Author: Fan Pengfei
In September 2023, the National Development and Reform Commission and the National Energy Administration issued the Basic Rules for the Spot Market for Electricity (Trial) (the Basic Rules). The Basic Rules not only put forward the requirements for the construction of the electricity spot market, but also put forward clear development requirements for the medium and long-term market, ancillary service market, capacity compensation mechanism and capacity market coupled with the spot market, and the "systematic" design idea is fully reflected in the Basic Rules. The experience and practice results of domestic and foreign electricity market construction show that the capacity compensation mechanism and capacity market are important links in improving the construction of the electricity market system, and the Basic Rules clarify the construction direction of the power generation capacity cost recovery mechanism in the environment of the electricity spot market.
Power system reliability includes two aspects: adequacy and safety, adequacy requires the power system to have sufficient power generation capacity and transmission capacity, sufficient capacity is the premise and basis to ensure energy and power security.
Under the background of the "dual carbon" goal, with the large-scale access of renewable energy power generation, thermal power units are accelerating the transformation from conventional main power supply to basic guarantee and system regulation power supply. However, under the current electricity market mechanism, it is difficult for thermal power units to achieve cost recovery by participating in the electricity energy market and auxiliary service market, the investment willingness of power generation enterprises is reduced, and there are hidden concerns about energy and power security. Therefore, it is urgent to design a cost recovery mechanism for power generation capacity to ensure the adequacy of power system power generation capacity. The Guiding Opinions on Accelerating the Construction of a National Unified Electricity Market System, issued in January 2022, proposes that each region explore various ways such as scarce electricity prices, capacity compensation mechanisms, and capacity markets according to actual conditions, and establish a power generation capacity cost recovery mechanism according to local conditions.
The scarce electricity price links the upper limit of the electricity energy market price to the cost of loss of load, and the generator sets that provide peak support for the system can recover the investment cost through the peak electricity price in the event of supply shortage. The scarce electricity price model completely relies on the regulation of market supply and demand, and the electricity price fluctuates greatly, which is easy to cause abuse of market power and price manipulation, and there are risks in the stable operation of the market, which is difficult for society to accept, and is incompatible with the actual needs of the mainland to ensure supply and price stability.
The capacity compensation mechanism determines the compensation standard for the available capacity of power generation enterprises according to the accounting of factors such as power load forecasting, energy and power planning, and reliability requirements. The capacity compensation mechanism can directly compensate the fixed cost of generator sets, ensure the continuous operation capacity of power generation enterprises, and achieve the purpose of stimulating investment in power generation capacity, which is in line with the construction and development needs of the current power market in the mainland.
The capacity market is a centralized auction mechanism for power generation capacity, which takes the available installed capacity of power generation enterprises as the auction object, and clears and settles the installed capacity and compensation price of power sources. The capacity market meets the adequacy requirements of the power system for power generation capacity through market competition, which can realize the security of power system supply and the economy of power generation capacity construction. The capacity market is quite different from the capacity compensation mechanism in terms of operation mode and implementation process, and the mechanism design is complex, which can be used as the development direction of the cost recovery mechanism of mainland power generation capacity.
Based on the national conditions of the mainland and the actual needs and development trends of energy and power construction, the capacity compensation mechanism and capacity market are the bottom guarantee mechanisms to adapt to the national conditions of the mainland to achieve sufficient power generation capacity.
The Basic Rules take the incentive of investment and construction of various power sources, ensure the adequacy of power generation capacity, regulation capacity and operational safety of the system, and point out the direction for the construction of the mainland capacity compensation mechanism and capacity market. The capacity compensation mechanism can be divided into traditional capacity compensation mechanism and market-oriented capacity compensation mechanism. The traditional capacity compensation mechanism is similar to the government or regulatory agency approving the capacity electricity price, which is easy to operate. The traditional capacity compensation mechanism, market-oriented capacity compensation mechanism and capacity market are interrelated and progressive, which are suitable for the electricity market system in different development periods, and can be used as the three stages of power generation capacity cost recovery mechanism.
At present, the national unified electricity market system and the electricity spot market are advancing in a steady and orderly manner, taking into account the inherent needs of the capacity compensation mechanism and the construction of the electricity market, especially the connection with the electricity spot market, the Basic Rules clearly start with the market-oriented capacity compensation mechanism and take the capacity market as the target model. The market-oriented capacity compensation mechanism needs to establish market-oriented trading platforms and trading rules, form a sound regulatory mechanism and perfect evaluation methods, consider the interaction with the electricity spot market, determine reasonable compensation standards and compensation methods through market-oriented means and mechanisms, encourage power generation enterprises to increase capacity supply, and improve the reliability, diversity and competitiveness of new power generation capacity.
With the maturity of the development of electricity markets at different levels, the operation of the medium and long-term market, spot market and ancillary service market is becoming more and more coordinated, and when the conditions are ripe, the Basic Rules propose to establish a capacity market. The capacity market should establish an adequacy assessment mechanism, refine the determination of capacity requirements, and generate capacity demand signals through long-, medium-, and short-term assessments. The design of demand curve is the core technical link of capacity market construction, and the optimal demand curve should be scientifically calculated through refined capacity market simulation. In addition, a variety of bidding methods should be designed to increase the frequency of auctions, enhance market liquidity, and improve the efficiency of the capacity market.
In addition, in the environment of the spot market for electricity, 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 problem and the long-term capacity adequacy problem, respectively. In order to ensure the reliability of system operation and power cost recovery, there is a close coupling relationship between the spot market and the capacity compensation mechanism design. Generator sets should be able to achieve full cost recovery by participating in different types of electricity markets. Market price limiting, market settlement, power generation cost investigation, etc. in the spot market not only affect the operation of the spot market, but also affect the design of the capacity compensation mechanism, so it is necessary to effectively connect the capacity compensation mechanism with the spot market.
The gradual establishment of a market-oriented capacity compensation mechanism and capacity market is an important measure to cope with the new situation and new requirements of the construction of the mainland electricity market, a systematic project to build a unified electricity market system and promote the construction of the electricity spot market, and the only way to ensure the abundant power generation capacity and energy and power security of the mainland. The capacity compensation mechanism and capacity market construction should be coordinated with the reform process of the mainland's electric power system, and the formulation of rules and mechanism design should be carried out in a scientific, reasonable, sound and orderly manner.
The first is to strengthen the connection between the capacity market and the electric energy market and auxiliary service market. The capacity market is the future development direction of the power generation capacity cost recovery mechanism. Combined with the above, the construction of the electricity market system should strengthen the top-level design, adhere to the system concept, and strengthen the organic connection between the capacity market and the electricity energy market and the auxiliary service market guided by the coordinated improvement of capacity utilization and investment efficiency.
The second is to establish a regional synergistic capacity market. There are great differences in resource endowment, power structure, load characteristics and other aspects in different regions of the mainland, and the development process of the electricity market in various places is uneven, and the market rules are quite different. In addition, power generation capacity has spatial attributes, and cross-provincial and cross-regional coordinated allocation is conducive to the optimal allocation of power generation capacity in a larger range and supports the construction of regional and national unified electricity markets. Therefore, the regional synergy model is the development direction of the capacity market, which can improve the allocation efficiency of regional and provincial power generation capacity resources, and realize the coupling and orderly connection of different levels of markets. The regional synergistic capacity market integrates the provincial market in the region with strong complementarity of power generation capacity, divides the node delivery area by province, and forms differentiated capacity prices in each province.
The third is to formulate relatively unified calculation processes and standards. Both the capacity compensation mechanism and the capacity market need to clarify relatively unified computing standards and processes. On the one hand, a unified system reliability index calculation process should be developed. The long-term power generation capacity demand in the system is closely related to the system reliability requirements, and the national level should clarify the reliability index determination process and calculation process, put forward clear principles and standards, and give market entities predictable market demand. On the other hand, adhere to the principle of technological neutrality, take the reliable capacity that each type of power supply can actually provide for the system as the compensation basis, put forward the calculation standards and processes of the effective capacity of various power supplies, and unify the compensation standards of various power supplies.
Fourth, the construction of the capacity market should be compatible and complementary to the power system planning. Both power planning and capacity markets enable the allocation of generation capacity. Power planning is divided into short-term (5 years), medium-term (10-15 years) and long-term (20-30 years) planning, and the capacity market can usually meet the system capacity demand in the next 3~4 years. Therefore, the capacity market can realize the short-term function of power planning, and the long-term planning of electricity 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 market additions and clarifies the macro direction of capacity market construction. Capacity market is the micro-realization means and local variable of power planning, which improves the competitiveness, scientificity and economy of capacity allocation through market mechanism. Capacity market construction should be supported and iteratively optimized with power planning in terms of model construction and mechanism design, so as to achieve compatibility and complementarity.
This article is the exclusive manuscript of "China Electric Power Enterprise Management", and the author works for the General Institute of Electric Power Planning and Design. All rights reserved, if you need to reprint, use or translate into other languages, you must obtain the consent of this journal and indicate the source.