Judging from the change in electricity prices, this round of electricity reform

Polaris Solar Photovoltaic Network News: This round since March 2015Power system reformIt was officially launched, and five years have passed in a blink of an eye. At the moment when the 13th Five-Year Plan is coming to an end and the 14th Five-Year Plan is about to begin, it is necessary for us to carefully review the achievements made in this round of electricity reform, reflect on existing problems, examine the difficulties faced, and look forward to the direction of subsequent efforts.

The most intuitive feeling about the effectiveness of electricity reform is electricity prices. This article will observe the progress and problems of electricity price level, electricity price mechanism, external electricity price cost since this round of electricity reform from the perspective of electricity price, and make suggestions on some key issues.

Judging from the electricity price level, this round of electricity reform

Electricity price levels have dropped significantly

Since this round of electricity reform, the overall level of electricity prices in my country has dropped significantly. Generally, industrial and commercial electricity prices fell most significantly, with an average national drop of more than 20%. The reduction in electricity price levels has played a positive role in supporting the survival and development of the real economy, especially small and medium-sized enterprises.

The decline in the electricity price level in recent years is mainly attributed to two factors:

One isOn-grid electricity pricereduce. As my country's economic development enters a "new normal", there is an oversupply of electricity. Under this situation, the power generation industry will reduce profits and even losses, and the market transaction price will naturally decrease.

Second, taxes and fees are reduced. In the past two or three years, the country has introduced a series of policies that have significantly reduced value-added tax, government funds and surcharges.

Cross-subsidies among all types of users have been improved, but they are still serious

This round of electricity reform has significantly reduced the electricity prices of general industrial and commercial industries. Some provinces and regions have even experienced inverted electricity prices and costs in general industrial and commercial industries.

The prices of electricity used in large industries, residents and agriculture have not changed much in the past five years. In 2019, the electricity price for large industrial electricity consumption without tax increased instead of falling. The reason is that the price reduction space formed by adjusting the value-added tax rate of power grid enterprises from 16% to 13% is all used to reduce the electricity price of general industrial and commercial enterprises, while the electricity price for large industrial users with tax remains unchanged, which has led to an increase in the electricity price for large industrial electricity consumption without tax.

Cross-subsidy between voltage levels has not improved

Due to the long-term cross-subsidy impact, there are generally subsidies for high-voltage electricity consumption in my country, which resulted in the high-voltage electricity price being too high, while the low-voltage electricity price being too low.

This problem was originally a problem with the original electricity price mechanism (catalog electricity price), but when judging the transmission and distribution prices in the first regulatory cycle, the "connection" with the catalog electricity price was considered, which led to this problem being brought into the transmission and distribution price.

This problem is the root of many current problems, such as: power supply transfer has been repeatedly banned and has even become more and more serious. Due to the low price difference between voltage levels, power grid companies are only willing to invest in the construction of high-voltage transmission facilities. Low-voltage distribution facilities are often forced by power users to invest in and build on their own. Some power users who are unable to afford these investments can only contact users who have built distribution facilities to connect power, thus forming a power supply transfer; four batches of pilot projects for incremental distribution reform have been launched, but few successful cases have been found. Also because the price difference between voltage levels is too low, and the distribution price charged by distribution companies cannot exceed this price difference, the reform of national incremental distribution business has stagnated; further distorting the transmission and distribution prices, leading to a vicious cycle. Because the power grid is unwilling to invest in low-voltage distribution facilities, the cost of medium- and low-voltage distribution is relatively low in the permitted cost of the power grid, resulting in a low price difference between the approved transmission and distribution prices, which in turn leads the grid companies to avoid investing in low-voltage distribution facilities, which eventually leads to a vicious cycle.

Judging from the electricity price mechanism, this round of electricity reform

The new electricity price mechanism has basically taken shape

The core goal of this round of electricity reform is to establish a new electricity price formation mechanism of "market transaction price + transmission and distribution price". "Market trading price" is to discover the price of electricity through market competition. This part of the price reflects the supply and demand balance of electricity and may change rapidly; while the "transmission and distribution price" is determined by regulatory agencies based on rules. This part of the situation reflects the reasonable transmission and distribution costs of power grid enterprises (generally, their reasonable returns must be considered) and remain stable for a period of time.

The current goal has been basically achieved: First, in terms of "market trading prices", all provinces and regions across the country have basically established power trading centers, and the proportion of market-oriented trading electricity in total electricity consumption in 2019 has exceeded 30%; the power spot markets in several pilot provinces have been tried and settled and will be officially launched soon; Second, in terms of "transmission and distribution prices", from 2016 to 2017, the "Provincial Grid Transmission and Distribution Price Pricing Measures (Trial)", "Regional Grid Transmission Price Pricing Measures (Trial)" and "Characteristics and Cross-Provincial Cross-Regional Special Project Transmission Price Pricing Measures (Trial)" were successively issued. In 2017, all provinces and regions across the country have basically approved the transmission and distribution prices, and the transmission and distribution prices for the new regulatory cycle will be announced and implemented this year.

At present, the two new and old electricity price mechanisms are operating on a dual track, because some users in industrial and commercial electricity use still do not participate in electricity transactions and are still using the catalog electricity price. If the "benchmark price + floating" mechanism proposed in the "Guiding Opinions on Deepening the Reform of the Formation Mechanism of the On-grid Power Price Formation of Coal-fired Power Generation" (Development and Reform Price Regulations [2019] No. 1658) issued by the National Development and Reform Commission at the end of last year can be implemented in 2020 as planned, all operating electricity consumption will be based on the new electricity price mechanism, but the "market transaction price" in it is formed by the "benchmark price + floating" mechanism.

The impact of the original electricity price mechanism (catalog electricity price) is still widespread

On the one hand, since the catalog electricity price is already deeply rooted, and the "reduction of electricity price" requires an "anchor" to refer to, even for electricity consumption that has participated in the electricity market transactions, the "figure" of catalog electricity prices can still be seen everywhere. For example, in order to allow electricity users to experience the "sense of gain" of electricity prices, many provinces and regions have not adopted a new electricity price mechanism in the electricity bill settlement process of electricity market transactions (the approved transmission and distribution prices are not adopted), but adopts a "price spread" model to float on the original catalog electricity price; after multiple rounds of price cuts, the current catalog electricity price for general industrial and commercial electricity use is low, which is already lower than the price formed by the new electricity price mechanism in some places, which will hinder general industrial and commercial users from entering the power market to participate in transactions; the original catalog electricity prices include peak and valley time-sharing electricity prices, and the electricity prices for the bumper and dry seasons, etc. The new price mechanism cannot be "connected" with these prices, which also leads to some users being unwilling to enter the electricity market and even calling for an increase in the price difference between peak and valley electricity prices.

Administrative intervention electricity prices have increased and not decreased

Although "making the market play a decisive role in resource allocation" and "forming a mechanism that mainly determines energy prices by the market" are the guiding ideology of this round of electricity reform, and the new electricity price formation mechanism has basically taken shape, the "visible hand" is still directly interfering in electricity prices, even more frequently than before this round of electricity reform. At present, the main ways for some local governments to directly interfere in electricity prices include: in order to meet the needs of macro-control such as "de-backward production capacity", through the formulation of policies such as "green development electricity prices", "differentiated electricity prices" and "stage electricity prices", artificially impose different electricity prices on different users; in order to attract investment to drive local economic development, various places compete to create "electricity price depressions" and promise ultra-low electricity prices to some users; in order to promote the absorption of "spawn water" and "coal to electricity conversion", some regions have continuously introduced various "discounts", "reductions and exemptions", and "stage reductions" and "reduce electricity prices" measures to artificially distort electricity prices.

Judging from the electricity cost outside the electricity price, this round of electricity reform

"Enterprise electricity cost" is significantly reduced

In addition to paying electricity bills to power grid companies at electricity prices, industrial and commercial enterprises often need to invest in the construction of external power connection projects and related facilities on their own. The costs of these facilities (such as depreciation and operation and maintenance costs) are outside the electricity price, but they are also electricity costs that enterprises need to bear, and sometimes account for a high proportion.

If the above facilities are invested and built by the power grid company, users only need to pay fees to the power grid company when handling power connection (industry expansion), and this fee is the "cost of obtaining electricity."

In order to promote the improvement of the business environment, "the cost of obtaining electricity" has gradually received attention in recent years. With the advancement of this round of power system reform, some power grid companies have begun to extend the investment interface to the red line or even red line for users to plan electricity, and the "cost of obtaining electricity" of power users has been significantly reduced.

Hard reduction of “cost of access to electricity” is causing new cross-subsidies

In order to improve the score of the "obtaining power" indicator, some regions have firmly reduced the "obtaining power cost" and even directly reduced it to 0.

Since power transmission and distribution are regulatory businesses, if users do not invest in the construction of their power connection facilities on their own and do not bear the "cost of obtaining power", the relevant costs will be included in the power transmission and distribution costs of power grid companies, and will eventually be shared by all power users, resulting in new cross-subsidies.

Don't forget your original intention, and start again with the electric reform

Electricity reform cannot simply pursue electricity price reduction

Reducing the electricity price level, especially the industrial and commercial electricity price level, is one of the original intentions of this round of electricity reform. However, the reduction of electricity prices should be a natural result after the establishment of a new electricity price formation mechanism, rather than a direct means. If the goal is simply to lower electricity prices, it only takes an administrative order, and it does not take many years and a lot of manpower and material resources to promote the reform of the power system.

In fact, with the increase in the penetration rate of new energy power generation, the installed capacity of peak-shaving gas units, energy storage and other facilities will inevitably increase, and their expensive power generation and backup costs will bring very realistic pressure to my country's electricity price level.

We should correctly view the fluctuation of electricity prices and avoid some practices that interfere with the electricity price or electricity price formation mechanism due to concerns about the normal fluctuation of electricity prices, such as: avoid setting too low price limits for electricity market transactions. Since electricity prices must be determined by the market, it is normal and inevitable to float electricity prices as supply and demand change in the market. The short-term rise in electricity prices, even exceeding the original electricity price level, is a manifestation of the attributes of electricity commodities. High electricity prices are also an economic signal, which can guide investment in, thereby maintaining the stability of electricity price levels in the long run; and avoiding the negative impact of the original catalog electricity prices on electricity price reform. After all commercial electricity consumption enters the market or participates in the "base price + floating" mechanism, the electricity price of the industrial and commercial catalog should be completely abolished as soon as possible and the dual-track system of electricity prices should be ended; for users who do not participate in or exit the power market, the guaranteed power supply price should be applied (the guaranteed power supply price is higher than the electricity price formed by the new price mechanism); avoid arbitrary adjustment of electricity prices. If subsidies are needed in a specific period, specific region, specific industry or specific user group, what we should do is to subsidize directly instead of distorting the electricity price; if subsidies are indeed needed through the electricity bill payment channel, they should also be clearly and listed separately on the electricity bill; to avoid the seriousness of the long-term regulatory mechanism due to short-term electricity price reduction demand. Due to the severe pressure to lower electricity prices, there are some provisions in the current version of the "Measures for Supervision and Review of Power Transmission and Distribution Pricing Costs" and the "Measures for Pricing of Provincial Power Grid Transmission and Distribution Pricing" that can reduce electricity prices in the short term, but have more side effects in the long term.

Streamlining the electricity price formation mechanism is the core goal of this round of electricity reform

A new electricity price formation mechanism has been established, but it has not been straightened out, because the "hard" problem of cross-subsidies still exists. The third of the 28 key tasks deployed in Document No. 9 is to "properly handle cross-subsidies for electricity prices", which also indirectly reflects the importance and difficulty of cross-subsidies.

We should properly handle the two serious types of cross-subsidies that currently exist:

First, large-scale industrial electricity subsidizes electricity for residents and agricultural electricity. The key to dealing with such cross-subsidies is to appropriately increase the electricity price of residents, because the electricity price of residents in my country is not only lower than the cost, but also far lower than that of most countries. In order to reduce the impact on low-income people, increasing the electricity price of residents can be done by increasing the electricity price difference of stepped electricity; the second is to subsidize low-voltage electricity. The key to dealing with such cross-subsidies is that the transmission and distribution price is no longer required to "connect" with the original catalog electricity price, and the transmission and distribution price is determined based on the actual power supply cost of each voltage level. If the power grid enterprises have too few medium and low voltage distribution assets due to long-term distortion of electricity prices, they can use methods such as "typical grid model" to gradually return the distorted transmission and distribution prices to normal levels.

Another factor that is difficult to straighten out the new electricity price formation mechanism is the interference of the original catalog electricity price. Only by completely abolishing the catalog electricity prices for industrial and commercial electricity, the time-sharing transmission and distribution prices that all sectors are looking forward to, can innovative price mechanisms such as the time-sharing transmission and distribution prices, optional transmission and distribution price packages, and even three-part transmission and distribution prices, can the power sales side market truly be formed.

"Control the middle" is the key to whether this round of electric reform is successful.

The experience of power system reform in developed countries shows that the fair and openness of power transmission and distribution links and strict supervision is the prerequisite for the formation of an effective power market. In other words, only by "controlling the middle" and "letting go of both ends" have practical significance.

However, judging from the actual situation over the past five years, it is obviously not enough to "control the middle". Grid companies are often both athletes and referees, and the results of power trading in power trading centers are often not implemented. After five years, the National Development and Reform Commission and the National Energy Administration are also issuing the "Implementation Opinions on Promoting the Independent and Standardized Operation of Electric Power Trading Institutions" (DAIYI [2020] No. 234), with the goal of achieving the independent and standardized operation of electricity trading institutions within this year. This shows the difficulty of "controlling the middle".

In addition to supporting the "letting go of both ends", it is also important to reduce transmission and distribution prices through effective supervision of power grid companies. In fact, if we continue to tap the potential of electricity price reduction, the concessions in the power generation process are no longer sustainable, and the efficiency of the power transmission and distribution process still has room for improvement.

To strengthen supervision of power transmission and distribution links, we should start from the following aspects:

First, separate supervision of transmission and distribution services. There is no problem with power grid companies operating both transmission and distribution businesses, but since the nature of transmission and distribution businesses is very different, the corresponding regulatory methods (even regulatory agencies) will be different, so these two businesses must be separated; the second is to implement a franchise system. Whether it is for incremental distribution business or existing distribution business, the property rights of the power grid facilities should be clarified, and the operating period, operator responsibilities, exit mechanisms, etc. should be clarified through the franchise contract, otherwise effective supervision will be impossible; the third is to strengthen the construction of regulatory capacity. After the revocation of the former China Electricity Commission, the regulatory functions of my country's power transmission and distribution business were scattered to multiple institutions such as energy, price, economic and information, and the Energy Supervision Bureau (Office), and there were institutional problems such as indiscriminate government and supervision, cross-regulatory power, and islands of supervision. To achieve effective supervision of power transmission and distribution services, it is best to establish a regulatory agency with sufficient authority, independent and comprehensive, and a mechanism for public participation in supervision should also be established.