Implementation of the Energy Law: A new starting point for the rule of law in the market

Marketization is a firm direction of reform, and it is of great significance to have laws to follow.

(Source: Energy New Media Text/Xu Jin The author is the chief economist of China Energy Construction Group Investment Co., Ltd.)

The highly anticipated "Energy Law of the People's Republic of China" (hereinafter referred to as the "Energy Law") will come into effect on January 1, 2025. As a leading and basic law in my country's energy field, the full text includes nine chapters, including general provisions, energy planning, energy development and utilization, energy market system, energy reserves and emergency, energy science and technology innovation, supervision and management, including 8, including 8 of the energy market system (including 1 general provision and 7 energy market system), which not only marks a solid step in the construction of the rule of law in the energy market, but also provides new guidance for the transformation of energy market consumption, and is of great significance to stimulating the vitality of the energy market and promoting the consumption momentum of the green energy market.

Filling the legal gap

The energy market system is considered to be the most complex system in the world. This is because it involves a variety of different energy types, increasingly complex trading mechanisms, and a globalized market structure. Marketization is the main direction and major goal of my country's energy reform. This is based on the unique role of the market in improving energy utilization efficiency, optimizing resource allocation, and promoting sustainable development. Although my country's energy marketization is increasing year by year, the government still plays a leading role in the energy market trading system. How to better play the role of an effective market and an effective government as a "two-handed" has always been a problem that everyone is confused about.

Article 6 of the General Provisions of the Energy Law clearly stipulates that "the state accelerates the establishment of an energy market system with diversified subjects, unified and open, orderly competition and effective supervision, regulates the order of the energy market in accordance with the law, and equally protects the legitimate rights and interests of all types of entities in the energy market." There are also "the state encourages and guides all types of business entities to invest in energy development and utilization, energy infrastructure construction, etc. in accordance with the law, and promotes the development of the energy market." It provides explicit provisions on the basic principles of energy market construction, establishes a basic system for the market to allocate energy resources, proposes to build a nationwide unified energy trading market such as coal, electricity, oil, and natural gas, and proposes to effectively improve the energy price control system to prevent the risks brought by market failure.

The implementation of the Energy Law will surely provide all-round and full-process legal guarantees for the construction of the energy market system. By establishing a more complete, sound and efficient energy market system, we will further promote the "decentralization" of the energy market and the market-oriented reform of energy prices, build a fairer and more reasonable market competition environment, form participants in different energy types and different levels of markets, effectively change the current imbalance and inadequacy problems in the formation of the energy market system, continuously improve the efficiency of energy resource allocation, and truly establish an energy market system with "diversified subjects, unified and openness, orderly competition, and effective supervision".

Optimized energy pricing mechanism

Price reform is the "bull's nose" for further comprehensive deepening of reform in the energy field, and it is related to whether the "dual carbon" goal can be successfully achieved and the success or failure of the construction of a new energy system. As the basic price of the national economy, energy prices have a far-reaching impact on the economy and society, and "one moves the whole body." At present, my country still relies on medium- and long-term transactions to determine energy prices. This approach actually ensures the stability of energy prices on the user side, but deviates from the market supply and demand relationship and is not a pricing mechanism that conforms to market laws. It is difficult to truly reflect the scarcity of energy resources, the supply and demand relationship of products, and the environmental impact costs.

The relevant requirements of the Energy Law on the energy pricing mechanism are mainly concentrated in Article 45, which clearly proposes to "establish an energy price formation mechanism mainly determined by factors such as energy resource conditions, product and service costs, market supply and demand conditions, and sustainable development conditions." "Formulate and adjust the energy prices that implement government pricing or government guidance prices, and comply with the "Price Law of the People's Republic of China" and other laws, administrative regulations and relevant national regulations", and "energy enterprises shall provide price costs and other relevant data in a timely, true and accurate manner in accordance with regulations."

The above provisions are in line with the spirit of the Third Plenary Session of the 20th Central Committee of the Party. In response to the problem of insufficient marketization of energy and electricity prices, the "Decision" proposes to "improve the factor price mechanism mainly determined by the market supply and demand relationship, prevent the government from improper intervention in the formation of prices" and "optimize the system of residents' ladder electricity prices, gas prices, etc., and improve the pricing mechanism for refined oil." This means that the formation of energy prices must not only take into account the requirements of government macro-control, but also focus on the decisive role of market factors, so as to promote the establishment of an energy pricing formation mechanism that is compatible with the socialist market economic system. This is the key core of building a modern energy market system.

Streamlined the dual-track system of energy prices

The dual-track energy price system refers to the coexistence of government pricing and market prices, and there are two pricing mechanisms: "plan" and "market". The dual-track system is a special price management system adopted in my country's transition from the planned economic system to the market economic system. For example, in terms of electricity prices, government pricing includes the benchmark electricity price on the grid and the sales catalog electricity price, while market pricing is the direct trading electricity price in the power market; in terms of gas prices, the current gas price system still has two price dual-track systems: gas source and user. The dual-track system is conducive to controlling energy costs, promoting energy consumption and ensuring the energy consumption needs of residents, but its side effects are also obvious, such as causing market distortion and inefficient resource allocation, difficulties in enterprise operations and industry instability, increased consumer burden and market fairness.

The Energy Law proposes to promote independent operation of natural monopoly links in the energy field and market-oriented reforms in the competitive links, strengthen supervision and regulation of natural monopoly business in the energy field in accordance with the law, and support all types of business entities to fairly participate in competitive business in the energy field in accordance with the law in accordance with market rules; encourage upstream and downstream enterprises in the energy field to strengthen cooperation and coordinated development in accordance with the law in accordance with the market-oriented methods by entering into long-term agreements, and improve the ability to respond to risks in the energy market; implement energy prices at government pricing or government-guided prices in accordance with the law, and the pricing authority and specific scope of application are based on the central and local pricing catalogs.

my country's energy system reform has been steadily advancing according to market-oriented ideas, but marketization does not completely exclude government regulation. There are also times when the market is "failed". The government needs to use appropriate economic leverage and policies to regulate and deepen reforms in the field of natural monopoly to ensure the security and stability of the energy market, such as decoupling of transmission and distribution prices and "purchase and sales price spreads" in the power grid field. At the same time, we must distinguish between different situations and try to avoid or even eventually cancel the dual-track energy price system through measures such as unification and optimization of price spreads. This is an extremely important content and task of energy reform, including implementing a more optimized step-by-step pricing model for residents' electricity prices and gas prices, as well as the fact that coal-fired power generation has entered the power market in principle, forming on-grid electricity prices through market transactions, and expanding the floating range of market transaction electricity prices.

Breaking through the "obstruction" of energy transactions

At present, my country's energy market still has problems such as incomplete trading system, inconsistent unified trading rules and technical standards, market segmentation, barriers to cross-provincial and cross-regional transactions, and serious local protection, as well as the inability to effectively regulate the contradiction between energy supply and demand, the frequent occurrence of coal-fired power "top bull", energy users' choice of energy products, low energy utilization efficiency, difficulty in large-scale consumption of new energy, and emergence of various discriminatory policies. This inevitably increases the cost of energy transactions and hinders the sharing and mutual assistance and optimal allocation of energy resources on a larger scale across the country.

The Energy Law clearly stipulates related issues in Articles 42 and 43, and proposes to "promote the construction of a national unified energy trading market for coal, electricity, oil, natural gas, etc., promote the establishment of market trading institutions or trading platforms with complete functions and standardized operations, expand trading methods and trading products in accordance with the law, and improve trading mechanisms and trading rules." It requires that "people's governments at or above the county level and their relevant departments should strengthen overall dispatching and organization to ensure smooth energy transportation", and further clarify that "energy transportation pipeline facility operation enterprises should improve fair access and use mechanisms, disclose information on the access and transportation capacity and operation status of energy transportation pipeline facilities in accordance with regulations, open up fairly and without discrimination to qualified enterprises and other business entities, and provide energy transportation services."

As we all know, the characteristics of my country's energy resources and energy consumption demand in the reverse distribution determine that my country's energy supply needs to undergo a "great shift in the universe" across the country to achieve more efficient allocation on a larger scale. This requires the practical establishment of a large energy concept, building a unified national energy market, unifying transaction rules and technical standards, timely clearing up various discriminatory policies, and striving to clear up bottlenecks and pain points that affect the normal circulation of energy, truly breaking the pattern of segmentation of coal, oil, natural gas, electricity and other industries and the pattern of independent governance, so that energy resources can flow more smoothly, and achieve more efficient allocation and utilization of energy resources.

Pay attention to the risks of energy price changes

Everyone may still remember it freshly. Around 2021, our country experienced an unprecedented power shortage. Due to insufficient power supply, many places have implemented "pull-out" power restrictions, which not only affects residents' electricity demand, but also brings tremendous pressure to the stable development of the entire economy and society. The culprit is the high coal prices and the decline in power generation willingness to generate electricity due to coal enterprises' overly aggressive "decapacity" and the reduction in imported coal cliffs. Overall, as the cornerstone of modern society, its price fluctuations will have a profound impact on the stable operation of the society and economy and the improvement of people's living standards.

In order to effectively prevent and respond to risks caused by changes in energy prices, the Energy Law proposes that "the state improves the energy price control system, improves the efficiency of energy price regulation, and builds a mechanism to prevent and respond to abnormal fluctuations in the energy market price", and supports "encourage upstream and downstream enterprises in the energy field to strengthen cooperation and coordinated development in accordance with the law and market-oriented methods through conclusion of long-term agreements and other means, and improves the ability to respond to risks in the energy market", and requires "actively promote international investment and trade cooperation in the energy field, and effectively prevent and respond to risks in the international energy market."

As we all know, the risks in the energy market are mainly transaction risks caused by fluctuations in energy prices and demand. The way to solve the problem also requires establishing market-oriented thinking and using market-oriented means to solve it.

First, we will effectively improve the energy price regulation mechanism, so that energy can return to the most basic commodity attributes as much as possible, let the market price be priced, let prices reflect supply and demand, and let prices reflect different energy resource values and environmental protection values; second, we will establish and improve the energy market risk prevention mechanism, optimize the coordinated operation mechanism of primary energy production, supply, sales and storage, build a three-party mutual protection joint venture mechanism for coal, power enterprises, and railways, strengthen the strategic resource guarantee and control mechanism, and form a long-term mechanism for efficient supply and price stability; third, we will continue to deepen international energy exchanges and cooperation, effectively coordinate the two domestic and international markets and two resources, actively expand new channels for two-way energy exchanges, promote diversification of energy imports, and better secure the energy rice bowl.