China Aims to Launch a Nationwide Power Market by 2025

(Bloomberg) -- China aims to launch nationwide power trading by 2025, the state planning agency said Friday, as policy makers seek a unified solution to some of the problems that have bedeviled generators in recent years. 

The new market will allow electricity to be traded in near real time and across provinces. It should mean that utilities won’t be forced to sell at a loss when dealing with the industrial and commercial users that account for about 70% of the nation’s power consumption. 

And by 2030, the market will include all of the nation’s clean energy generators, the National Development and Reform Commission said. That will serve the nation’s climate goals by favoring the take-up of increasingly inexpensive renewable power.

“The overall goal is to ensure that the price paid for electricity by end-users covers the cost of the electricity supply,” Philip Andrews-Speed, a senior researcher at the Oxford Institute of Energy Studies, said prior to the NDRC’s release. “This should remove the market distortions that triggered the power supply crisis in late 2021.”

New Exchange 

The plan also calls for a new national exchange to be established that will operate independently of the existing Beijing and Guangzhou markets owned by its two state-owned grid firms. That will opening up power trading to the broader investment community for the first time.

“The function of the national exchange center will be mostly serving inter-provincial power trading and inter-grid trading,” said Hanyang Wei, an analyst with BloombergNEF. Strategic investors are likely to include domestic and foreign firms that currently aren’t allowed to trade power, he said.

China has already instigated some market reforms in the wake of the autumn’s energy crisis that allow greater pricing flexibility for utilities, including heavier tariffs for the most energy-intensive industries. A nationwide power market would take China further down the road of deregulation. In particular, it wants to get away from deals that discourage utilities from adding clean energy sources and increasing output when demand surges. 

China has eight provincial power markets, accounting for 45% of the nation’s total consumption, but trade has been dominated by long-term, bilateral contracts that are insensitive to changes in the cost of fuel. The new plan would break down those provincial barriers to the benefit of clean energy generators, which are increasingly located in China’s western hinterlands and require UHV lines to transmit power to the population centers of the east.    

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