China has unveiled a comprehensive update to its national power market regulations, the first revision in 18 years, aimed at enhancing market unification and addressing regional disparities.

 

The National Development and Reform Commission (NDRC), the country's top economic planner, announced the new basic rules for power market operation on May 14. The updated rules will come into effect on July 1, replacing the previous regulations from 2005.

 

Since the new power system reform kicked off in 2015, China's power market construction has advanced rapidly, but discrepancies in implementation, local protectionism, and inter-provincial barriers have persisted. This revision aims to address these issues, providing a unified framework for the national power market.

 

The updated rules introduce significant changes, including the addition of "capacity trading" in the power market. Capacity trading involves transactions based on the potential power output that can support peak demand, provided by power generation units and energy storage.

 

The introduction of capacity trading is expected to create opportunities for new energy storage and power generation enterprises to recoup their initial investments.

 

Starting from January 2024, the NDRC and the National Energy Administration (NEA) implemented a dual tariff for coal power, composed of capacity tariff and energy price. The capacity tariff is based on a coal-fired power plant's investment cost and is intended to help coal generators recover fixed costs like construction, labor, and repairs, while the energy price is market-based and reflects supply and demand, as well as changes in coal prices.

 

The international standard capacity pricing mechanisms include scarcity pricing mechanism, capacity market mechanism (forward market mechanism), and capacity cost compensation mechanism. China's new regulations align with these international practices, responding to long-standing calls from the new energy storage sector for such a mechanism.

 

The new rules also refine the definitions and trading methods for energy transactions and auxiliary services, categorizing energy transactions into medium and long-term and spot trades, and specifying paid auxiliary services like frequency regulation and reserve capacity.

 

Additionally, the rules incorporate new market participants such as energy storage companies, virtual power plants, and load aggregators, reflecting the rapid development of these entities in the power market.

 

The rules are part of a series of updates to China's power system as it seeks to merge its regional grids into a unified national electricity market with spot trading between provinces by 2030.

 

By 2025, China aims to set out the basic rules for the system, which would improve the reliability and efficiency of power supply.

 

China's power market has seen significant growth, with traded power volumes reaching 5,670 TWh in 2023, accounting for 61.4% of total electricity consumption, up from less than 17% in 2016.

 

The NEA plans to further develop the regulatory framework this year, including rules for market information disclosure, entry and registration, and measurement and settlement, to support the comprehensive unification of the national power market.