Observation | Coal power capacity and electricity price have been implemented for one year. What are the results

In November 2023, the National Development and Reform Commission and the National Energy Administration issued the "Notice on Establishing a Coal Power Capacity Electricity Price Mechanism" (Development and Reform Price [2023] No. 1501, hereinafter referred to as "Document No. 1501"). The issuance of this document adjusted coal-fired power from a single power price to a two-part power price, among which electricity price was formed through market-oriented methods, which sensitively reflected changes in the power market supply and demand, fuel cost, etc.; the capacity electricity price level was reasonably determined and gradually adjusted according to actual conditions such as the transformation progress, fully reflecting the support and adjustment value of coal-fired power for the power system, and ensuring the sustainable and healthy operation of the coal-fired power industry. The issuance of Document No. 1501 is regarded as a landmark event in my country's power generation side electricity price reform, and its implementation is of great concern to the industry.

(Source: Telecom New Media Author: Weng Shuang)

Under the influence of complex factors such as fluctuations in primary energy prices and in-depth adjustment of the energy structure brought about by the rapid development of new energy, ensuring power safety has become a concern for all parties. Coal-fired power is the main body responsible for the task of building a new power system in my country. With the deepening of my country's energy transformation and the large-scale development of new energy, the annual utilization hours of coal-power units have a significant decline in the number of coal-power units, and the operation mode of the unit has undergone profound changes. In areas with a high proportion of new energy, coal-fired power may be in a low-load and frequently changing loading state for a long time, and changes in coal-fired power functions will cause sharp changes in the revenue model. Document No. 1501 focuses on the long-term abundance of effective capacity of the power system, starting with coal-fired power, and "tumbling to ask for directions" for the establishment of my country's power generation-side capacity mechanism.

Since the issuance of Document No. 1501, provinces (autonomous regions and municipalities) have successively issued notices on the implementation of the coal-power capacity electricity price mechanism, refined the relevant requirements for the implementation and assessment of the capacity electricity price mechanism, and effectively implemented the policies. Industry insiders believe that the main goal of implementing the coal-power capacity electricity price policy in the first year is to allow the policy to move smoothly, accept it from all parties, and implement it smoothly. At present, terminal electricity prices and power supply and demand have remained stable over the past year, and to a certain extent, the operation and investment expectations of coal-power enterprises have basically achieved the expected goals of the policy. However, Document No. 1501 solves the problem of "from nothing" in my country's power market capacity mechanism. With the advancement of my country's power market construction and power system reform, the capacity mechanism will also be further enriched and improved in practice.

Terminal electricity prices remain stable

The impact of capacity electricity prices on terminal electricity prices was a concern for the whole society at the beginning of the policy. At that time, a relevant responsible person of the National Development and Reform Commission said in answering reporters' questions, "The establishment of a coal-power capacity electricity price mechanism is mainly to adjust the electricity price structure. The overall price level of coal-power is basically stable, especially the slight decline in electricity prices, which will drive some electricity prices to fall in the market transactions of other power sources such as hydropower, nuclear power, and new energy to participate in the market." This judgment is consistent with the actual situation over the past year.

In 2024, the national power terminal prices were generally stable, or even slightly lower. In 2023, the average purchase price of power grid agents in 33 places (except Tibet) nationwide will be 428.77 yuan/MWh, and in 2024, the average purchase price of power grid agents in nationwide will be 400.71 yuan/MWh.

There are many reasons for the decline in terminal electricity prices. "The time when the coal-power capacity electricity price policy was introduced is 'just right'," Guo Xun, deputy manager of the Transaction Management Office of the Operation and Management Department of Datang Group, analyzed. "When Document No. 1501 was issued, first, coal supply and demand improved, water in major river basins was restored, and the fundamentals of power supply and demand stabilized, providing a good environment for the smooth implementation of the policy; second, fuel prices are in the downward range, and the decline in electricity prices has kept the overall electricity price stable, and the pressure on the user side is not very obvious."

The introduction of capacity electricity prices divides the revenue of coal-fired power into capacity income and electricity income. In the early stage of policy implementation, in order to stabilize the user-side electricity price level, the price authorities have taken some auxiliary measures. For example, some provinces require that the total discount of "electricity energy price + capacity electricity price" shall not exceed 20% of the benchmark price increase, and some provinces also require that the medium- and long-term transaction limits be reduced according to the discount of capacity electricity bills and kilowatt-hours electricity. Therefore, at this stage, the capacity electricity price and electricity price have shown a phenomenon of one increase and another decline to a certain extent, which inevitably makes people think that "the actual capacity electricity bill is still a zero-sum game on the power generation side." In this regard, industry insiders analyzed that the focus of implementing coal-power capacity electricity prices is to change the electricity price structure and income model of coal-power, rather than "transfusion" of coal-power. In 2024, with the support of coal prices and capacity electricity prices, the profits of coal-fired power companies have stabilized. However, with the acceleration of the transformation of coal-fired power functions and the further decline in the number of coal-fired power hours, coal-fired power still has the possibility of facing systemic risks. Therefore, the recovery ratio of the fixed cost of coal-power capacity electricity price will also be dynamically adjusted. Document No. 1501 points out that from 2026, the proportion of fixed cost recovery by capacity electricity price in various places will be increased to no less than 50%.

Ye Ze, former vice president of Changsha University of Science and Technology, suggested that in the implementation of capacity electricity prices, it is necessary to set the standard utilization hours of coal-fired power, and the conversion electricity price difference generated by the actual coal-fired power utilization hours is lower than the standard utilization hours, and it is clearly stipulated that industrial and commercial users will bear the additional burden and will not be deducted from the electricity price. It is recommended to promote the decoupling of coal-power capacity electricity prices from electricity prices in the near future, and include coal-power capacity electricity prices in the power spot market system and its capacity compensation mechanism in the long term. The common result of the evolution trends of the two policies is to use the economic principles of electricity price structure to reduce the electricity price of market transactions and promote electricity market transactions.

With the support of capacity electricity price returns, some power generation companies may adopt market strategies to reduce the declared prices to a certain extent in order to compete for more electricity. Judging from the operation of typical foreign power markets, it is also an inevitable phenomenon to trigger changes in market competition behavior after the capacity mechanism is introduced. "This phenomenon has some rationality, but on the other hand, we must observe whether the changes in this competitive behavior are consistent with the original intention of the policy," Feng Yongsheng, a researcher at the Institute of Industrial Economics of the Chinese Academy of Social Sciences, analyzed. "The original intention of the introduction of the capacity mechanism is to ensure the capacity demand of the power system by giving market entities certain incentives to maintain sufficient capacity, thereby ensuring the capacity demand of the power system. If excessive market competition leads to some entities that can provide capacity being damaged because they cannot get the corresponding share in the power market, and then the possibility of survival and development is deviated, then the policy effect may deviate."

Difficulties in the sharing of capacity electricity costs across provinces and regions

In the implementation of coal-power capacity electricity prices, how to share the corresponding capacity electricity costs of cross-provincial and cross-regional power transmission units is a major difficulty in actual implementation. The reporter learned that the main contradiction in the implementation of the capacity and electricity bills of such units lies in the fact that the rights and responsibilities of power generation, power grid and power users have not been straightened out. At present, the cross-provincial and cross-regional coal-power capacity mechanism has not yet achieved effective connection between provinces and within provinces, resulting in unclear economic responsibilities and great controversy in cost sharing.

Document No. 1501 stipulates cross-provincial and cross-regional coal-transmitted power units included in the power balance of power in the power receiving provinces, and is separately stipulated in two categories. The first category is supporting coal-electricity units. In principle, the capacity electricity price of the power receiving province is implemented, and the capacity electricity bill is borne by the power receiving province. If power is sent to multiple provinces, the capacity electricity bill can be temporarily allocated according to the power distribution ratio of the power receiving province, and it is encouraged to explore the distribution according to the power transmission capacity ratio; the second category is other coal-fired power units. In principle, the capacity electricity price of the power transmission province is implemented. The capacity electricity bill is reasonably allocated by the sending and receiving parties. The share ratio is negotiated and determined based on factors such as the proportion of the power transmission provinces and the guarantee of the power consumption of the power receiving provinces during peak periods. For cross-provincial and cross-regional coal-transmission power units that are not included in the power balance of power in the power receiving province, the power transmission province shall bear their capacity electricity bills.

At present, there are different degrees of difficulty in implementing the capacity and electricity charges of different types of cross-provincial and cross-regional power transmission units. The supporting units can be regarded as power sources in the receiving area to a certain extent, and the corresponding economic responsibilities are relatively clear, but some units still have difficulty in settlement of the capacity and electricity bills. The reporter learned that in the actual operation process, problems such as the imperfect mechanism for unit output recognition and assessment, the difficulty in negotiating the allocation of capacity electricity bills between multiple provinces, and the failure to connect the transmission of scheduling information and assessment information have not yet been achieved to achieve interconnection and interoperability of such units may be the main difficulties in the implementation of capacity electricity bills.

The second type of unit is a coal-electric unit that is also included in the balance of power conservation and power saving. Unlike supporting power supplies, this type of coal-fired power unit does not specifically serve one or more power-receiving conservation funds, but partially transmits and partially supports local power supply. Therefore, the capacity electricity bill needs to be allocated by the sending and receiving parties in a certain proportion. In this case, it is difficult to reach an agreement by relying solely on the power transmitter and the power receiver to negotiate.

The reporter interviewed relevant people from power generation companies and learned that at present, there is no clear part of the electricity price for cross-provincial and cross-regional power transmission. The sending area believes that the capacity electricity price is not reflected, but for the receiving area, the issues of who provided the capacity guarantee and how to quantify the capacity guarantee are not clear. Therefore, the expenditure and responsibilities of cross-provincial and cross-regional power transmission capacity electricity bills are not clear.

"Cross-provincial and cross-regional power transmission is equivalent to connecting a connecting line and changing the economic relationship between two or even multiple power grids. The issues of who the capacity of the power generation company guarantees and how to distinguish the economic responsibilities of all parties are not yet clear. These relationships need to be further straightened out, so that the capacity price mechanism of cross-provincial and cross-regional power transmission will be clearer." Guo Xun said.

The difficulty in implementing the electricity price of coal power capacity across provinces and regions is related to the extremely complex situation of my country's cross-provincial and cross-regional power transmission mechanism. There are both historical and technical reasons.

Guo Xun said that, first, the functional positioning is difficult to clarify. Cross-provincial and cross-regional power transmission has the role of both the consumption and the supply of the receiving end. At present, most areas still have the stereotype that "foreign calls are surplus electricity, so they should be cheap". Therefore, there will also be disputes over the payment of cross-provincial and regional transaction prices and capacity electricity bills. Second, the power components are difficult to distinguish. The "net-to-net" power transmission method gathers all types of power and sends them out after being "seen to all rivers" and makes it difficult to distinguish the specific power transmission type. At the same time, the current cross-provincial and cross-regional power transmission is mainly to distribute electricity, rather than allocating the available capacity of channels or power sources.

Against the background of the construction of a unified national power market, effectively carrying out cross-provincial and cross-regional power transactions and promoting a larger range of power resources will be an important reflection of the core essence of the "national unified market". "The prerequisite for building a national unified power market is to create a fair competition environment under a wider resource allocation. The policies of capacity electricity prices in each province will become an important prerequisite to be considered in coal-fired power investment and market operation. If some provinces bear additional capacity costs for other provinces, then the fairness of market competition will be impacted, and the deep-seated problem that arises is to affect the construction of the national unified power market." Feng Yongsheng said.

In February 2022, the General Office of the National Development and Reform Commission and the Comprehensive Department of the National Energy Administration jointly issued the "Notice on Accelerating the Construction of the Power Spot Market" (Development and Reform Office [2022] No. 129). The document clearly requires "implementing the dynamic connection between cross-provincial and cross-regional transactions and the spot market within the province in terms of economic responsibility, price formation mechanism, etc., the transaction results of cross-provincial and cross-regional transactions are used as the load increase of the terminal gate, the transaction results of buyers are used as the power supply to participate in the clearing settlement of the internal settlement of the power supply to the receiving terminal gate, and the inter-provincial transaction results are used as the basis for settlement of the inter-provincial transaction volume." This requirement provides feasible guidance for the connection of various types of inter-provincial transactions or inter-provincial mechanisms. The article "Redesign of Coal Power Capacity Mechanism Based on Cross-Provincial and Cross-Regional Transactions" published in "Telectronic Union New Media" in August 2024 is based on the guiding ideology of Document No. 129 and puts forward two suggestions on optimizing the cross-provincial and cross-regional capacity formation mechanism. On the one hand, based on the inter-provincial connection idea proposed in Document No. 129, the cross-provincial and cross-regional capacity mechanism is straightened out. The seller's transaction result, as the provincial load at the delivery terminal, bears the capacity electricity price responsibility consistent with the provincial users, and the buyer's transaction result, as the power supply at the receiving terminal, obtains the peak capacity income equal to the power supply at the receiving terminal. On the other hand, gradually develop the capacity market to cope with the peak capacity shortages that may result from the rapid development of renewable energy.

Further deepening of capacity mechanism

In order to ensure the implementation effect of coal-power capacity electricity prices, Document No. 1501 has established an assessment mechanism, stipulating that if coal-power units cannot provide the maximum declared output in accordance with the dispatching instructions, the capacity electricity bill will be deducted accordingly. If two times occur within a month, 10% of the capacity electricity bill for the month is deducted, 50% of the deduction occurs three times, and 100% of the deduction occurs four times or more; if all the monthly capacity electricity bills are deducted in the year are deducted three times in total, their qualifications for capacity electricity bills will be cancelled. On this basis, each region has established a working mechanism for the assessment of coal-power capacity electricity bills based on local actual conditions.

The establishment of an assessment mechanism can effectively encourage units to improve equipment reliability, ensure that coal-power units fulfill capacity obligations as required, and thus ensure power supply. The reporter learned that since the implementation of coal-power capacity electricity prices, the dynamic performance requirements for coal-power units have become stricter. Power generation companies have strengthened unit management, and the situation of obstacles in output has been greatly reduced.

However, under the current capacity and electricity price mechanism, assessment requirements are formulated, and the units act according to the dispatching instructions, but only establish rules at the physical operation level. From an economic perspective, it is necessary to build a set of rules that are compatible with the physical operation demand incentives of the system, and guide the units to act independently through economic means, so as to better adapt to the current rapid changes in coal-fired power operation mode. "Giving capacity electricity bills through assessment is a relatively simple way, but not necessarily the most effective way. The current assessment logic of capacity electricity price is forcibly bound to the actual operation of the power plant, leaving power plant operation with relatively insufficient space for independent decision-making. Therefore, it is recommended to design a market-oriented incentive mechanism to allow coal-power units to actively respond to price signals and system needs rather than passively respond to rigid assessments. A relatively ideal way is to combine the payment of capacity electricity price with the short-term system operation needs, so that units can actively meet the needs of dispatching for capacity availability and flexibility in the short-term system operation, adapt to the needs of system operation, and obtain compensation incentives in a systematic manner. Of course, this mechanism requires the role of comprehensive competition and regulation." Feng Yongsheng said.

The evolution and development of capacity mechanisms not only require vertical deepening, but also horizontal expansion. Since coal-fired power is the main power supply in my country, the introduction of coal-fired power capacity and electricity prices is related to various power supplies. On the one hand, it is to adjust the installed structure of my country's new power system as soon as possible and accelerate the transformation of coal-fired power units. On the other hand, it is equivalent to exploring the capacity compensation mechanism with coal-fired machines as a pilot. On the basis that the coal-power capacity electricity price has been implemented, it is necessary to conduct in-depth research on the capacity electricity price mechanism of power supply varieties such as gas, nuclear power, and energy storage.

"From the perspective of market fairness, power supplies that can provide effective capacity should obtain capacity electricity bills. Therefore, it is recommended to adjust the capacity electricity price mechanism at appropriate times, improve the overall electricity price system of the system, guide the planning with prices, improve investment efficiency, and promote orderly competition in the power industry." Guo Xun said.

It should be noted that many new entities that can provide capacity are emerging, especially in the field of new energy storage. The technology is in a period of rapid change, and the exploration and application of various technical routes are in different cycles. The potential impact on the technical route is needed to be taken into account when providing capacity electricity prices. "If the capacity mechanism takes into account the coverage of various resources in the future, it is necessary to carry out careful formulation of a complete set of rules in all aspects such as reliability indicator construction and auction mechanism design, so as to better guide the planning and growth of various resources, avoid supply and demand imbalances in the capacity market, and avoid curbing the emergence of potential new technologies." Feng Yongsheng said.

"With the continuous deepening of the construction of the power market and the continuous progress of various technologies, the connotation and extension of the concept of capacity are becoming more and more abundant. Since the capacity services provided by various resources vary greatly, in the process of further deepening the capacity mechanism, it is recommended to gradually subdivide the capacity products and realize the pricing of different capacity products." Tao Wenbin, a researcher at the Modern Electric Power Research Institute of North China Electric Power University, suggested.