Cover Story | The Next Step in Electric Power Reform (AI Translation)

封面报道｜电改下一步

Gansu's power reform was driven by the need to manage the rapid growth in renewable energy and achieve a balance in power supply and demand[para. 1]. It faces a dual challenge of excess electricity at some times and shortages at others[para. 2]. The power system must instantly balance supply and demand, adding complexity to incorporating renewable energy[para. 3]. This challenge has motivated a shift towards establishing a power market to enhance resource allocation and support economic growth amidst broader national economic pressures[para. 4].

China's power supply is evolving, with over 3 billion kW of total installed capacity, more than half from renewable sources. Remarkably, China's combined installed wind and photovoltaic power capacity is nearing its 1.2 billion kW goal, projected to be achieved by 2024, well ahead of the 2030 target[para. 5]. This growth has led to increased pressure for transforming the power system, focusing on high-quality new energy development and rationalizing related price mechanisms[para. 6].

The vision for the new power system emphasizes cleanliness, safety, economic efficiency, and intelligent flexibility. High-level meetings stress the gradual reduction in traditional energy use and the improvement of related systems and mechanisms[para. 7]. As reforms deepen, the power sector anticipates major changes from the upcoming Third Plenary Session of the 20th CPC Central Committee, aiming to advance a market-oriented approach and dismantle rigid systems and monopolies, echoing significant reforms launched in 2015 (Document No. 9)[para. 8][para. 9].

This new reform round focuses on the principle of "controlling the middle, liberalizing both ends," which entails strict regulation of transmission and distribution, while generation and sales entities are encouraged to participate in market-based transactions. All coal-fired power and increasingly other energy sources are entering market-based bidding[para. 10]. Analysts suggest the coming phase should deepen these incremental reforms rather than overhaul them, aiming to align with the Central Deep Reform Commission's recent guiding opinions[para. 11].

"Opening both ends" aims to foster a more competitive market by diversifying participants and encouraging various collaborations, thus addressing inherent grid interests[para. 12]. Pilot projects like microgrid models have shown potential but face challenges in balancing interests. Yet, there is a strong momentum for breakthroughs in new energy development[para. 13].

Crucially, establishing a unified national electricity market system—including the spot market, mid-to-long-term market, and ancillary services market—is deemed essential[para. 14]. The spot market's role is central, reflecting real-time electricity prices based on supply and demand, which is crucial for integrating new energy into the broader market framework[para. 15]. The rapid increase in new energy market participation—from 24% in 2020 to an expected full integration by 2030—illustrates this trend[para. 16].

Li Chuangjun, Director of the New Energy and Renewable Energy Department at the National Energy Administration, highlights that expanding the spot market coverage and steadily integrating new energy into market transactions are key goals[para. 17]. Notably, regions like Gansu, Shanxi, and Shandong lead in market developments, showing the feasibility and challenges of market-based renewable energy integration[para. 18][para. 19][para. 20].

Despite overall progress, challenges remain, particularly in balancing the high costs of new energy against the need for economic feasibility[para. 21]. Gansu, a pioneer in market-based new energy trading, exemplifies both the potentials and difficulties of the transition, with fluctuating electricity prices affecting renewable energy valuations and investment[para. 22][para. 23].

The integration phase necessitates tailored regional approaches, reflecting varying economic and energy landscapes, as seen in the differing strategies of Gansu and Shandong[para. 24][para. 25]. The industry seeks more clarity and stability in market signals to bolster investment planning and operational strategies[para. 26].

Ultimately, resolving the "impossible trinity" of security, cleanliness, and affordability within the power sector reforms calls for nuanced approaches that balance market mechanisms with regulatory frameworks, ensuring that the benefits of electricity reforms are effectively passed on to consumers[para. 27][para. 28][para. 29].

By continuing to adapt and refine these strategies, the industry aims to promote a sustainable and balanced development pathway for China's new energy landscape amid ongoing reforms and economic transitions[para. 30].