Southern China power market launch signals modernization, climate push

The start of power trading in China's southern regional power grid signals accelerated power sector reforms and another step toward the creation of a nationwide power market that will underpin the next phase of Beijing's decarbonization agenda.

China's southern regional power market started trial operations in the week of July 18. Grid operator China Southern Power Grid said on its social media platform that the launch marked the first implementation of the national power market system in the southern provinces.

A unified power market that cuts across the country, along the lines of power grids in Europe, is deemed critical to unlocking further renewable energy growth as the addition of solar and wind power capacity to the existing grid infrastructure has maxed out.

Nationwide power trading will allow large utility-scale renewable projects in remote northern and northwestern provinces to feed low carbon electricity to high demand provinces, and help balance intermittency issues.

The launch also comes after the country's top economic planner the National Development and Reform Commission, or NDRC, and the National Energy Administration had published "guidelines for accelerating the development of a uniform national power market mechanism" at end-January.

China aims to build a preliminary uniform power market system by 2025 and have it operational; by 2030, it aims to optimize allocation of power resources and improve the stability and flexibility of the power system, according to the NDRC.

The southern regional power market covers five provinces -- Guangdong, Guangxi, Yunnan, Guizhou and Hainan. China Southern Power Grid, which has been pushing for market-based mechanisms in power supply, said transactions covered in the launch include spot power supply, medium and long-term power supply and auxiliary services.

On July 23, more than 157 power plants and users in Yunnan, Guizhou and Guangdong provinces reached the first cross-provincial spot transaction through the southern regional power market trading platform, the state firm said.

Better price discovery

Guangdong was the first province in China to start electricity spot transactions and conduct monthly electricity auction trading.

The province's spot power market had earlier tested trading capability in various complex demand-supply scenarios, and for daily, weekly to monthly prices in August 2018, and began continuous operations in November 2021, China Southern Power Grid said.

"On the southern regional power market trading platform, power generation companies can offer per kilowatt-hour of electricity as high as Yuan 1.5, or as low as a few cents or even zero Yuan, accurately reflecting the power supply and demand situation in the market," a senior executive with the utility said.

"The spot power transaction really plays a role in price discovery," the executive said. For example, the average spot power price in Guangdong rose 47% from the benchmark price to Yuan 0.682/kWh over November-December last year when coal prices had surged, and dropped to Yuan 0.432/kWh or less during May-June due to lower coal prices and weaker power demand.

China Southern Power Grid expects cumulative market-based electricity trades in the southern power market to reach 1.11 trillion kWh in 2022, close to the total electricity consumption of the three provinces of Guangdong, Yunnan and Guizhou in 2021.

It also expects the share of market-based power traded to reach about 80% and the number of market entities to increase to more than 8 million households by the end of 2023.

The southern regional power market is expected to become a uniform platform for cross-regional, cross-provincial and intra-provincial power transactions by 2023, enabling more varieties and higher frequency of power transactions, the company said.

China has two major national power generation and transmission utilities -- State Grid Corp of China and China Southern Power Grid. State Grid covers about 26 provinces in eastern, central and northern regions, while the latter covers five provinces in southern China.

Guangdong is China's largest power consuming province, with 786.663 billion kWh of demand in 2021, accounting for about 9.5% of the country's total of 8.31 trillion kWh, official data showed. Guangdong also has China's largest concentration of gas-fired power generation, powered by both LNG and pipeline gas, and trading opportunities will allow LNG-based power to gain traction.

Promote renewables

A uniform power market is expected to promote renewable energy, as renewable power generation is more volatile and requires a modernized grid to be effective. A spot electricity market provides renewable power generation companies with a more flexible and faster trading window, the utility said.

"Power generation companies normally only had one trading opportunity every month. For hydropower generation companies, if the inflow of water suddenly increased, we would not be able to sell the increased electricity in the past," a senior executive with a hydropower company said.

"Now we can offer more independent and flexible quotations, and buyers can also shop around [in the spot market]," he added.

In September 2021, the NDRC launched a green power trading pilot, with participation from more than 250 companies including German chemical company BASF, oil major Shell and technology firm Tencent, and covering regions under both State Grid Corp and China Southern Power Grid.