The electric spot market calls for a cost recovery mechanism for power generation capacity

In September 2023, the National Development and Reform Commission and the National Energy Administration issued the "Basic Rules for the Electric Power Spot Market (Trial)" (hereinafter referred to as the "Basic Rules"). The Basic Rules not only put forward standardized construction requirements for the spot power market, but also provide medium- and long-term markets and auxiliary service markets coupled with the spot market.Capacity compensation mechanismand the capacity market put forward clear development requirements,The idea of "systematization" design is fully reflected in the "Basic Rules". Experience and practical results of domestic and foreign power market construction show that the capacity compensation mechanism and capacity market are important links in improving the construction of the power market system. The Basic Rules clarify the construction direction of the power generation capacity cost recovery mechanism in the spot power market environment.

The Basic Rules indicate the development direction of the capacity compensation mechanism and capacity market

The Basic Rules take the incentive of investment and construction of various power sources and ensure the system's power generation capacity abundance, regulation capacity and operation safety as the starting point, and point out the direction for my country's capacity compensation mechanism and capacity market construction. The capacity compensation mechanism can be divided into traditional capacity compensation mechanisms and market-oriented capacity compensation mechanisms. The traditional capacity compensation mechanism is similar to the capacity electricity price approved by the government or regulatory authorities, and is easy to operate. The traditional capacity compensation mechanism, the market-oriented capacity compensation mechanism and the capacity market are interrelated and progressive step by step. They are suitable for the power market system in different development periods and can be used as three stages of the continuous development of the power generation capacity cost recovery mechanism.

At present, the national unified power market system and the power spot market are advancing steadily and orderly. Taking into account the inherent need for the connection between the capacity compensation mechanism and the power market, especially with the power spot market, the "Basic Rules" clearly state that it starts with a market-oriented capacity compensation mechanism and the capacity market is the target model. The market-oriented capacity compensation mechanism requires the establishment of a market-oriented trading platform and trading rules, forming a sound regulatory mechanism and a complete evaluation method, taking into account the mutual influence with the spot power market, and determining reasonable compensation standards and compensation methods through market-oriented means and mechanisms, incentivizing power generation companies to increase capacity supply and improve the reliability, diversity and competitiveness of new power generation capacity.

With the increasing maturity of the development of power markets at different levels, the operation of medium and long-term markets, spot markets and auxiliary service markets is becoming increasingly coordinated. When conditions are ripe, the Basic Rules propose to establish a capacity market. The capacity market should establish a sufficient margin assessment mechanism, refine the determination of capacity demand, and generate capacity demand signals through long-term, medium and short-term assessments. Demand curve design is the core technical link in capacity market construction. The optimal demand curve should be scientifically calculated through refined capacity market simulation. In addition, rich bidding methods should be designed to increase bidding frequency, enhance market liquidity, and improve capacity and market efficiency.

In addition, in the environment of the electricity spot market, the Basic Rules emphasize the connection between the capacity market and the spot market. The spot market and capacity compensation mechanism can solve the short-term supply and demand balance and the long-term capacity abundance respectively. In order to ensure system operation reliability and power cost recovery, there is a close coupling relationship between the spot market and the design of capacity compensation mechanism. Generator units should be able to achieve full cost recovery by participating in different categories of power markets. In the spot market, market price limits, market settlement, power generation cost surveys, etc. not only affect the operation of the spot market, but also affect the design of the capacity compensation mechanism. Therefore, it is necessary to effectively connect the capacity compensation mechanism and the spot market.

Outlook and suggestions on the construction of capacity compensation mechanism and capacity market in my country

Gradually establishing a market-oriented capacity compensation mechanism and capacity market is an important measure to respond to the new situation and new requirements of my country's power market construction, a systematic project to build a unified power market system and promote the construction of a spot power market, and is the only way to ensure my country's abundant power generation capacity and energy and electricity safety. The capacity compensation mechanism and capacity market construction should be coordinated with the process of my country's power system reform, and rule formulation and mechanism design should be carried out scientifically, reasonably, steadily and orderly.

First, strengthen the connection between the capacity market and the electricity market and auxiliary service market. The capacity market is the future development direction of the power generation capacity cost recovery mechanism. In combination with the previous article, the construction of the power market system should strengthen top-level design, adhere to the system concept, and be guided by the coordinated improvement of capacity utilization and investment efficiency, and strengthen the organic connection between the capacity market and the electricity energy market and the auxiliary service market.

The second is to establish a regional collaborative capacity market. Different regions in my country have great differences in resource endowment, power supply structure, load characteristics, etc., and the development process of power markets in different regions is uneven, and market rules vary greatly. In addition, the power generation capacity has spatial attributes, and the coordinated allocation across provinces and regions is conducive to the optimized allocation of power generation capacity on a larger scale, supporting the construction of regional and national unified power markets. Therefore, the regional collaborative model is the development direction of the capacity market, which can improve the allocation efficiency of power generation capacity resources in the region and province, and achieve mutual coupling and orderly connection of markets at different levels. The regional collaborative capacity market integrates provincial markets in regions with strong complementarity of power generation capacity, divides node delivery areas based on provinces, and each province forms differentiated capacity prices.

The third is to formulate relatively unified calculation processes and standards. The capacity compensation mechanism and the capacity market need to clarify relatively unified calculation standards and processes. On the one hand, a unified system reliability indicator calculation process should be formulated. The long-term power generation capacity requirements in the system are closely related to the system reliability requirements. The national level should clarify the process and calculation process for the determination of reliability indicators, propose clear principles and standards, and give market entities the expected market demand. On the other hand, we adhere to the principle of technical neutrality, take the reliable capacity that various power supplies can actually provide to the system as the basis for compensation, propose calculation standards and processes for the effective capacity of various power supplies, and unify the compensation standards for various power supplies.

Fourth, capacity market construction should be compatible and complementary to power system planning. Both the power planning and capacity market can realize the configuration of power generation capacity. Electricity planning is divided into short-term (With 5 years), medium-term (10-15 years) and long-term (20-30 years) planning, the capacity market can usually meet the system capacity needs in the next 3 to 4 years. Therefore, the capacity market can realize the short-term function of power planning, and the long-term plan of power can be completed by the capacity market at different stages. As a top-level design and global variable, power planning limits the growth scope for new capacity in the capacity market and clarifies the macro direction of capacity market construction. The capacity market is a micro-implementation means and local variable of power planning, and improves the competitiveness, scientificity and economicality of capacity allocation through market mechanisms. Capacity market construction should be interactively supported and iteratively optimized in terms of model construction and mechanism design to achieve compatibility and complementarity.