1、Building a Unified National Power Market System in ChinaPathways for spot power marketsThe IEA examines the full spectrum of energy issues including oil,gas and coal supply and demand,renewable energy technologies,electricity markets,energy efficiency,access to energy,demand side management and much

2、 more.Through its work,the IEA advocates policies that will enhance the reliability,affordability and sustainability of energy in its 31 member countries,11 association countries and beyond.This publication and any map included herein are without prejudice to the status of or sovereignty over any te

3、rritory,to the delimitation of international frontiers and boundaries and to the name of any territory,city or area.Source:IEA.International Energy Agency Website:www.iea.orgIEA member countries:AustraliaAustriaBelgiumCanadaCzech RepublicDenmarkEstoniaFinlandFranceGermanyGreeceHungaryIrelandItalyJap

4、anKoreaLithuaniaLuxembourgMexicoNetherlandsNew ZealandNorwayPolandPortugalSlovak RepublicSpainSwedenSwitzerlandRepublic of TrkiyeUnited KingdomUnited StatesThe European Commission also participates in the work of the IEAIEA association countries:ArgentinaBrazilChinaEgyptIndiaIndonesiaMoroccoSingapor

5、eSouth AfricaThailandUkraineINTERNATIONAL ENERGYAGENCYBuilding a Unified National Power Market System in China Abstract PAGE|3 IEA.CC BY 4.0.Abstract Power markets are an instrument used globally to ensure electricity security while maintaining affordability and incentivising decarbonisation.The Peo

6、ples Republic of China(hereafter,“China”)has been making big steps towards implementing markets,and the goals announced in 2020 of carbon dioxide emissions peaking before 2030 and carbon neutrality before 2060 have added momentum to expand their footprint.Provinces have taken a leading role in desig

7、ning and implementing markets.To improve sharing of resources,the guidance to implement a unified national market system pushes for more co-ordination between provinces.The main audience of this report is policy makers in China and all experts intending to contribute to power sector reforms.Other re

8、aders will also find information on the how the power sector and,in particular,power markets operate today in China and may evolve in the next decade.This report examines the role of power markets in China and the pathways to develop a national market.The analysis focuses on short-term markets becau

9、se they have the potential to unlock flexibility the system needs in light of renewables growth and changing weather patterns.The report provides recommendations to improve markets co-ordination across the country as well as within the provinces.Building a Unified National Power Market System in Chi

10、na Acknowledgements PAGE|4 IEA.CC BY 4.0.Acknowledgements,contributors and credits The study was prepared by the Renewable Integration and Secure Electricity Unit(RISE)in the Directorate of Energy Markets and Security of the International Energy Agency(IEA).The study was designed and directed by Jac

11、ques Warichet.The work benefited from strategic guidance by Keisuke Sadamori,Director of Energy Markets and Security,and Pablo Hevia-Koch,Acting Head of RISE.The lead authors of the report were Jacques Warichet,Zoe Hungerford,Camille Paillard and Zhiyu Yang.The modelling work was performed by Zoe Hu

12、ngerford.Haneul Kim and Jinpyung Kim contributed to the analysis.Anna Kalista provided essential support.Other IEA colleagues provided valuable inputs and feedback(in alphabetical order):Xiushan Chen,Conor Gask,Rena Kuwahata,Rebecca McKimm,Ermi Miao,Jonathan Sinton and Dan Wetzel.This report was pro

13、duced with the financial assistance of the Energy Foundation under the IEAs Clean Energy Transitions Programme(CETP).The authors would like to thank the Energy Foundation China team,in particular Feng Zhou and Linan Peng for their help in liaising with Chinese experts and co-hosting the events contr

14、ibuting to the success of this work.The authors are grateful for the comments and feedback from the following experts who reviewed the report(in alphabetical order):Peter Brre Eriksen Ea Energy Analyses Lars Mllenbach Bregnbk Ea Energy Analyses Henrik Bruun Martens Royal Danish Embassy in Beijing Ma

15、x Dupuy Regulatory Assistance Project Nicolas Fatras University of Southern Denmark Sharon Feng Azure International Wei Feng Shenzhen Institute of Advanced Technology Shuo Gao RMI Geir Hermansen Norwegian Agency for Development Cooperation Anders Hove Oxford Institute for Energy Studies Flora Kan EU

16、-China Energy Cooperation Platform Randi Kristiansen United Nations Economic and Social Commission for Asia and the Pacific Yan Qin Refinitiv Kaare Sandholt Energy Research Institute of Academy of Macroeconomic Research Sune Kre Srensen Royal Danish Embassy in Beijing Building a Unified National Pow

17、er Market System in China Acknowledgements PAGE|5 IEA.CC BY 4.0.Helena Uhde EU-China Energy Cooperation Platform Jiahai Yuan North China Electric Power University Jingjie Zhang China Electricity Council Siyu Zhang State Grid Energy Research Institute Jacob Zhao British Embassy in Beijing Feng Zhou E

18、nergy Foundation Qing Zhou RMI Special thanks go to the members of the China Energy Transformation Outlook(CETO)team for sharing valuable information with the authors.The authors would also like to thank Erin Crum for editing the manuscript;the IEA Communication and Digital Office,in particular Astr

19、id Dumond and Therese Walsh;and the maps team,in particular Charner Ramsey and Evan Pelz,for their assistance.Finally,the authors would like to express their gratitude to the China Desk for their continuous support,as well as to the Strategic Initiatives Office for making this study possible.Thanks

20、also to Alejandro Hernandez,former Head of RISE,for helping shape the initial work proposal.This work reflects the views of the IEA Secretariat but does not necessarily reflect those of IEAs individual member countries or of the Energy Foundation or of any particular contributor.Comments and questio

21、ns on this report are welcome and can be addressed to camille.paillardiea.org.Building a Unified National Power Market System in China Table of contents PAGE|6 IEA.CC BY 4.0.Table of contents Executive summary.7 Background and motivation.12 Power markets in Chinas power sector transformation .15 The

22、 push for power markets in China.16 Spot power markets at the provincial and cross-provincial level.22 Designing a national spot power market supporting Chinas policy objectives .36 Models for market integration.36 Assessing and selecting a model for Chinas national spot market.47 Transitioning towa

23、rds a national spot market in China.56 Implementing a secondary market model.56 Reinforcing national institutions for a national market.62 Recommendations.65 National co-ordination of the power sector.65 Advancing regional and provincial markets.66 Annex.69 Modelling methodology.69 Abbreviations and

24、 acronyms.75 Units of measurement.75 Building a Unified National Power Market System in China Executive summary PAGE|7 IEA.CC BY 4.0.Executive summary Chinas latest power sector reforms place electricity markets on the centre stage Markets are taking a growing role in the power system of the Peoples

25、 Republic of China(hereafter,“China”).Although administrative mechanisms have been the main driver for Chinas power sector to achieve Chinas energy and climate policy objectives,benchmarking and competition among coal-fired plants have improved the efficiency and environmental attributes of electric

26、ity.The last major round of reforms started in 2015 gave a decisive nudge to markets to incentivise flexibility as the power system transforms.Increased participation in markets on both the supply and demand sides can be expected to continue as the 14th Five-Year plan(2021-2025)aims to give a leadin

27、g role to markets.Power sector reforms seek a balance between optimisation of resources across the country and protection of local industries,between stable,affordable electricity prices and active new capacity investment,and between energy transition and secure electricity supply.Over the last thre

28、e decades,several rounds of reforms took place.They initially aimed at easing investment in new generation capacity to sustain Chinas economic growth,before addressing the efficiency of the power supply system and environmental aspects.After the power shortages of 2021 and 2022,the security narrativ

29、e has taken a growing role in the national government guidance.The mid-to-long-term(MLT)markets are the most developed form of markets in China.Launched under the 2015 reform,MLT contracts have gradually replaced the administrative allocation of hours to generators.Today,MLT contracts cover half of

30、the electricity consumed and about four-fifths of the traded volume.Although the most common contracts have a duration of one year to one month,shorter and longer duration contracts are appearing,and these can now be traded directly between consumers and generators or on power exchanges.Short-term m

31、arkets have not achieved their full potential despite the possibilities they bring to unlock flexibility.The 2015 reform included the deployment of spot power markets(day-ahead and intraday)to implement economic dispatch and unlock flexibility from supply and demand resources.In market-based systems

32、,these short-term markets play a central role in price formation and support electricity security,for example during the European winter 2022-2023 amid falling gas supply.In China,the first provincial spot market pilots were launched in 2019,with some of them operating continuously now.Spot markets

33、are expanding across the country,but their share in trade Building a Unified National Power Market System in China Executive summary PAGE|8 IEA.CC BY 4.0.remains small and the connection with other established markets(MLT,ancillary services)is in practice still being completed.Better sharing of reso

34、urces across the country requires national co-ordination of local markets.The uneven geographical distribution of resources and demand in China has led to national projects to transfer power across the country.These interprovincial flows are supported by firm,unidirectional MLT contracts.The 2015 re

35、form gave autonomy to provinces to define markets at the provincial level.The resulting market designs,which may diverge significantly,in combination with local economic incentives favour intra-provincial trade.Cost-effective sharing of resources will require more flexible arrangements and integrati

36、on of the different products with varying geographical and time granularity.Pilots of interprovincial and regional spot markets are now being deployed and can be the foundation of a more unified system.China aims to build a unified national power market by 2030 China targets a co-ordinated system of

37、 markets at the national level.While preserving the role of provinces in designing their local markets,the guidance released in 2022 by the National Development and Reform Commission(NRDC)and the National Energy Administration(NEA)Document No.118 requires the creation of a multilayer market architec

38、ture with a national component.This system,to be initially established by 2025 and completed by 2030,aims to co-ordinate existing markets before enabling their integration in the future.Existing markets can be the foundation of a national market system in China.A national spot market can be built by

39、 adapting and expanding the already established provincial and regional markets.Initiated in 2017 to enable exchange and increased use of renewable power“otherwise to be curtailed”,the pilot interprovincial spot power market in the State Grid area can be extended to become a national spot market acc

40、ording to a so-called secondary model,where a national market exists in parallel with the existing local markets.This market would enable better sharing of resources while preserving local autonomy in market designs and dispatch decisions.This is well-suited for China as local markets have adopted d

41、ifferent models and are at uneven levels of maturity.This secondary market structure can operate in parallel with the existing provincial markets as well as the planned southern regional market which aims to expand the Guangdong provincial market to integrate all provinces under the China Southern G

42、rid area.Several pathways can be taken to establish a national spot power market.Two models of secondary markets are considered to enable better sharing of resources across the country.In a surplus market(similar to the current interprovincial spot Building a Unified National Power Market System in

43、China Executive summary PAGE|9 IEA.CC BY 4.0.market),only surpluses are exchanged between the local markets.A higher level of co-ordination can be achieved with“volume coupling”of local markets such as the model introduced by the China Energy Transformation Outlook(CETO).Both models can be intermedi

44、ary steps before a higher integration in the future.Several pathways can be taken to implement a national spot power market IEA.CC BY 4.0.Notes:SGCC=State Grid Corporation of China.The recommended pathway is indicated by the plain arrows.More direct upgrades as represented by the dashed arrows are p

45、ossible.A national surplus market is a no-regret move on the path to more integration in the future.The implementation challenges may be the decisive factor to decide the path forward.Implementing a national surplus market has the advantage of quickly capturing the benefits of regional co-ordination

46、 while enabling to move later to more integrated forms of markets since all developments made to establish a surplus market can be reused and upgraded.Regional trade co-ordination through a national market can deliver substantial efficiency benefits and increased resilience.Regional trade improves r

47、esources sharing across larger areas.This brings many benefits in terms of resilience and can contribute to reducing needed investments in generation assets for reserve.There are also operational efficiency gains.In the Announced Pledges Scenario(APS)in 2035,reductions in operating costs range from

48、6-12%and decreases in CO2 emissions range from 2-10%compared with a situation where regional co-ordination is not improved(assuming the market orientation of dispatch is kept at the current levels).Advancing economic dispatch in local markets delivers even higher benefits than regional co-ordination

49、.Spot market development and financial MLT contracts have made dispatch more market-based,which already shows benefits.An advantage of secondary market models is the ability to deploy the national market with limited need for harmonisation of practices,so steps towards economic dispatch can be taken

50、 by provinces in parallel with the increased co-ordination.Achieving full economic dispatch in the modelled regions(with no improvement in regional co-ordination)leads to reductions in operating costs by around 15%and in CO2 emissions by 28%.Rolling out economic dispatch Building a Unified National

51、Power Market System in China Executive summary PAGE|10 IEA.CC BY 4.0.alongside market reform provides further benefits,amounting to more than double the benefit of the regional co-ordination alone.Reductions in operating costs,CO2 emissions and curtailment under different levels of co-ordination and

52、 economic dispatch in China in the Announced Pledges Scenario,2035 IEA.CC BY 4.0.Notes:ED=economic dispatch;CETO=China Energy Transition Outlook model based on volume coupling for regional co-ordination.Reductions are calculated relative to a low-co-ordination baseline scenario with interregional ex

53、changes based on historical levels and dispatch reflecting current progress towards markets with economic dispatch in some regions and full load hour allocations taking place in the remainder.National institutions can play a bigger role in co-ordination.The leading role in the move towards markets u

54、nder the 2015 reform was largely assigned to provincial authorities and grid companies.Integrating the existing markets towards a unified national system will require a higher level of co-ordination and the leadership of strong and independent national institutions.Guidance for market design and mar

55、ket supervision by a national authority can enable future harmonisation of practices and efficient functioning of markets.Power markets can accelerate the decarbonisation of the Chinese power sector.Electricity generated in China is twice the combined amounts of the United States and the European Un

56、ion,and accounts for 14%of global carbon emissions.Therefore,reducing carbon intensity of Chinas electricity is crucial for achieving the dual carbon goals of China(peaking carbon dioxide emissions before 2030 and carbon neutrality before 2060)and the global climate goals.Global experience shows tha

57、t well-functioning power markets,in combination with carbon pricing,can accelerate decarbonisation.A national emission trading system was launched in China in 2021.Further deployment of power markets can create the framework in which a carbon pricing mechanism can take effect and achieve the dual ca

58、rbon goals smoothly.-40-35-30-25-20-15-10-50Surplus,partial EDCETO,partial EDLow co-ordination,full EDSurplus,full EDCETO,full EDReduction(%)Curtailment(percentagepoint)Operating costsCO2emissionsBuilding a Unified National Power Market System in China Executive summary PAGE|11 IEA.CC BY 4.0.Key pol

59、icy recommendations to advance power markets that support Chinas policy objectives Establish a national spot market under a secondary market model that extends the existing interprovincial spot market and enables,for the time being,existing local markets to maintain autonomy in market design and dis

60、patch decisions.This enables quickly capturing the benefits of enhanced regional co-ordination.Reinforce the role of national institutions to supervise market implementation and to support co-ordination between national and local markets,as well as co-ordination among national plans,markets and oper

61、ational protocols.Lift barriers to interprovincial trade to enable smoothing variability over larger areas.Trading arrangements may be made more flexible,allowing adjustments closer to real time,and transmission tariffs can be adapted.Continue to incentivise the implementation of economic dispatch i

62、n local markets,through deployment of spot markets and by ensuring long-term and ancillary services markets allow for contractual flexibility.The shift from physical to financial contracts on the MLT market is particularly important to this end.Building a Unified National Power Market System in Chin

63、a Background and motivation PAGE|12 IEA.CC BY 4.0.Background and motivation The power system of the Peoples Republic of China(hereafter,“China”)is the largest in the world,with an electricity production of 8 849 terawatt-hours(TWh)in 2022,exceeding the combined annual generation of the United States

64、(4 524 TWh),the European Union(2 842 TWh)and Japan(1 017 TWh).Dominated by coal,it accounts alone for 14%of global energy sector CO2 emissions,and over 40%of Chinas energy-related CO2 emissions.Therefore,any change can have significant outcomes.Power sector transformation is one of the foundations o

65、f the clean energy transition needed to achieve Chinas goal for carbon dioxide emissions peaking before 2030 and carbon neutrality before 2060(“dual carbon goals”).As the main global supplier of clean energy technologies,Chinas efforts to decarbonise its power sector will also be key to ensure clean

66、 supply chains worldwide.A symbolic milestone was achieved in 2022 when for the first time in China the total installed capacity of renewables exceeded that of coal-fired power plants.More than 30%of the power generation mix now comes from renewables,and 14%from wind and solar.Electrification of ene

67、rgy end uses is also quickly changing and expanding the demand side.Power sector reforms will continue to accommodate this transformation while ensuring electricity security and cost-efficiency.The International Energy Agency(IEA)has been engaged for many years in Chinas power sector transformation,

68、providing analysis and recommendations to implement the market-based mechanisms outlined in the third round of reforms of 2015.The 2019 IEA report China Power System Transformation already identified the establishment of spot markets(from day-ahead to real time)and trade between provinces as two of

69、the main elements to improve system operation efficiency in China.The analysis included a state-of-the-art modelling exercise to quantify the benefits for the Chinese power system in 2035 of introducing economic dispatch,increasing interregional trade and deploying advanced flexibility options.The i

70、mplementation of a national spot market was assessed using an economic dispatch protocol performed on an hourly basis,against a baseline scenario for 2018 with administrative allocation of running hours to generators.Variations around the use of interconnections and expansion of transmission capacit

71、ies were applied to simulate different levels of interregional trading.The modelling also separately quantified the effects of advanced flexibility measures such as applying demand response,smart charging of electric vehicles and storage in a power system with optimised economic dispatch,interregion

72、al trading and additional transmission investments.Building a Unified National Power Market System in China Background and motivation PAGE|13 IEA.CC BY 4.0.This previous work showed that significant benefits can be obtained in terms of reductions of operational costs,carbon emissions and renewables

73、curtailment by moving away from an operation model based on administrative allocation and limited trade across regions.Moreover,advanced flexibility measures were found to be crucial for a modern Chinese power system with a high share of variable renewables(VRE).An updated analysis was then provided

74、 in the 2021 IEA report An Energy Sector Roadmap to Carbon Neutrality in China,to align with the dual carbon goals.While previous reports demonstrated that achieving these benefits entails giving a larger role to short-term electricity trading across the country and thus establishing stable and reli

75、able wholesale spot markets they contain some limitations.First,previous analyses considered only a situation where economic dispatch is performed at the national scale,which fails to translate the complexity of the Chinese power system,given its size and its constraints at multiple layers.Second,th

76、e administrative allocation of running hours to generators as used as a reference case has been evolving in China,as policies encouraged participation of generators and large consumers to MLT markets.Lately,the introduction of pilot spot power markets has further scaled back the minimum allocated ho

77、urs of generators.Third,our previous work did not discuss what model of multilateral trading would be best suited for Chinese provinces and regions,nor the pathways towards integration of these diverse markets,some already well established and in operation,some nascent and some yet to be designed.In

78、 January 2022,the National Development and Reform Commission(NDRC)and the National Energy Administration(NEA)issued the Guiding Opinions to Accelerate Unified National Power Market System,also known as Document No.118.This document points out the need to improve the current system of markets and to

79、improve co-ordination across the country and calls for the establishment of a“unified national electricity market system”by 2030.Although Document No.118 does not explicitly require unification of spot markets,this report gives particular attention to these markets in light of the central role they

80、play in other market-based systems around the globe.Structure of the report This report aims to illustrate pathways for implementing Document No.118 and integrate power markets.This work does not provide detailed design options but highlights the main requirements to ensure market integration in an

81、efficient and secure way.The structure of the report is as follows.The first section takes stock of the role of markets in the Chinese power sector,with a general overview first before looking at spot markets in particular.Readers familiar with the Chinese power sector may Building a Unified Nationa

82、l Power Market System in China Background and motivation PAGE|14 IEA.CC BY 4.0.skip this first section.The second section looks at a few possible models for a national spot power market in China.These models are inspired by international experience and their application to the Chinese case is descri

83、bed.The third section makes a selection among the target models described in the second section and lays a pathway from the current situation to the selected target model.Finally,recommendations are provided for spot markets at both the national and provincial levels.Building a Unified National Powe

84、r Market System in China Power markets in Chinas power sector transformation PAGE|15 IEA.CC BY 4.0.Power markets in Chinas power sector transformation Developed markets,where all participants are made responsible for all costs and benefits arising from their actions,can support policy objectives whi

85、ch can be locally defined according to social preferences,and in particular guide the electricity system towards secure,affordable and decarbonised electricity.Outside of China,over 50%of the global electricity is generated in power systems relying on liberalised markets,delivering a wealth of exper

86、ience in designing and deploying markets.Until 2015 in China,the share of generation from every plant and the prices were administratively decided in order to keep prices stable and share benefits fairly.Initiating the current major round of reforms,the release of Document No.9 promoted power market

87、s to further improve cost-effectiveness of generation and adapt to the transformation of the power system.These markets mainly developed at the provincial level.Power trade expanded quickly in recent years:in 2022,61%of the electricity generation was traded in markets,representing an increase of 39%

88、from 2021.Chinas wholesale power market is dominated by bilateral MLT contracts,which represent 79%of total traded volume.Spot markets are at nascent stages and have limited scope.Since pilots were initiated in 2017,seven provinces representing 41%of Chinas power demand run continuously operational

89、spot markets today.To capture the numerous benefits of resources co-ordination across provinces,interprovincial and regional markets have also been initiated.Wider market and operating areas improve flexibility and allow optimising the volume and cost of required reserves,thereby reducing the need f

90、or dispatchable thermal units,a benefit that grows as the share of VRE increases.However,in 2022,97%of the MLT trades took place within provincial borders,leaving a limited role for markets across provinces to optimise resource sharing.A new impulse was given in 2022 with the release of Document No.

91、118 requiring the establishment of a unified national market system.This section describes the history and state of play of wholesale power markets in China.It is divided into two parts.The first part looks at the development of wholesale markets in general while the second part focuses on spot mark

92、ets.Building a Unified National Power Market System in China Power markets in Chinas power sector transformation PAGE|16 IEA.CC BY 4.0.The push for power markets in China System services and products in Chinas power system IEA.CC BY 4.0.Notes:FLH=full load hours;MLT=mid to long term;DA=day-ahead;ID=

93、intraday;RT=real-time.Not all products and services are traded on a competitive market.Capacity and short-term markets exist only in part of the provinces and the intraday market is not required by the NEA.Flexibility-related ancillary services include services such as“peak adjustment”or“deep rampin

94、g”,which become unnecessary once short-term markets are in operation.Electricity security and generation efficiency drive power sector reforms The power sector in China started its transition from planned model in 1987.In 1997 and 2002,the country launched major power sector reforms,first to separat

95、e the sector from direct administration control,and then to unbundle the vertically integrated power company into generation and grid activities.As the generation business opened to private investors in order to address supply shortages,“fair dispatch”,an administrative process ensuring that all pla

96、nts would be allocated similar amount of FLHs over the year,was adopted.Building a Unified National Power Market System in China Power markets in Chinas power sector transformation PAGE|17 IEA.CC BY 4.0.In 2015,the State Council issued Document No.9,marking a new round of reforms with a main target

97、of liberalisation of the demand and supply sides,while giving a prominent role to efficiency,security,and reducing emissions of greenhouse gases and other pollutants.The reforms supported the establishment of MLT,spot and ancillary markets,and delegated to provinces the power to decide their own app

98、roaches and carry out pilots based on their different electricity structures.Numerous pilots across different provinces and different reform orientations brought about rapid growth in market size.According to the China Electricity Council,the total volume of transactions in Chinas power market,mainl

99、y based on MLT contracts,has reached 5 254 TWh,representing 61%of Chinas total consumption,more than tripling from 2017.Evolution of market-based electricity volume and share,2017-2022 IEA.CC BY 4.0.Source:IEA analysis from China Electricity Council data.Transition requires linking legacy practices

100、with markets Markets in China face barriers due to the heritage of the planned economy.China seeks a balance between optimisation of resources across the country and protection of local industries,between stable electricity prices and active new capacity investment,and between energy transition and

101、secure electricity supply.To encourage investments in new capacity and prevent power shortages,China adopted“fair dispatch”in the early 2000s to ensure non-discriminatory FLHs execution for all power plants.Since then,administrative allocation has progressively moved towards MLT contracts between ge

102、nerators and consumers with a duration from one year to one month.Regulated electricity prices,however,challenged the profitability of generators as the coal price reached a historic high 10%20%30%40%50%60%70%01 0002 0003 0004 0005 0006 0007 0008 0009 00010 0002002020212022TWhNon-market-b

103、asedvolumeMarket-basedvolumeMarket-basedshareBuilding a Unified National Power Market System in China Power markets in Chinas power sector transformation PAGE|18 IEA.CC BY 4.0.in 2021,and an unprecedented heat wave shaved hydro capacity in 2022 while air conditioning pushed summertime demand upwards

104、.Future reforms will have to balance local and national interests Provincial autonomy in the power sector also constitutes a barrier to markets.China has put provinces at the heart of power market reforms,allowing local governments to make rules for their respective power markets.Due to the unbalanc

105、ed geographical distribution of natural resources and demand,China has sought to optimise power transmission at the national level to reduce the curtailment rates of solar PV and wind in northwest China,and the threats of power shortages in other regions,as materialised in the summers of 2021 and 20

106、22.China deployed a(ultra-)high-voltage grid with a transmission capacity over 200 gigawatts,which transmitted 1 770 TWh across provincial borders in 2022,representing a fifth of the total national consumption.The bulk of this energy transfer is associated to national projects such as the West-to-Ea

107、st transfer and large hydro plants such as the Three Gorges Dam in central China.Unbalanced resource distribution is a motivation for central institutions to reinforce co-ordination,but provincial governments remain less proactive to promote an interprovincial market that may challenge the local pow

108、er sector.The national strategy of transmitting electricity from the resource-rich west to the demand-intensive east is mainly carried out through administrative orders and bilateral contracts signed across provinces1,which serve as firm inputs to provincial markets.Initial moves have been made to e

109、stablish interprovincial contracts,but these are mostly unidirectional and for the long term,and under regulated price.Transmission tariffs,which cumulate along the flow paths(“tariff pancaking”),also limit the attractiveness of cross-provincial transactions.Energy transition may accelerate power ma

110、rket reforms In line with its ambitious dual carbon goals,China is transforming the power sector by massively deploying renewables.Renewables deployment outpaced any other source in 2022,with year-on-year capacity growth exceeding 28%for solar and 11%for wind.Ongoing and upcoming reforms must addres

111、s the limited incentives for flexibility of resources and investment in new dispatchable capacities in parallel with the rapid growth of renewables.1 These bilateral contracts can be between provincial grid companies(grid-to-grid)or between a generator and a grid company(point-to-grid).Building a Un

112、ified National Power Market System in China Power markets in Chinas power sector transformation PAGE|19 IEA.CC BY 4.0.China is increasingly making use of markets to support the energy transition,such as the Emission Trading Scheme(ETS)that has been in place for nearly two years and the green electri

113、city market that focuses on power purchase agreements(PPAs).These long-term bilateral contracts between renewable generators and large consumers help secure funding for renewable projects and hedge prices for the consumers.To unlock more flexibility sources in a transforming power sector,China is pa

114、ying a growing attention to capacity remuneration mechanism(CRMs)and virtual power plants(VPPs).According to NDRCs announcement during the National Peoples Congress in March 2023,CRMs will be able to support profitability of existing plants and investment in additional capacities,mostly targeting co

115、al plants,the current major source of flexibility.Encouraged in several policy documents,including the NEAs spot market rules published in November 2022,VPPs aggregate distributed energy resources to provide short-term flexibility as road transport,heating and other sectors electrify.Document No.118

116、 calls for a unified national market by 2030 The diversity of market initiatives and their lack of co-ordination are increasing the barriers to market operation.On 21 January 2022,the NDRC and NEA issued the Guiding Opinions to Accelerate Unified National Power Market System,also known as Document N

117、o.118.This document points out the need to improve co-ordination of the existing markets and calls for the establishment of a“unified national electricity market system”by 2030.The foundations of this national market are the existing interprovincial markets,namely a centralised marketplace for bilat

118、eral MLT contracts and a pilot interprovincial spot market in the State Grid Corporation of China(SGCC)area.The detailed goals set out by the document are summarised in the table below.It is noted that Document No.118 does not explicitly require unifying spot markets.The construction of a unified na

119、tional power market system is now raised at the level of national strategy,being referred to as a“key reform task”in the 14th Five-Year Plan for a Modern Energy System(2021-2025).It is also listed in first position in the NEAs key priorities for 2023 regarding energy regulation,with emphasis on prep

120、aring a development plan,standardising rules and pushing forward the construction of regional markets.Building a Unified National Power Market System in China Power markets in Chinas power sector transformation PAGE|20 IEA.CC BY 4.0.Goals set for national markets in Document No.118 Items 2025 goals

121、2030 goals Implementation of unified national electricity market Establish preliminary structure of the market Fundamentally establish a unified national electricity market Role of provincial and regional markets Co-ordinated operation with national market Integrated operation with national market C

122、onnection among MLT/spot/ancillary services markets Design an integrated system and pursue linked operation-Interprovincial and regional trade/green power trade Significantly expand trade volume-Renewable energy Establish a preliminary foundation for market and price mechanisms that enables the deve

123、lopment of renewables and energy storage Full integration of renewables into the market Global practices show the need to continuously improve market design Since 2021,power markets globally have been stressed by the tightness on gas markets.In Europe,historic high prices hit customers hard and resu

124、lted in demand destruction in industry.This was echoed in China with an increasing focus on energy security in the 14th Five-Year Plan and 20th Party Congress after the record high coal prices in summer 2021.As intense stakeholders consultations take place in Europe,a major lesson learned is that ma

125、rket designs are not static and should be continuously adapted to exogenous changes and to support policy objectives.China is attentively monitoring to take onboard lessons for its own market designs to balance electricity security with effective price signals,price stability and affordability.Build

126、ing a Unified National Power Market System in China Power markets in Chinas power sector transformation PAGE|21 IEA.CC BY 4.0.Chinas power sector reform milestones,1985-2022 IEA.CC BY 4.0.Note:TF=Task Force;SPCC=State Power Corporation of China;SERC=State Electricity Regulatory Commission;CSG=China

127、Southern Power Grid;T&D=transmission and distribution;C&I=commercial and industrial;min.CF=minimum capacity factor;RE=renewable energy.Source:IEA based on template by Fatras et al(2022),A systematic review of electricity market liberalisation and its alignment with industrial consumer participation:

128、A comparison between the Nordics and China.Building a Unified National Power Market System in China Power markets in Chinas power sector transformation PAGE|22 IEA.CC BY 4.0.Spot power markets at the provincial and cross-provincial level Reforms are making cautious steps towards a market-driven disp

129、atch of resources.Short-term markets have been a component of all power sector reforms in China.In 1998 and 2002,China launched two rounds of pilots of regional spot markets that were both stopped due to the issue of“imbalance funds”that can appear with the“dual track”system,in which in-and out-of-t

130、he-market resources co-exist.Today,the most mature market is the MLT market where the dominant product is annual contracts relying on a benchmark on-grid tariff set administratively.China introduced generation rights trading in 2011 to compensate inefficient plants set to be decommissioned.As physic

131、al contracts are a barrier to flexibility,this mechanism can also be used to decouple real-time dispatch from long-term contracts.To further unlock flexibility and cost-effectiveness,Document No.2752,the action plan of Document No.9(2015),aimed to complement the MLT markets with liquid short-term ma

132、rkets,which may also provide a reference price for MLT contracts.On the other hand,authorities are deploying rules to mitigate the potential volatility of spot markets by,for example,limiting their size and imposing prices caps.In its annual instructions on MLT electricity contracts of December 2022

133、,the NDRC clearly indicates that all in-the-market consumers shall sign MLT contracts in 2023 for volumes of no less than 90%of 2022 consumption.Effectively connecting MLT and spot markets remains a heated topic of debate.As China continues to consider MLT as the foundation of power markets,policy m

134、akers have pushed for diversification of MLT products in terms of trade frequency,time frame and curve setting,and softened the requirement for physical execution.Building a Unified National Power Market System in China Power markets in Chinas power sector transformation PAGE|23 IEA.CC BY 4.0.Dispat

135、ch approach in provinces with a spot market pilot In provinces applying a gross pool model:MLT contracts are financial(CfD)Prioritised generation(renewables,nuclear and,in some provinces,gas)serves as firm input in the clearing process.*Hydropower projects base their generation on the needs of reser

136、voirs.Apart from allocated FLHs,they provide ancillary services and canparticipate in the spot market.*Local VRE/nuclear/gas may decide to put a certain amount of generation in the market to be economically dispatched(and to be paid by market price),depending on whether it is allowed by the local au

137、thority.In Fujian,applying a net pool model:MLT contracts are physical Prioritised generation in Fujian refers to VRE,hydro,nuclear and gas.Trading parties agree on curves of MLT contracts to be physically executed.Interprovincial also serves as firm input to clearing.*Fujian rule is unclear on conn

138、ection between prioritised generation and clearing.IEA.CC BY 4.0.Notes:CfD=contract for difference.In a net pool,“All”refers to all non-prioritised generation within the province.Dispatch described is according to the common rules issued by the NEA(for consultation)as well as provincial spot market

139、rules,and may be altered by administrative allocation of hours to generators.Lengths of the bars are not proportional to dispatched volumes.Building a Unified National Power Market System in China Power markets in Chinas power sector transformation PAGE|24 IEA.CC BY 4.0.Ancillary services markets we

140、re a first attempt to steer power generators flexibility In China,“peak adjustment”(or“deep ramping”)refers to dedicated measures to incentivise power plant flexibility and reduce renewables curtailment,and they are classified as ancillary services.These services are meant to pay for forgone energy

141、and energy arbitrage,and are distinct from the globally used services for frequency regulation,reactive power control and system restoration.Markets for peak adjustment were initiated in 2014 and designed to operate in the absence of spot markets by providing economic incentives to generators to ope

142、rate below their contractual output level.The northeast region first implemented a peak adjustment market in the day-ahead requiring thermal plants without heat obligations to lower their output to reduce the curtailment of wind during the heating season,when co-generation units have priority.Having

143、 extended to all six regions in China by July 2022,these markets often operate at the regional level in support of the system balancing performed by regional dispatch centres.Recently,developments in ancillary markets also happen at provincial level,with most provinces having launched provincial pea

144、k adjustment markets.Most first-batch spot pilot provinces including Zhejiang and Guangdong,and some second-batch provinces such as Jiangsu,have transformed previous peak adjustment markets to cover reserve and regulation services,as markets for lowering thermal output are no longer necessary once t

145、he spot market steers dispatch.The first batch of provincial spot market pilots tested various designs In 2017,the NDRC issued the Notice on Carrying Out Electricity Spot Market Pilot Projects,known as Document No.1453,in order to“accelerate the construction of effectively competitive market structu

146、re and system”,which was described as the“core target”in Document No.9.By selecting eight provinces and regions as the first batch of pilot spot markets,the commission aimed at“changing the measures of planned dispatch,discover the commercial price of electricity,form an in-the-market mechanism for

147、electric power balancing and let the market play a decisive role in electric power resource allocation”.Different market designs were adopted in pilot provinces,each trying to develop a market best suited to the structure of their local power sector(see box Provincial spot market design).Progress of

148、 spot market pilots lagged the timeline set in Document No.1453.This could be due to lack of momentum at the provincial level to push the reform forward and the diverging expectations of stakeholders.Local governments might have expected spot markets to lower the electricity price,which only partial

149、ly reflects the central governments intent to Building a Unified National Power Market System in China Power markets in Chinas power sector transformation PAGE|25 IEA.CC BY 4.0.establish a true price signal of electricity,as is stated in Document No.1453.Grid companies worrying about changing the st

150、atus quo could be another reason.Despite all challenges,by June 2022,all first-batch pilot markets except for Zhejiang had entered into the continuous operational test phase.Zhejiang planned to carry out its continuous operational test in 2023.Document No.9 intends to give spot markets the role to r

151、eveal the real value of electricity with a sufficient locational and time granularity.However,out of concerns of volatility in wholesale prices,upper and lower caps were set on prices in the existing pilots.These caps limit the price range well below the range allowed in spot markets around the worl

152、d and remain an obstacle to an effective price signal.An initial step was made by Guangdong in summer 2022 to temporarily remove the upper cap in the spot market amid skyrocketing coal and gas prices.The market then saw the record high price of CNY 1 366.95(Yuan renminbi)per megawatt-hour(MWh),excee

153、ding its original cap by over 30%,which incentivised generators to produce at full capacity to meet the southern provinces summer consumption peak.In Shandong,negative day-ahead prices are officially recognised to reflect the gap between huge distributed solar capacity and lagging energy storage dep

154、loyment,and to incentivise investment of the latter.Timeline of spot market Introduction(2017-2022)IEA.CC BY 4.0.Source:IEA based on template by Fatras et al(2022),A systematic review of electricity market liberalisation and its alignment with industrial consumer participation:A comparison between t

155、he Nordics and China.Building a Unified National Power Market System in China Power markets in Chinas power sector transformation PAGE|26 IEA.CC BY 4.0.Provincial spot market design The first batch of pilot markets were selected to explore different market designs under a large diversity of electric

156、ity supply and demand backgrounds:Gross pool versus net pool:In a gross pool(the American model),all generation is dispatched by a central market operator.Contracts made between generators and users are only financial,and do not require physical execution.In a net pool(closer to the European model),

157、generating companies can schedule their own generation based on physical MLT contracts,while surplus/deficit is traded through a voluntary pool.As it is generally implemented with a high locational resolution,the gross pool model better suits the provinces with high network congestion and high renew

158、ables share.MLT financial versus physical contracts:According to the NDRC,financial contracts may be settled in both pool models,and physical contracts shall be settled only in net pool markets.Price clearing:Provinces may choose to clear the market on marginal prices of nodes,bidding zones,or the e

159、ntire province(system)based on expected local congestion level.Price limits:All pilot markets apply both lower and upper limits on price.The limits are established based on the maximum generation cost and,in contrast to emerging practices in spot markets,do not take the approach of valuing scarcity(

160、value of lost load).Type of generation allowed to participate:Most Chinese provinces follow the policy of guaranteed purchase of VRE,but some pilot provinces have started to introduce VRE into the market.In Shanxi,VRE may choose to act as price taker in the spot market.In three other provinces,VRE g

161、eneration can be considered as an equal participant to thermal plants.More provinces are planning to introduce VRE into the spot market.In Sichuan,the spot market is open to hydro plants only in“wet”seasons and to thermal plants only in“dry”seasons,so different price limits apply.Building a Unified

162、National Power Market System in China Power markets in Chinas power sector transformation PAGE|27 IEA.CC BY 4.0.Main characteristics of the first batch of provincial spot market pilots Guangdong Zhejiang Shanxi Shandong Sichuan Gansu Fujian Mengxi Annual supply-demand gap(2021,TWh)--157105

163、 23-29199(incl.East)Generation mix Thermal:60.11%VRE:16.58%Nuclear:9.43%Thermal:61.55%VRE:18.30%Hydro:11.34%Thermal:66.44%VRE:31.58%Hydro:1.98%Thermal:62.51%VRE:34.95%Nuclear:1.33%Hydro:66.36%Thermal:22.11%VRE:11.52%VRE:46.71%Thermal:37.56%Hydro:15.73%Thermal:51.52%Hydro:19.85%VRE:14.50%Thermal:57.7

164、7%VRE:34.95%Hydro:5.61%Pool Gross Gross Gross Gross Gross Gross Net Gross*MLT contract CfD CfD CfD CfD CfD CfD Physical CfD Clearing Nodal Nodal Nodal Nodal System Zonal System System Price limits(CNY/MWh)0-1 0001 200(gas)0-1 500-80-1 30075-254(hydro)341-441(thermal)40-650118-5110-1 500VRE participa

165、tion Volume+priceVolume Volume+priceVolume+priceVolume+priceAncillary regulation Ancillary reserve Capacity mechanism In plan*Mengxi(West Inner Mongolia)transitioned from a net pool to a gross pool model in June 2022.Sources:Power exchanges of Shandong,Shanxi,Sichuan,Gansu,Fujian,Mengxi;Provincial D

166、RC of Zhejiang;NEA.Building a Unified National Power Market System in China Power markets in Chinas power sector transformation PAGE|28 IEA.CC BY 4.0.Spot market pilots shed light on issues related to out-of-the-market resources The first-batch pilots experienced some challenges with imbalances due

167、to the“dual track”.Adopting a gradual approach and aiming at protecting certain participants,the spot pilots did not include all generation sources nor end users at the onset.On the supply side,besides in-the-market generation sources,there is also prioritised(out-of-the-market)generation whose prod

168、uction must be entirely purchased by the grid company at a regulated price.Each province has the right to announce its prioritised generation every year.In an effort to incentivise low carbon sources and flexible units,a document issued by the NDRC in 2019 requires including in prioritised generatio

169、n all low-emission sources(VRE,hydro,nuclear),frequency adjustment units,and government-mandated interprovincial transmission.Co-generation plants are also included in some northern provinces.On the demand side,commercial and industrial(C&I)users did not fully enter the market until the release of D

170、ocuments No.1439 and No.809 in 2021,while agricultural and residential users are still under the regulated price scheme.There are hence two tracks(in-and out-of-the-market)in the dispatch sequences of pilot provinces.Imbalance fund in the“dual track”system IEA.CC BY 4.0.Notes:This figure shows two c

171、ommon scenarios under which imbalance funds emerge.Lengths of bars are not proportional to actual volume of generation/consumption.The co-existence of in-the-market and out-of-the-market participants in these pilot markets created sometimes significant imbalance funds.When gaps emerge between pre-se

172、t level and actual volume of generation or consumption,grid companies as the middle party have to fill these gaps with in-the-market electricity.Building a Unified National Power Market System in China Power markets in Chinas power sector transformation PAGE|29 IEA.CC BY 4.0.The imbalance electricit

173、y will be bought/sold at regulated prices for out-of-the-market participants,and at market price for in-the-market participants,thus generating imbalance fund,usually held by grid companies.In Shandong,CNY 95.08 million(USD 14.02 million)of imbalance fund was recorded in a four-day simulation test w

174、ith settlement in May 2020,mainly triggered by VRE that generated beyond the forecast curve.As out-of-the-market demand remained relatively stable,Shandong faced challenges to balance the variation of its large PV generation and renewable electricity imports,both of which are not subject to market p

175、rices.Based on the experience of Singapore,government-mandated contracts(“vesting contracts”)have been considered as a widely applicable option to eliminate imbalance funds.Grid companies,under the mandate of provincial governments,are required to sign CfDs with out-of-the-market generation to cover

176、 the out-of-the-market consumption.The concept is comparable to two-way CfDs proposed by the European Commission for the revision of the internal electricity market,with a similar intention to lock in revenues for certain generation.Recently,in the MLT contract plan of 2023(Document No.1861),the NDR

177、C recognised vesting contracts as the solution to phase out provincial out-of-the-market generation to support Document No.118 implementation.Connecting spot markets to other markets and mechanisms appears as a necessity as variability grows Connecting provincial and interprovincial MLT markets with

178、 spot markets has been another key challenge for many pilot regions.MLT contracts typically cover time frames from one year to one month and include an hourly demand/supply curve but tend to be firm commitments(not adjusted after signature).Spot markets face difficulties connecting with intra-provin

179、cial MLT markets due to the slow transition from a full MLT market.In Shanxi,before the short-term operational test phase,MLT contracts were signed prior to spot pilots started.After the introduction of the spot market,hourly curves were negotiated between generators and users two days ahead of real

180、 time(D-2).As the province has abundant generation capacity,negotiations usually turned in favour of consumers,causing financial deficits to generators.Connecting interprovincial MLT and intra-provincial spot is another challenge,particularly for importing provinces.In Zhejiang,the lack of connectio

181、n between the provincial market and the interprovincial MLT trade lagged the provinces pilot progress,illustrating another issue with the dual track.While the province followed Document No.1439 to allow all C&I users to participate in the power market,interprovincial electricity is yet to be release

182、d into market.As a result,the grid Building a Unified National Power Market System in China Power markets in Chinas power sector transformation PAGE|30 IEA.CC BY pany held a great amount of imported electricity(37%of its total consumption in 2020)but was allowed to sell it only to protected end user

183、s,while the spot market saw a sudden rise of demand that had no matching supply.Consequently,provincial and central governments have deployed measures to improve existing rules between pilots.Shanxi led the way by setting up a task force dedicated to spot power market discussions in April 2019,which

184、 has worked out 12 successive versions of provincial spot market rules to reflect the common expectations of market participants.Most pilot regions including Shandong and Gansu also adopted the idea of a task force to engage stakeholders and iterate on spot market rules during the pilot period.At th

185、e national level,besides organising a high-level task force,the NDRC and NEA also organised weekly meetings on spot market pilots since May 2019 and published internally several Spot Market Pilot Work Guidances.First-batch markets were invited by the NEA to share lessons learned with second-batch ma

186、rkets to accelerate the progress.Regular training sessions are organised by provincial dispatch centres to familiarise new market players with the spot power market.NEA releases spot market rules for provinces while pilots expand and aim to integrate renewables To accelerate spot power market pilots

187、,the NDRC issued Document No.339 named Opinions on Further Promoting Spot Power Market Construction Pilots in May 2021.Compared with Document No.1453,this document puts increasing renewables consumption among its goals and aims to expand the scale of spot market pilots.Six provinces were selected fo

188、r a second batch of pilots.In May 2022,the NDRC issued Document No.129,setting goals for first-batch markets to enter into long-term continuous operational tests(see box Spot market pilots:From tests to permanent operation),second-batch markets to start tests by June 2022,and the rest of the provinc

189、es(third batch)to start pilot preparation by the end of 2022.By January 2023,21 provinces/regions had started spot market pilots,covering 80%of Chinas total electricity consumption.In December 2022,the NEA published the Basic Rules for Spot Power Market and Regulation Methods of Spot Power Market fo

190、r consultation.A result from first-batch lessons and a guidance for expansion of the second and third batches,the documents provide a framework for provincial spot markets,explicitly suggesting adopting a gross pool model,while maintaining room for provinces to define detailed designs.In particular,

191、some minimum requirements are provided for provincial rules,such as defining market caps,establishing CRMs,improving market regulations regarding market power,and maintaining ancillary services as a component of price formation mechanism.Building a Unified National Power Market System in China Power

192、 markets in Chinas power sector transformation PAGE|31 IEA.CC BY 4.0.These documents also include the promotion of renewable participation in power markets among the main tasks for spot market construction.At early stages of spot market pilots,the NDRC instructed non-hydro renewables to participate

193、in the spot market as price takers before releasing a guidance in 2019 with reduction of VRE curtailment as a goal for spot market pilots.Spot market pilots:From tests to permanent operation China often uses provincial or regional pilot projects to test out the feasibility and effectiveness of a pol

194、icy before national roll-out.In spot markets,pilots generally follow the three-step procedure below as described in the Basic Rules issued by the NEA in December 2022.Pilot phase Steps Description 1.Simulation test Simulation test without dispatch A“shadow market”phase when market entities submit si

195、mulation bids to observe the normal function of market operation system.Simulation test with dispatch“In due course”,production and dispatch need to be carried out according to simulation results,Operational test plans Working plans and rules for operational tests with settlement need to be authoris

196、ed or published before Step 2.2.Operational test with settlement Operational test(Short term)A“semi-functional”phase when market entities submit actual bids in a market operating under working plans or provisional rules over a fixed period of time(weekly,monthly,quarterly).Long-term/Long-term contin

197、uous operational test Market operation needs to continuously settle and form dispatch plan according to provisional rules for a year(long-term)or without an explicit end date(long-term continuous).Publication of spot market rules Releasing spot market rules is the pre-requisite for a pilot market to

198、 enter into permanent operation.3.Permanent operation Source:NEA(2022),Basic Rules for Spot Power Market(for consultation).Building a Unified National Power Market System in China Power markets in Chinas power sector transformation PAGE|32 IEA.CC BY 4.0.Status of Chinas spot power market pilots This

199、 map is without prejudice to the status of or sovereignty over any territory,to the delimitation of international frontiers and boundaries and to the name of any territory,city,or area.Source:National Energy Administration and its provincial branches.Spot markets beyond provincial borders aim to smo

200、oth variability over larger areas but remain constrained by inflexible MLT arrangements As the out-of-the-market role of interprovincial electricity in provincial markets became one of the barriers to spot pilots,an interprovincial spot market was needed to push forward the reform.The attempt to for

201、m an interprovincial spot market began in August 2017,when the SGCC,in response to a 2016 NDRC document,established an interprovincial surplus renewable power spot market covering multiple regions under the SGCC grid area.This market operated in Building a Unified National Power Market System in Chi

202、na Power markets in Chinas power sector transformation PAGE|33 IEA.CC BY 4.0.day-ahead and intraday and was restricted to surplus(“otherwise curtailed”)renewable electricity that exceeded administratively allocated generation plans.By the end of 2021,over 27 TWh of electricity had been traded in thi

203、s market.In November 2021,the SGCC published the Provisional Rules for Interprovincial Spot Trade,marking the expansion of the interprovincial market to cover all generation sources,including thermal and nuclear,while also including the Mengxi grid under a separate operator.Similar to its predecesso

204、r,this market does not include the China Southern Power Grid(CSG)2 and is a surplus market organised by the National Power Dispatch and Control Centre(under the SGCC)that only trades the surpluses that exceeded MLT market curves in day-ahead and intraday markets.In essence,the MLT contracts define t

205、he initial dispatch decisions but the remaining margin on available units can be sold on the interprovincial market.Moreover,generators are not allowed to sell electricity if their province is expected to be in power deficit at the trading time.The interprovincial market pilot commenced after the pu

206、blication of its provisional rules:the market went from a one-day operational test in January 2022 to a six-month operational test during the second half of 2022.The market saw 27.2 TWh trade volume in 2022,almost equivalent to the entire volume of its four-year-long predecessor.Starting in January

207、2023,this market has entered year-long continuous operational test and is expected to commence permanent operation“in due course”.Interprovincial power trade Almost all(97%)of interprovincial power trade in China takes the form of MLT contracts.While senders of interprovincial MLT contracts can be p

208、ower plants or grid operators,only grid companies can serve as counterparty in the receiving end,a feature that also applies to the interprovincial spot market.A document issued by the NEA in 2019 decided that signing parties of these contracts must confirm negotiated day-ahead curves for the traded

209、 electricity,on top of annual framework agreements signed between provincial governments,to serve as firm inputs to provincial spot markets.Attempts to reform interprovincial MLT trade took place with little success.In 2016,the NDRC authorised consumers in Shandong to bid for interprovincial electri

210、city from northwest China,transmitted by the Yin-Dong(Yinchuan-Dongying)high-voltage direct current(HVDC)line,although with a volume capped at 10 TWh.2 The two wide area synchronous grids in China,operated by the CSG and SGCC,are historically relatively isolated from each other,currently with two hi

211、gh-voltage direct current interconnections between them.Building a Unified National Power Market System in China Power markets in Chinas power sector transformation PAGE|34 IEA.CC BY 4.0.The lack of granularity of Yin-Dong MLT contracts soon appeared to be a barrier to meet the variable local demand

212、,which was influenced by VRE and spot market prices.This was especially visible in 2021 and 2022 amid high coal prices.In the meantime,dispatch centres at the sending end reserved some of the generation for local supply security,further causing losses in the receiving end.As a result,monthly trade v

213、olume dropped from over 300 gigawatt-hours(GWh)in 2016 to 98 GWh in January 2022.Connecting interprovincial MLT markets to spot markets is another challenge.All market rules forbid grid companies in importing provinces to act as the seller in provincial spot markets.However,as grid companies are the

214、 only buyers in interprovincial trade,they may possess electricity in excess of the demand of prioritised consumption.As a result,in some provinces,C&I users do not have access to imported electricity even though the price soars in the local spot market.The needs for interprovincial power trade tend

215、s to differ across seasons.Allowing more point-to-point MLT and spot trades will increase flexibility but alters the business model and operations of grid companies.Some spot pilot provinces have started to introduce more point-to-point trades.In Zhejiang,the latest rules allow consumers to purchase

216、 interprovincial coal-fired electricity under a governmental framework agreement.Only when market-traded interprovincial electricity falls below the required volume for secure supply will grid companies be allowed to purchase from interprovincial market.Document No.129,Notice on Accelerating the Pro

217、motion of Spot Power Market Construction,demands that electricity traded on the interprovincial markets be included in provincial spot markets at both sending and receiving ends to avoid imbalance in provincial markets.A potential challenge for interprovincial trading is transmission tariffs.Current

218、ly,cross-regional transmission is priced by summing up all transmission charges generated along the contract path,a“tariff pancaking”approach that can discourage transactions.In addition,tariffs for interregional interconnectors are based on energy only and not linked to capacity nor time of use.As

219、the interprovincial market expands,current transmission tariffs may have to evolve to promote commercial transactions and ensure a sound cost allocation between stakeholders.Southern Grid leads the efforts for regional market pilots Apart from the interprovincial market,regional markets also form an

220、 important component in Chinas power system,as regional grid companies are responsible for supply-demand balancing and operate most regulating resources such as pumped hydro storage stations.Logically,regions developed ancillary services markets to support this task.As for regional spot markets,thre

221、e of them(Jing-Jin-Building a Unified National Power Market System in China Power markets in Chinas power sector transformation PAGE|35 IEA.CC BY 4.0.Ji,Yangtse Delta,Greater Bay Area)were proposed in Document No.828 of 2019,an action plan following Document No.1453.The three markets relate to regio

222、ns of strategic importance in China:Jing-Jin-Ji covers the capital Beijing and surrounding provinces of Tianjin and Hebei;Yangtse Delta covers eastern coastal provinces of Jiangsu,Zhejiang,and Shanghai;Greater Bay Area covers Guangdong,Hong Kong and Macau in southern China.Based upon the Greater Bay

223、 Area idea,the southern regional spot power market has progressed the most so far.Not included in the SGCC interprovincial market,the CSG is pushing forward a regional market that covers all five provinces under its grid,namely Guangdong,Guangxi,Guizhou,Yunnan and Hainan.With the Guangdong spot pilo

224、t named“Southern(starting from Guangdong)”spot power market from the beginning,the CSGs intent is to integrate the other four provinces into the Guangdong market to form a regional spot market.The Guangdong power exchange would operate this market,adding to the existing parallel regional market cove

225、ring MLT contracts and ancillary services overseen by the Guangzhou power exchange.The regional spot market began its first simulation test on 23 July 2022.After the publication of its first spot market rules in August 2022,the markets first two-day simulation test with dispatch was executed in Dece

226、mber 2022.Chinas central government has acknowledged the expansion towards a southern regional spot power market and accordingly replaced the mention of the“Greater Bay Area market”in Document No.129,which also noticed the less-progressing markets of Jing-Jin-Ji and Yangtse Delta,giving out the goal

227、s of drafting market construction plans,albeit without a clear timeline yet.These two regions are proceeding at a different pace.None of the three grid areas(Beijing,Tianjin,Northern Hebei)covered under the Jing-Jin-Ji market have published any plans on spot market pilots.On the other hand,all grid

228、areas in Yangtse Delta(Jiangsu,Zhejiang,Shanghai)have started spot market pilots already.These two regional markets,if constructed,will deliver learnings from two different approaches to regional markets,i.e.constructing a new integrated market or integrating existing markets,which may serve as refe

229、rences for the pathway towards a national market.Building a Unified National Power Market System in China Designing a national spot power market supporting Chinas policy objectives PAGE|36 IEA.CC BY 4.0.Designing a national spot power market supporting Chinas policy objectives For decades,neighbouri

230、ng systems have entered into trading agreements to share resources and reserves.As countries transition,the benefits become even more apparent as systems with high shares of wind and solar PV benefit further from the smoothing effect of larger areas.This section looks at market models to enable a hi

231、gher share of trade between the entities that have established spot markets in China(mainly provinces,but also regions).A particular focus is given to secondary markets at the national level,where a national market exists in parallel with the existing local markets,since this matches the objectives

232、of Document No.118.Local autonomy can be preserved in defining market design and operating protocols.A secondary market can later be adapted into a primary market,where all local markets are fully coupled,making the national market the dominating market.Therefore,these secondary markets can be seen

233、as either a target or a transition towards further integration.This section is divided in two parts.The first part presents different models for multilateral trading among provinces and regions.The focus is on two types of secondary markets with different approaches to coupling provinces,a surplus m

234、arket and a market based on volume coupling(the CETO model,named after the CETO where it was first introduced).An integrated(primary)market model is also presented as it can be a target for China,in this round of reforms or later.The second part is based on a regional model of the power system of Ch

235、ina by 2035 and looks at the expected benefits of deploying markets and measures to promote VRE.It contains estimates of the gains in terms of operating costs,emissions and curtailment rates for a number of configurations useful for the presented models.Models for market integration International ex

236、perience illustrates several pathways to building a unified national power market system International experience has delivered a number of models for multilateral power trade,some of which are appropriate for replication in the Chinese context.These models differ by the level of integration between

237、 the different layers of the power Building a Unified National Power Market System in China Designing a national spot power market supporting Chinas policy objectives PAGE|37 IEA.CC BY 4.0.market system.Usually,a higher level of integration leads to higher welfare as it implies more electricity trad

238、e between jurisdictions3 and a better allocation of resources(generation units,transmission grids).Models of power system integration and trading arrangements IEA.CC BY 4.0.Source:Adapted from IEA(2019),Multilateral power trade in ASEAN.Power system integration models can be ranked from nascent trad

239、ing arrangements where bilateral exchanges tend to be scheduled in advance(e.g.large hydropower stations in Sichuan exporting to eastern provinces)to primary models where transactions are determined across several jurisdictions by a uniform market protocol and the multilateral market is the main and

240、 default platform of trade(e.g.the European Union internal electricity market and PJM in the United States).Secondary models sit in between and are characterised by multilateral trading between jurisdictions taking place separately and on top of domestic market or system operation arrangement(e.g.SI

241、EPAC in central America and SAPP in southern Africa).There is not a single path towards market integration and choices of models depend on local conditions,each coming with their own choices and challenges.In the case of China,bilateral trading is already well established,although not harmonised acr

242、oss the country.Harmonising bilateral trading between provinces or regions can already enable more efficient system operations.This requires the development of standardised bilateral MLT contracts,wheeling methodologies and a common trading platform.However,this model of trading falls short of the a

243、mbition highlighted in Document No.118,which supports at least the 3 Jurisdiction boundaries can be international or intranational.In the current context,jurisdiction boundaries are within China(between provinces/regions).Power trade between jurisdictions is referred to as“multilateral”.Building a U

244、nified National Power Market System in China Designing a national spot power market supporting Chinas policy objectives PAGE|38 IEA.CC BY 4.0.establishment of multilateral,multidirectional trade between provinces and regions.Thus,models under secondary and primary trading arrangements would suit Chi

245、nas current reform.For multilateral,multidirectional trade to take place,further co-ordination is required for data sharing and central institutions become necessary,such as a central market operator and settlement entity.These central institutions will take over some of the responsibilities previou

246、sly assigned to interconnected entities.These central institutions can support increased trading volumes and establishing pool-wide reserves to encourage trading electricity between provinces and avoid overbuilding of power plants locally.Eventually,increasing the flexibility of dispatch protocols w

247、ill allow capturing the full benefits of the interconnections.Both secondary and primary trading arrangements have in common the introduction of a national spot market(day-ahead and intraday).In this report,the focus is on the national day-ahead market(NDAM)as it is the main market that defines syst

248、em operation.In market-based systems,the day-ahead price also delivers the reference price signals for the other markets.Closer to real time markets4(such as an intraday market)are also necessary to maximise the use of variable renewable generation and incentivise flexibility,but can be developed la

249、ter,once the day-ahead market is well-functioning.Secondary market arrangements comply with the goals of Document No.118 and match the current multilayer organisation of markets Document No.118 suggests the implementation of a multilayer power market framework where a national market operates jointl

250、y with provincial/regional markets.Two models belonging to the category of“secondary”market arrangements suit the vision of a national market that co-exists with local(provincial/regional)markets:a surplus market or volume coupling of local markets.These secondary models allow for better sharing of

251、resources on a wider scale,while preserving differentiated local market designs and operations.At the local level,each jurisdiction adapts its own rules to enable its market agents to participate in the national market.4 The design space for short-term markets is large.The United States,Europe and A

252、ustralia use different combinations and timelines for their markets.As Chinese spot markets rely on a day-ahead market,the Australian model(classified as a real-time,energy-only gross pool market)is not elaborated in this work.Building a Unified National Power Market System in China Designing a nati

253、onal spot power market supporting Chinas policy objectives PAGE|39 IEA.CC BY 4.0.Multilayer power market system as envisioned in Document No.118 Source:Yan Qin(2022),Chinas national ETS and the power market:how the ETS can achieve significant emission reductions.A national surplus market can build o

254、n the existing interprovincial spot market In a surplus market model,local markets with different designs co-exist while the whole interconnection is supported by a national market where excess generation is traded on a voluntary basis.Since only surplus is traded,local markets remain relatively aut

255、onomous for deploying capacities but their usage can be made more efficient.This model has been successfully applied among 6 central American countries interconnected with the SIEPAC transmission line and in SAPP which covers 12 countries(see boxes The Central American Electrical Interconnection Sys

256、tem and The Southern African Power Pool).In these two cases,the“regional”aspect of trading arrangements refers to macro-regions composed of several countries.The surplus NDAM operates once pre-dispatching in the local day-ahead markets has been established.Local pre-dispatch results in power injecti

257、on opportunities and supply gaps transmitted to the national surplus market,which performs an optimisation at the national scale.Outputs of the national market are then returned to the local dispatch centres for agreement or re-optimisation.This sequence of operations allows local markets to first c

258、over local demand with their own least expensive resources and to substitute high-cost generation by surplus production from lower cost markets.Prices on the receiving end can thus reduce costs without an increase in prices at the sending end.This avoids the common concern of“undesired price formati

259、on”(that is,when prices increase in regions having traditionally low energy generation costs)when integrating markets.The latter is a real concern in China and has led to a reluctance of provinces with low electricity Building a Unified National Power Market System in China Designing a national spot

260、 power market supporting Chinas policy objectives PAGE|40 IEA.CC BY 4.0.prices to trade with neighbouring provinces.The same reason led to choosing this type of surplus model for the Western Energy Imbalance Market in the United States,an energy-only real-time market optimising resource sharing acro

261、ss 6 American states.The Central American Electrical Interconnection System The Central American Electrical Interconnection System(SIEPAC)is an example of a secondary market,which has been designed as a“seventh market”operating on top of national markets of the six countries covered(Costa Rica,El Sa

262、lvador,Guatemala*,Honduras,Nicaragua and Panama).Those countries signed a Regional Market Treaty in 1996 and have been fully interconnected by a 230-kilovolt transmission line of 1 800 kilometres since 2014.Regional institutions were created and located in different member countries:a governing boar

263、d representing the national governments;a regulator;a regional market operator;and a grid owner.The objectives behind this initiative were notably to ensure the security of supply and to optimise the allocation of resources in a region highly dependent on hydropower.After the commissioning of the SI

264、EPAC line and the harmonisation of rules at the national and regional levels,the volume of cross-border trade has significantly increased.Since the beginning of the project,multiple benefits were reported for the region,in terms of economic efficiency,electricity security and regional cooperation in

265、 generation and transmission planning.Electricity in the SIEPAC market is mainly traded on a short time horizon,either on the“Opportunity”or spot market(day-ahead and real-time),or on the Regional Contracts Market.The Opportunity market uses nodal hourly marginal prices.The nodal approach was indeed

266、 considered easier to implement in the regional context of scarcely meshed networks.Locational marginal prices resulting from the Opportunity market are applied to each national pre-dispatch as a whole and to regional transactions.Operating in parallel,the Regional Contracts Market is for medium-ter

267、m bilateral contracts(less than one year,most of the time from weeks to months).In 2021,more than two-thirds of the transactions took place on the Regional Contracts Market,and the rest on the Opportunity market.In total,injections into these two markets accounted for 5.8%of regional electricity con

268、sumption and primarily came from Costa Rica,Guatemala and Panama,all important hydropower producers.*Guatemala announced in 2021 its intention to pull out from the SIEPAC market,a decision that could take years to materialise.One of the reasons advanced was the lack of enforcement rights from the re

269、gional regulator.In the Chinese case,the surplus market approach would consist of local spot markets performing pre-dispatch before trading excesses or deficits of generation on a national spot market.The entities exchanging surplus could be both provinces and regions depending on existing local mar

270、kets.Building a Unified National Power Market System in China Designing a national spot power market supporting Chinas policy objectives PAGE|41 IEA.CC BY 4.0.The surplus concept has already existed in China since 2017 for the sale across provinces/regions of otherwise curtailed renewable generation

271、.This laid the foundation of the pilot interprovincial spot market in the provinces covered by SGCC,which started trial operation in 2022.Thus,establishing a national spot surplus market would be an adapted extension of these pilot experiments and could build on existing institutions,such as the Nat

272、ional Dispatch Centre,which operates the interprovincial pilot market.The Southern African Power Pool The Southern Africa Power Pool(SAPP)is another example of a regional power market with secondary trading and is currently the most advanced regional power pool in Africa.Created in 1995 with the vis

273、ion of establishing a fully integrated and competitive energy market within the Southern African Development Community(SADC),it covers 12 countries participating through their national power utilities.Independent power producers can also participate in the market.Nine of the 12 countries are interco

274、nnected through a regional synchronised grid.A regional competitive market was introduced in 2004,progressively including a day-ahead,an intraday,and a physical forward(monthly and weekly)market,with most of the trade taking place on the day-ahead market.The latest step of the integration process wa

275、s the implementation of a regional balancing market in April 2022.The SAPP region is divided into several price nodes(generally one node per country or more for those with a constrained transmission network).In the day-ahead market,a co-ordination centre matches total bids and offers received to det

276、ermine the market-clearing price(MCP),which is the price used to settle all transactions.This MCP does not take into consideration transmission constraints,thus leading to divergence in prices between nodes when those constraints are binding and restrict the physical trade of power.A large majority

277、of the electricity traded in the SAPP region is still exchanged outside the competitive market under bilateral contracts(representing more than 81%in the year 2020/2021),with utilities mainly using PPAs to fulfil the bulk of their demand requirements,while the day-ahead market covers surpluses.Altho

278、ugh bottlenecks exist to enhance the scale of trading in the SAPP(limited transmission and generation capacity,lack of a regional regulatory authority),its more than 25 years of experience in promoting and co-ordinating power trade between neighbouring countries provides an interesting example of re

279、gional integration.While many SADC countries have recently faced recurring demand shedding,enhancing the role of SAPP has been identified as a key task to alleviate the electricity crisis in the region.Building a Unified National Power Market System in China Designing a national spot power market su

280、pporting Chinas policy objectives PAGE|42 IEA.CC BY 4.0.Higher use of interconnections can be achieved with volume coupling of local markets An alternative secondary market model is the approach based on volume coupling described in the China Energy Transformation Outlook 2022.This model is therefor

281、e called the“CETO model”throughout this report.The objective of this approach is to capture as quickly as possible the benefits of national co-ordination through improved utilisation of interconnection,while keeping local autonomy in price formation and dispatch.In terms of efficiency of resource sh

282、aring across the interconnection,this secondary model is therefore more advanced than the surplus.Similarly to the surplus model,an NDAM is deployed and co-exists with local markets,which keep their market structure and control over their market operation.For provinces where there is no local day-ah

283、ead market,market participants can directly participate in the NDAM.Provinces are represented in the national market as bidding zones.In China these can naturally be defined in correspondence with provinces,and,depending on local congestion issues,some provinces could be split into multiple zones.Se

284、veral Chinese policy documents recommend choosing zonal or locational marginal pricing for provincial spot markets depending on grid structure and congestion.This choice for the local market is not incompatible with a national market with a zonal model,but solutions to calculate a reference price fo

285、r each bidding zone would need to be elaborated.In contrast with the surplus market,clearing of the national market is orchestrated prior to local markets and delivers as main outputs the scheduled flows of interconnectors between bidding zones.The available interconnector capacity is allocated base

286、d on the implicit needs of the volumes that cleared in the NDAM(“implicit auction”or“implicit capacity allocation”).The resulting interconnector flows are then taken as firm inputs by local market operators for their own clearing process,equivalent to firm demand or generation.Dispatch is performed

287、locally and takes into account the matched orders from both national and local spot markets,long-term contracts,and(where applicable)administrative allocation of hours to priority generators.In contrast to integrated(primary)markets,volume coupling allows circumventing the significant challenges of

288、implementing price coupling between provinces/regions with differences in their power market designs.Volume coupling was implemented at the early stages of the European power market integration and is a solution considered for connecting the United Kingdom after its exit from the internal electricit

289、y market.Although the optimisation resulting from volume coupling is not as efficient as price coupling in terms of allocation of transmission capacities and price convergence between bidding zones,it represents a pragmatic option to ramp up resource sharing across China and has the potential for fa

290、ster and simpler implementation.Building a Unified National Power Market System in China Designing a national spot power market supporting Chinas policy objectives PAGE|43 IEA.CC BY 4.0.An integrated national market can be an objective for the next phase of market reforms In a primary market model,t

291、he interconnected systems are fully integrated and multilateral trading is the default option.All market participants across the geographical scope are exposed to the same rules and participate directly in a multilateral market.The participating jurisdictions need to agree politically and co-ordinat

292、e further with a stronger role for central institutions.In addition,jurisdictions need to harmonise their operational and trading frameworks and may have to restructure markets to ensure full competition.Spot markets(day-ahead and intraday)are a key segment of a primary trading model,as more integra

293、ted power systems allow trading larger volumes close to real time based on system conditions.Main characteristics of three possible models for a national power market in China Secondary models Primary model Surplus CETO Rationale in a nutshell Increase renewable energy resource utilisation while mai

294、ntaining differentiated local markets Improve interconnection use while allowing local autonomy for price formation and dispatch Interconnection-wide competition and integration Power markets sequence Local pre-dispatch Surplus/gaps of generation offers submitted to NDAM Clearing of NDAM,which provi

295、des updated power flows to local market Pre-clearing of NDAM Resulting interconnectors flows taken as firm input by local markets Clearing of local markets NDAM receives bids from all market participants Clearing of NDAM Market operator(MO)Local+national MOs Local+national MOs National MO or coopera

296、tion of local MOs Use of interconnector capacities Limited,based on surplus power traded Implicit allocation*by NDAM Implicit allocation*by NDAM Coupling between bidding zones No coupling Volume coupling*Price coupling*During an implicit auction,transmission capacities are integrated into the cleari

297、ng of the NDAM(as opposed to an explicit auction,where transmission capacities are allocated separately from traded energy).Implicit auctions are often referred to as“market coupling”.*Price coupling refers to a situation where a coupling algorithm centrally calculates both prices and interconnector

298、s flows,whereas under a volume coupling approach,only flows are calculated based on bids received.Building a Unified National Power Market System in China Designing a national spot power market supporting Chinas policy objectives PAGE|44 IEA.CC BY 4.0.Applying a primary mode of trade in the Chinese

299、case entails the establishment of a single day-ahead market where all generation and demand are cleared.However,unlike the secondary models presented above,there is only one clearing procedure happening in the day-ahead so the existing provincial spot markets are no longer relevant.The most advanced

300、 form of primary trading for China would be to implement such a model at the national level,but other less integrated options exist that are more realistic under the timeline of Document No.118.For instance,it is possible to imagine a primary mode of trade within some regional markets(the current ap

301、proach taken in the southern regional market)which would trade with one another under secondary arrangements.Moving towards a primary market requires some design choices.Two well-known examples of primary trading arrangements are the EU internal electricity market and the PJM market spanning 13 stat

302、es in the United States.Interconnections between European countries started decades ago to increase power system stability and sharing of reserves between regions with diverse profiles of electricity production and consumption.The EU market construction was meant to increase competition and to remov

303、e barriers to cross-border trading.This was done thanks to a gradual and still ongoing integration of markets through market coupling(text box).Similarly,the construction of PJM was initially driven by the objective to realise economies of scale between neighbouring states,by optimising the costs an

304、d use of production and transmission assets.Market architectures may vary among primary trading models.In the case of the EU internal market,although efforts were made to harmonise national market designs,the integration approach has left freedom for differentiated operations between countries.On th

305、e contrary,PJM fully integrated markets with unified operations.In Europe,countries participating in the price coupling process have adopted a decentralised model with self-scheduling of market entities,which are responsible for balancing supply and demand(thereby referred to as“balance responsible

306、parties”).This differs from the centralised model of PJM where a central system operator executes the central unit commitment in the day-ahead market:in that case,scheduling of generators ignores bilateral physical contracts which are settled financially,typically with CfDs(in a gross pool).On the c

307、ontrary,the EU model for electricity markets historically relied on net pool arrangements,i.e.physical scheduling of generators was based on bilateral contracts,and the difference between scheduled and actual demand was traded on spot markets.Recently,the trend in Europe has been towards a higher sh

308、are of trade on spot markets while using financial contracts for price hedging,thus significantly reducing the share of physical contracts.Building a Unified National Power Market System in China Designing a national spot power market supporting Chinas policy objectives PAGE|45 IEA.CC BY 4.0.Another

309、 key difference between these two markets is the price formation mechanism adopted:zonal for the European Union and nodal for PJM(and in all the organised wholesale power markets in the United States).The zonal pricing system results in a uniform price within a“bidding zone”,while the nodal approach

310、 is more reflective of the physical constraints of the grid by providing prices that may diverge between nodes in case of grid congestion.In a zonal market,constraints within a bidding zone are assumed not to affect trade.Therefore,bidding zones should be defined based on structural constraints of t

311、he grid.It is,however,common that jurisdictional borders define bidding zones,leading to inefficiencies and less accurate locational signals.Although it is an appealing prospect,implementing a unified national market framework in China with a similar level of integration as the EU or PJM market woul

312、d require years of efforts.Thus,it could be seen as a long-term objective beyond the 2030 horizon set in Document No.118.It is,however,important that China makes a design choice early for the national power market system that keeps the door open for future further integration.A long-lasting discussi

313、on has been whether China power markets should follow an integration pathway similar to PJM or the European Union,with much attention given to the design of their respective spot and contract markets.So far,China took the PJM model as a reference in the design of most provincial pilot spot markets.M

314、oreover,the ongoing construction of the southern regional market follows a centralised approach with one single operator of the regional market.However,for the design of a national market,several characteristics of the EU target model make it more compatible with the envisaged integration process in

315、 China:It works better with diversity of local power markets operations and designs.Although efforts to create a single European market led to a standardisation of national market features,there are no rules in the European Union prescribing a common market design,and significant differences remain

316、across countries.Decentralised dispatching operated by multiple operators seems more realistic for China considering the current multilayer dispatch protocol,mainly orchestrated by provincial grid companies.An NDAM market coupling like the one in the European Union,which is mainly based on capacity

317、constraints of interconnections,is easier to expand to a growing number of participating regions,compared with a centralised dispatching model.Bidding zones with uniform pricing as in the European Union seem more socially acceptable in China than locational marginal pricing,which entails prices vari

318、ation between neighbouring nodes of the network.However,bidding zones should be designed in a way to ensure both economic and congestion management efficiency.Inspiration can be drawn from the ongoing bidding zone review in Europe.Building a Unified National Power Market System in China Designing a

319、national spot power market supporting Chinas policy objectives PAGE|46 IEA.CC BY 4.0.The nodal model adopted in PJM is particularly relevant for regions showing transmission congestion locally(e.g.Guangdong province).However,from a country-wide perspective,Chinese provinces are relatively well inter

320、connected with one another through(ultra-)high-voltage grids(such as the west-to-east corridors)and have the potential to become even more so in the coming years with massive planned expansion of transmission capacities.In this regard,lessons can be drawn from the European Union,which has achieved a

321、 very high level of interconnection among countries,at a scale proportional to that of China,although the EU system appears to be more meshed compared with the Chinese system where HVDC connections represent the bulk of the transmission capacity.In particular,the European Union has set an interconne

322、ction target of at least 15%for each country by 2030,which could be replicated in Chinese provinces.The construction of the European internal electricity market Market organisation in Europe offers a good example of how decentralisation can support increased regional integration.Allowing different c

323、ountries(or,more generally,jurisdictions)to retain functional control over their power systems,while at the same time encouraging market,system and regulatory harmonisation at the interregional level,has enabled a flexible yet scalable approach to cross-border power system integration.The EU interna

324、l electricity market is now the largest wholesale power market in the world and an example of a primary trading model.Its highly integrated design was achieved progressively after years of gradual integration of national and sub-regional markets.Four energy policy packages(1996,2004,2009,2019)consti

325、tuted the main milestones of the market construction,setting up a target model for electricity markets and a set of common rules and grid codes to achieve it.Efficient cross-border trade enables taking advantage of the uneven distribution of renewable energy resources within the European Union and h

326、as delivered significant social welfare.The European Agency for the Cooperation of Energy Regulators(ACER)estimated savings of EUR 34 billion in 2021,compared with a situation with isolated markets.One of the main successes in the process towards market integration in Europe was the implementation o

327、f a day-ahead market coupling through a uniform price algorithm.It was made mandatory in 2015 and now covers 27 countries.As several power markets were already well established with their own power exchange when the EU target model was adopted,coupling between existing markets was achieved through t

328、he algorithm known as EUPHEMIA(standing for Pan-European Hybrid Electricity Market Integration Algorithm)which links all power exchanges.National transmission system operators share their available transmission Building a Unified National Power Market System in China Designing a national spot power

329、market supporting Chinas policy objectives PAGE|47 IEA.CC BY 4.0.capacities and power exchanges share their order books,which serve as input parameters for the common day-ahead auction.Power exchanges among the Nominated Electricity Market Operators(NEMOs)take turns to run the algorithm,after which

330、prices,volumes and cross-border flows are calculated ensuring a least-cost dispatch and an optimised use of interconnectors.Later in 2017,the intraday markets were also coupled.The EU internal market demonstrated its ability to support resilience of power systems during the global energy crisis.As F

331、rance was facing historical low nuclear outputs during the winter of 2022/23,the country relied on imports from its neighbours to avoid power outages,becoming a net importer for the first time in decades.Assessing and selecting a model for Chinas national spot market To examine how different market

332、models could impact the future Chinese power system,we have carried out techno-economic analysis using the IEAs Regional Power System model for the Announced Pledges Scenario(APS)for a one-year“snapshot”in 2035.The national values for supply and demand come from the IEAs World Energy Outlook(WEO)mod

333、el and are disaggregated into six regions5 with regional transmission interconnection between them(see Annex for detailed modelling methodology).Different settings are studied to explore the impact of varying levels of co-ordination and trade among the regions,including a“low co-ordination”option based on historical flows between regions and three different models for national markets:surplus,nort