Shandong spot New Deal refraction electricity change predicament, price policy "unbound" imminent

March 13, Shandong Development and Reform Commission issued the "Shandong power spot market price ceiling and floor system related matters notice (soliciting opinions)" advice notice. The document resets the start-up cost of coal-fired generating units, the upper and lower limits of declared prices in the electricity market and the upper and lower limits of clearing prices in the electricity market in Shandong Province.

But this series of seemingly simple requirements behind, but has not been able to overcome the "price system intractable disease" from beginning to end plagued the launch of a new round of electricity reform for 8 years.

Coal mine machinery start-up cost transformation

Related raw coal unit start-up cost application price cap, the document is as follows:

"In this adjustment, the raw coal unit startup costs have been reduced in all aspects." Power generation enterprises in Shandong Province said to "Energy" magazine magazine reporter, "with millions of units of hot start for example, the original price is more than 2 million yuan per time, now immediately reduced to more than 800 thousand yuan."

The direct reason for the price reduction is that Shandong power market in February unexpectedly appeared more raw coal unit start-up cost amortization.

Shandong Province is the province with the largest number of photovoltaic installed capacity in China. The photovoltaic capacity exceeding 400 billion kW is mostly made rich in the afternoon, which also causes the price trough in Shandong power market at noon. When photovoltaic power generation is rich, many thermal power generation units are shut down.

"In February, Shandong's demand for electricity was lower, but solar power generation could not be reduced accordingly. "When supply and demand are rich, there will be a lot of shutdowns of thermal power units, so the start-up costs of thermal power generation will increase."

The increase of startup costs is usually in the time range when the photovoltaic power generation is rich and the electricity price is relatively low. The users who should enjoy the benefit of electricity suddenly share the cost equally, which has caused some disagreements. This is one of the reasons for the new policy.

Overdraft the future

There are power generation enterprises concerned, too much promotion of start-stop is not necessarily a good thing for the unit. In order to maintain reliability during the life of a coalfired generating set with a kilowatt capacity, the overall frequency of hot start-up should not be too much.

According to the "Energy" magazine, the hot state start-up cost of over 800 thousand yuan / 10000 kW unit is basically the conclusion calculated by marginal benefit (a startup cost). "But such aggregate demand clearly ignores the total cost of the unit itself." Above power generation enterprises said.

The previous total startup cost demand is the result of multiple discussions in the power engineering market, although it is far higher than the current price level, but considering that the start and stop harm the service life of the unit, most power generation enterprises will not take the initiative to choose this road to profit.

"February was really a more unexpected situation." "Few people want to actively do this kind of moneymaking that consumes the future," said a Shandong power market source.

In this new policy, together with the startup costs of raw coal units, there are also the price of electricity market and the upper and lower limits of market clearance. The upper limit of price is 1.30 yuan per KWHH, and the lower limit is -0.08 yuan per kwh. The upper limit of market clearance is 1.50 yuan per kwh. the lower limit is -0.10 yuan per kwh.

This aggregate demand is not much different than before, except that the price ceiling is still a little lower. "And Shandong Province also has thermal power generation price replacement system, if the trading market evaluation thermal power generation unit price (high) there is the full play of market forces of the individual behavior, will replace the price of thermal power generation units, based on the raw coal factory price to the price."

As a result, Shandong's coal-fired power generation will have to choose areas with higher returns, even if it overruns its future.

Procedural justice versus consequential justice?

Shandong power generation enterprises show that the market force problem is inescapable in Shandong. "The scale of thermal power generation units in Shandong Province is large, and the market concentration is still relatively high, so it is unlikely to ignore the problem of market forces."

However, how to limit market power is undoubtedly a profound knowledge. At least at present, the limit of market power in China's power engineering market is lack of perfect, measuring criteria and scientific and orderly handling measures.

For example, the "price replacement" system in Shandong Province is a limited plan for market forces. "This plan takes into account the marginal benefit quotation system in the spot market, but does not take into account the impact of market supply and demand on the market." Above power generation enterprises said.

"Marginal benefit" is the minimum price at which a product can be sold, which is also a principle of economic theory. The marginal benefit price system is adopted in the power engineering market because it can maximize the profit of the spot trading market. At the same time, it also promotes the enlargement of the social security system, forms an accurate price signal, and achieves the survival of the fittest of generating units.

However, this is the result of free competition after the market is perfect, and at the same time, it is built on the premise of the extreme relative equilibrium of power supply and demand. If there is an imbalance between supply and demand of power projects, no matter how much coal prices, supply and demand anxiety will stimulate price increases, and relatively loose supply and demand will of course lead to lower electricity prices.

Similar to the "price replacement" system, the new policy on the raw coal unit start-up costs are set to "marginal benefit" as the carrier to decide.

In an environment of tight electricity supply and demand, such pricing methods will undoubtedly help power users. But it lost the credibility of the market system to a certain extent.

This is a difficult problem to have your cake and eat it.

Restrictive policies

This series of problems all reflect the contradiction between price control and market infrastructure construction.

In terms of the goal of electric power reform, the goal of electricity price system integrated with market standard is determined. But should we first create the power engineering market and then open to the outside world to control the price of electricity? Or do you wait to create a market until regulated electricity prices are relaxed?

The outcome has never been established.

In practice, we will see the relevant price documents are from the National Development and Reform Commission price units in the hands of the relevant market standard design documents are from the hands of the energy management system units. However, different units are faced with a series of problems such as limited responsibility and different suggestions from superior units.

The number of dilemmas caused by dismembered government departments is endless.

To be fair, Shandong's government has been working hard to integrate itself into the power engineering market and promote reform. Taking the volume compensation price as an example, in March 2022, Shandong Development and Reform Commission issued the Notice on Matters Related to the Volume Compensation Price in the Power Spot Market, requiring that "Before the volume market operation in Shandong Province, the volume compensation cost of generators participating in the power spot market shall be deducted from the user side, and the price standard is temporarily set at 0.0991 yuan per kwh. (total price tax)".

This pioneering measure in Shandong is of great significance in promoting the development trend of the market.

However, in the concrete operation, the price of medium and long-term contract increases to the upper limit of 20%, the volume compensation cost can no longer be equalized by the user side. Since the price of electricity cannot be raised, there is no room to raise the price of electricity for the volume compensation fee.

"The authority to further liberalise the price system does not lie with the relevant departments in Shandong Province, but with higher authorities. But relevant authorities have certain audit report opinions on further opening up the price system to the outside world."

Electricity price is of great significance to local municipal government and relevant departments when the supply and demand of electricity is tight and the macro-economic policy increases the working pressure.

In the power market of Zhejiang Province in 2022, the government departments lowered the price of electricity sold and sold, and limited the profit of electricity by rules and regulations. The key purpose was to prevent the price of electricity on the user side from rising sharply, causing a chain reaction.

Although the new round of electricity reform has entered the 8th year, electricity price control still exists in various sectors of the industry, including but not limited to: renewable resources mobile phone on-grid electricity price, cross-regional electricity transaction price, natural gas and nuclear power plant mobile phone on-grid electricity price, customer price sharing......

It is obvious that a market in which only coal is involved cannot fully detect the difficulties of market rules, nor can it effectively know the true price signals. Too many "inside" make the power engineering market construction and spot trading reform pilot practical effect is very limited.

Several times before, the Energy Journal had declared that "higher electricity prices are coming". This is not a crack slogan. In terms of the current limited resource experience, a certain proportion of new energy technologies connected to the power grid will not only face the confusion of marketized low electricity price, but also further increase the cost of the power supply system. High electricity prices for end-product users are inevitable.

Rather than worrying about the impact of higher electricity prices, we should be more concerned about where every penny of extra electricity comes from. Instead of further relaxing electricity price control, fair, perfect and efficient market system, what we can do is to deal with more black boxes.