatory information system, and strengthen the construction of the energy industry credit system. The aim is to effectively leverage government regulatory functions, improve the accuracy and timeliness of energy market supervision, promote the rule of law, standardization, and efficient management of the energy sector, and ensure the full utilization of resources through the above measures.
With the promotion of the construction of a unified national electricity market, documents such as the "Electricity Market Supervision Measures" (National Development and Reform Commission Order No. 18 of 2024), the "Full Guarantee Acquisition of Renewable Energy Electricity Supervision Measures" (National Development and Reform Commission Order No. 15 of 2024), and the "Fair and Open Power Grid Supervision Measures" (National Energy Development Supervision [2021] No. 49) have been successively issued, and the top-level design of the electricity market and the construction of the market supervision system have gradually improved. In the next stage, it is necessary to continue to improve regulatory efficiency and promote the connection between proactive government and efficient market.
One is to strengthen the regulatory function of the electricity market. Further improve the legal and regulatory system for electricity market supervision, continuously optimize regulatory methods, ensure that regulatory agencies have clear responsibilities and powers, ensure that they carry out regulatory work in accordance with the law, and promote the realization of unified standards and scales for market supervision. At the same time, actively cultivate independent third-party regulatory forces, fully leverage the key role of the Market Management Committee in regulation, and ensure the smooth and orderly development of the market.
The second is to accelerate the construction of a credit system for the electricity market. The competent authorities should, under the guidance of the Energy Law, strengthen the credibility of credit evaluation in the electricity market by establishing a sound credit supervision mechanism and a market credit management mechanism that incentivizes trustworthiness and punishes dishonesty, thereby enhancing the transparency and fairness of market transactions and ensuring the orderly and efficient operation of the market.
The third is to establish a unified mechanism for information disclosure in the electricity market. By improving the unified market information disclosure system, building a diversified information disclosure platform, constructing an information disclosure evaluation and service system, and establishing a sound electricity market information disclosure mechanism, we aim to promote market transparency, fairness, and efficient operation, enhance the decision-making quality of market participants, and improve the overall stability of the market.
The promulgation of the Energy Law has paved the way for the green and low-carbon transformation and development of China's energy sector, as well as the market-oriented reform of electricity. It is an important legal basis for ensuring the high-quality development of the electricity industry. Next, under the guidance of the Energy Law, China Electricity Council will actively play the role of industry associations as bridges and links, strengthen international cooperation, fully draw on successful experiences in foreign market construction, gather industry forces, consolidate industry consensus, focus on key issues in the construction of a unified national electricity market and the green and low-carbon transformation of energy, actively serve the construction of a unified national electricity market that is "unified, open, competitive, orderly, safe, efficient, clean and low-carbon, and well governed", and contribute industry strength to China's energy green transformation and the stable and healthy development of the national economy.
