The Relationship Between Electricity Price Reform and Power Development
(1) Electricity price reform (electricity price policy) plays an important and irreplaceable role in promoting power development. This is reflected in: firstly, guiding electricity investment and consumption; secondly, promoting production and ensuring supply; thirdly, adjusting the supply and demand relationship; fourthly, optimizing resource allocation; fifthly, adjusting interest relationships; sixthly, promoting the marketization of electricity reform; and seventhly, as an important means of macroeconomic regulation.
(2) The sustainable development of electricity, in turn, puts forward new and higher requirements for electricity price reform (electricity price policy). This is reflected in: firstly, the growth of total development; secondly, the adjustment and optimization of structure; thirdly, the constraints of resources and environment; fourthly, the pressure of responding to climate change; fifthly, the requirements of energy saving, emission reduction and environmental protection; sixthly, the requirements of economic efficiency and improvement.
Main Problems in Electricity Price Mechanism and Management
In the ten years since the reform of the power system, although electricity price reform has made some progress and achieved certain results, it is undeniable that there are still many outstanding problems.
(1) From the perspective of electricity price formation mechanism
The main problems are that the pace of electricity price reform is slow and stagnant, government pricing still dominates, a reasonable electricity price formation mechanism has not been established, and the role of market resource allocation has not been fully utilized. The on-grid electricity price and sales electricity price, which belong to the competitive stage, are still strictly controlled, while the transmission and distribution electricity price, which is monopolistic in nature, is not controlled, resulting in weak supervision. This is exactly the opposite of the established reform goals, resulting in a situation of "controlling both ends and not the middle." This is reflected in:
On-grid stage: The on-grid electricity price is still a government-pricing model (this is very rare in the world); a market-determined price formation mechanism has not been implemented, the contradiction between coal and electricity price systems is prominent, the on-grid electricity price cannot be linked to the coal price in a timely and sufficient manner, and power generation enterprises are facing operational difficulties and are unsustainable. There is a lack of a clear and reasonable mechanism for hydropower prices, the prices of combined heat and power are unreasonable, enterprises are facing even greater difficulties, the compensation mechanism for pumped storage is also unreasonable, and pilot projects such as electricity bidding and on-grid electricity market are stagnant.
Transmission and distribution stage: The reform of separating the main and auxiliary functions of the power grid is slow, the costs and expenses of transmission and distribution are unclear, the cost constraint mechanism of transmission and distribution has not been formed, an independent transmission and distribution price mechanism has not been established, and power grid enterprises maintain the situation of buying and selling and exclusively distributing electricity, occupying an absolute monopoly position, and the market position is seriously unequal to that of power generation enterprises and electricity users. Due to the lack of an independent and reasonable transmission and distribution price, large-user direct power purchase transactions face many difficulties and obstacles, and cross-regional power transactions also reflect many problems.
Sales stage: The sales electricity price is rigid and lacks elasticity, and it cannot be linked to the on-grid electricity price in a timely and effective manner in the market. It cannot fully reflect the market supply and demand relationship, the degree of resource scarcity, and the cost of environmental damage, and it is difficult to effectively adjust the supply and demand relationship of electricity. The sales electricity price classification is too numerous and detailed, and it cannot reflect the characteristics of user electricity consumption and power supply costs. The residential electricity price is too low, the industrial electricity price is too high, and there is serious cross-subsidization among various users. The electricity price system is not scientific enough, and it fails to reflect the principle of fair burden, which is not conducive to guiding users to use electricity rationally and promoting resource conservation.
(2) From the perspective of electricity price policy
The formulation and improvement of electricity price policies are relatively lagging, and some electricity price policies are not reasonable or complete enough, leading to many problems and contradictions. For example, the coal and electricity prices cannot be linked in a timely manner, the desulfurization electricity price is not reasonable enough, the denitrification electricity price coverage is too small and the standard is too low; the cross-regional (cross-provincial, cross-regional) power transaction prices are unclear and unreasonable, and there are problems such as low on-grid electricity prices, multiple charging stages in the power grid, and high fees in the transaction; the peak and valley, abundant and lean electricity price policies are not perfect and reasonable, and the peak-shaving and valley-filling effect is not obvious; there are also many problems in the policies on renewable energy power generation prices, access project prices, and electricity price additional subsidies, which need to be further studied and improved.
(3) From the perspective of electricity price management
The electricity price legislation is slow, and the legal system construction is seriously lagging behind. The responsibilities of government departments and regulatory agencies in electricity prices are not clear enough, and the relationship is not smooth. For monopolistic power grid enterprises, the regulatory capacity needs to be improved, the regulatory methods need to be improved, and the regulatory means need to be strengthened. There is a lack of good solutions for local governments violating national electricity price policies, and the investigation efforts are insufficient. Electricity price management overemphasizes the role of macroeconomic regulation and weakens the market regulation function of electricity prices. The power of electricity price management is too concentrated, and it is difficult to reflect the actual situation in various places in a timely manner, and the management efficiency needs to be improved.
Necessity of Electricity Price Reform and the External Environment
(1) Necessity of Reform
Due to the slow and lagging electricity price reform, the lack of a reasonable price formation mechanism, and many outstanding problems in electricity price policies and management, the price level is distorted and the price signals are distorted in many cases, which has brought many adverse effects on the development of the power industry and even the national economy. In order to facilitate the healthy and sustainable development of the power industry, facilitate the transformation of economic development mode, facilitate the achievement of energy saving and emission reduction goals, facilitate the advancement of electricity market-oriented reforms, and increase the public's confidence in electricity reform, it is necessary to accelerate the advancement of electricity price reform.
(2) External Environment Facing Reform
1. Favorable Conditions
First, the macroeconomic environment is relatively relaxed. Since the second half of last year, the CPI index has continued to decline, the PPI index has also remained low, the electricity supply and demand has eased, coal prices have dropped significantly, and coal prices for power generation have been aligned, providing a relatively relaxed external environment for electricity price reform, reducing reform risks, resistance, and costs.
Second, all sectors of society are paying close attention to the reform. Officials, scholars, ordinary citizens, the media, and power enterprises are all paying close attention to electricity price reform and have high expectations for it. At the same time, ten years of electricity reform has also conducted beneficial explorations in some aspects, accumulating some experience and forming some consensus, providing a good public opinion atmosphere for the reform, and creating conditions for the government to seize the opportunity and accelerate the reform.
Third, the change of central party and government leadership has provided a new opportunity for reform. The successful convening of the 18th National Congress of the Communist Party of China and the government reshuffle in March will inject new vitality into the reform, create a favorable atmosphere, and provide opportunities and possibilities for accelerating the reform.
2. Resistance and Difficulties
First, there is no consensus on the reform. There are still different opinions, and even great controversies, on whether to reform, how to reform, and the direction, focus, path, and steps of the reform.
Second, the reform will encounter resistance. This mainly comes from some departments and enterprises that do not want to lose power and vested interests. Breaking the existing pattern of interests, adjusting expected interests and even existing interests will be very difficult, and we must have a sufficient understanding of this; moreover, the current setting of responsibilities of some departments itself restricts the design and promotion of the reform.
Thirdly, the reforms face certain difficulties. Reforms themselves involve a degree of complexity and risk, especially when significant adjustments to vested interests are required. This necessitates supporting measures and solutions, thus increasing the difficulty and making it hard for higher authorities to make decisions.
Main Content and Steps of Electricity Price Reform
(I) Goals and Approaches of the Reform
The goals of the reform are: firstly, to "liberalize the ends and control the middle," establishing a pricing mechanism that combines market competition and government regulation. "Liberalizing the ends" refers to liberalizing prices in competitive sectors such as power generation and sales; "controlling the middle" refers to controlling prices in naturally monopolistic sectors such as transmission and distribution. Secondly, to formulate and improve electricity pricing policies that are conducive to the sustained and coordinated development of the power industry and promote energy conservation and environmental protection. Thirdly, to establish a standardized, transparent, and efficient electricity price regulatory system.
The approaches to the reform are: firstly, focusing on finding breakthroughs that will have a ripple effect. Electricity price reform faces numerous challenges, a heavy workload, and considerable resistance. Without prioritizing tasks based on urgency and difficulty, a scattershot approach will often yield unsatisfactory results. Focusing on key breakthroughs will yield better results. Secondly, focusing on incremental reforms to drive stock reforms, reducing resistance and risks. Actively promoting incremental reforms to drive stock reforms and steadily advancing stock optimization has been an important method and successful experience for many years. This approach maximizes consensus, reduces resistance, and mitigates risks. The "dual-track price system" implemented at the beginning of the reforms over thirty years ago, which provided reasonable consideration for vested interests while adjusting incremental interests through reforms, achieved good results. Thirdly, conducting pilot programs and proceeding steadily without rushing for quick results. Pilot programs have been a successful experience in the reform and opening up over the past 30 years. As a crucial infrastructure sector in the national economy, any reform in the power industry has significant implications. Given China's vast territory and uneven economic development, many issues are unclear, and the risks of reform are uncontrollable. Therefore, pilot programs are necessary to explore approaches and accumulate experience before wider implementation. Fourthly, taking small steps continuously, without being overly ambitious. Electricity price reform involves adjustments to various interests and is quite challenging. It's crucial to avoid being overly ambitious and aiming for immediate success. Even achieving one or two substantial reforms annually can lead to significant progress over five years and the establishment of a reasonable pricing mechanism within ten years.
(II) Main Content and Steps of the Reform
In terms of the electricity price formation mechanism, based on the above reform ideas and following the principles of overall planning, addressing both symptoms and root causes, proceeding from near to far, from small to large, from easy to difficult, and from point to area, six key issues have been selected as breakthroughs to accelerate electricity price reform:
1. Using the shift from approval-based pricing to mechanism-based pricing for coal-electricity price linkage as a breakthrough to promote market-oriented reform of on-grid electricity prices.
The convergence of coal prices and the full marketization of coal prices have created conditions for the marketization of on-grid electricity prices. On-grid electricity price reform must accelerate and keep pace with this, otherwise, the effectiveness of coal price marketization reform will be significantly discounted. The marketization of on-grid electricity prices can be considered in three steps. In the near term, the coal-electricity price linkage policy can be retained but further adjusted and improved, including reducing the proportion of coal price increases absorbed by power generation enterprises and ensuring timely and full linkage. In the coming years, this policy will be upgraded. Drawing on the approach of the oil price formation mechanism, the state will clearly specify the coal-electricity price linkage mechanism, allowing power generation enterprises to determine on-grid electricity prices based on national regulations and market supply and demand, and report them to government departments for the record, instead of government approval. This will shift on-grid electricity prices from approval-based pricing to mechanism-based pricing, marking a substantial step in electricity price reform. In the long run, on-grid electricity prices should be entirely determined by market supply and demand, with enterprises setting prices independently.
2. Using increased implementation of direct power purchase by large users as a breakthrough to promote reforms in electricity prices and power supply and use methods.
Direct power purchase by large users is an important reform aimed at promoting electricity price reform and increasing user choices. It currently faces relatively less resistance and should be a key focus and breakthrough point for reform. However, due to various reasons, the current situation is that there has been little substantial progress, and the impact is still relatively small. To effectively improve this, key contradictions need to be addressed:
Firstly, the contradiction between direct power purchase by large users and energy conservation and emission reduction. When selecting large users and determining entry standards, the principle of energy conservation and emission reduction must be adhered to, with high standards and strict requirements. Only high-energy-consuming enterprises and high-tech industrial parks that comply with national industrial policies and achieve average advanced energy efficiency levels should be allowed to participate, and it should not simply become a policy measure to help local high-energy-consuming enterprises develop.
Secondly, the contradiction between market and approval. Direct power purchase by large users is a market-oriented reform and innovation, and should not become a form of approval power, privilege, or favor. Existing policies on large users should be revised and improved, changing the method of approving direct power purchases for large users item by item to a system where the state promulgates rules on entry, safe operation, and price standards, allowing qualified enterprises to enter directly without approval. Relevant state departments will be responsible for supervising the implementation of the rules and providing necessary coordination and guidance.
Thirdly, the contradiction between access and restrictions. The issue of access and restrictions should be viewed dialectically, continuously improving the market access mechanism. In the initial stages of reform, higher entry standards can be set, resulting in fewer participating enterprises and lower volumes, facilitating risk control. However, at a more mature stage, entry standards can be relaxed to allow more enterprises to participate, increasing the volume of direct transactions and promoting deeper reform.
Fourthly, the contradiction between reasonably determining transmission and distribution prices and properly resolving cross-subsidies. Any reform will involve adjustments to interests; the key is to thoroughly analyze the extent of these adjustments and find reasonable solutions. Implementing direct power purchase by large users requires an in-depth analysis and calculation of transmission and distribution costs, making the cross-subsidies in electricity prices explicit and quantifiable. This can be addressed through structural adjustments to sales prices or by specifying a portion of the costs in sales price surcharges.
Fifthly, the contradiction between market-oriented reforms and local government administrative intervention. Due to differences in understanding and starting points in implementing direct power purchase by large users, handling the relationship between market-oriented reforms and local government administrative intervention will be a difficulty. The behavior of direct power purchase by large users should be standardized in national documents, using market-based and standardized methods to start the market, stimulate demand, and promote economic growth.
3. Using the approach of maintaining the status quo while opening up incremental capacity as a breakthrough to promote "dual-track" reform of on-grid electricity prices.
Basically, from a certain point in time, the grid-connected electricity price of existing generating units will remain unchanged under the existing regulatory system, while the grid-connected electricity volume and price of newly put into operation units will be fully liberalized, determined through negotiation between power generation enterprises and large users. The advantage of this approach is that it substantially advances electricity price reform, making a breakthrough while minimizing impact and keeping risks basically controllable. During the transition period, meticulous research and argumentation work should be conducted to solidify the implementation plan. However, information about this reform can be published in advance so that power enterprises can prepare early.
4. Promoting the reform of transmission and distribution electricity prices by using the determination of temporary transmission and distribution electricity prices as a breakthrough point.
In the long term: First, clarifying assets and costs to make the transmission and distribution costs realistically controllable; second, strengthening supervision of the reasonableness and compliance of the grid transmission and distribution costs to form an effective cost constraint mechanism; and third, determining reasonable transmission and distribution prices based on cost-plus pricing. In the short term, a simple and feasible method can be adopted that acknowledges the current situation and incentivizes grid enterprises. This method involves referring to the national regulations on power generation enterprises absorbing part of the increase in coal prices, applying a 95% discount to the purchase and sale difference of provincial grid enterprises (i.e., requiring them to absorb 5% of the cost and expenses) as the temporary transmission and distribution price for grid enterprises, and publishing and implementing it in advance for gradual revision and improvement. This approach has three advantages: First, it solves the problem of information asymmetry, the difficulty in clarifying grid costs in the short term, and the difficulty in determining formal transmission and distribution prices; second, it addresses the issue of grid enterprises relying on the purchase and sale price difference for long-term income without a standard for transmission and distribution prices; and third, it can force grid enterprises to strengthen cost accounting and control, laying the foundation and serving as a transition for strengthening supervision of grid transmission and distribution costs and officially determining independent transmission and distribution prices.
5. Promoting the reform of the grid's distribution service model by using the change of the grid's exclusive monopoly on the distribution of electricity as a breakthrough point.
It is necessary to quickly change the practice of grid enterprises exclusively buying and selling electricity, allowing them only to provide intermediary services, transmit electricity, and collect the nationally stipulated grid fees; they are not allowed to distribute electricity, encouraging them to open the grid fairly and without discrimination, transforming into a grid service provider model. At the same time, the state should accelerate the determination of standards for various transmission fees. First, based on the temporary transmission and distribution price, quickly transition to determining transmission and distribution prices by province and voltage level; second, separately determine the transmission price for cross-provincial and cross-regional transmission lines, and transition to zonal pricing; and third, consider quickly establishing a national cross-regional transmission company and implementing bundled pricing using a postage method for its investment and operation of transmission lines. In addition, the state should quickly study and adjust the methods for assessing and evaluating the operating performance of grid enterprises, returning to their quasi-public utility attributes and not focusing primarily on profit.
6. Promoting sales electricity price reform by using the resolution of cross-subsidies in electricity prices as a breakthrough point.
First, simplifying the structural classification of sales electricity prices. Within 2013, the current 8 categories of sales electricity prices will be gradually merged into three categories: residential electricity, agricultural production electricity, and industrial and commercial electricity and other electricity. Within the same category, the differences in power supply costs will be reflected through different voltage levels and electricity load characteristics. Second, gradually reducing cross-subsidies in sales electricity prices. Gradually making the existing cross-subsidies between various user electricity prices transparent and open, structurally adjusting sales electricity prices with both increases and decreases, changing from implicit subsidies to explicit subsidies, and quickly researching and establishing a universal service policy for electricity. Third, promoting the full opening of the electricity sales market, with sales electricity prices being basically formed by the market under government regulation. Fully opening the grid, introducing a retailer system, allowing more competitive users to choose their power supplier, and implementing different electricity price formation mechanisms and management methods for competitive and specialized users.
Regarding electricity price policies, the following adjustment and improvement measures will be implemented:
1. During the transition period, continue to implement and improve the benchmark on-grid electricity price policy for coal-fired power plants. The benchmark electricity price for various regions should be verified and adjusted appropriately based on the unit cost, coal price, and design utilization hours. Differential benchmark electricity price policies can also be considered for regional differences.
2. Researching and improving policies and measures for the formation mechanism of hydropower on-grid electricity prices. The overall direction is to accelerate the market-oriented reform of electricity, ultimately forming a market pricing mechanism. During the transition period, for newly built hydropower stations that transmit electricity across provinces and regions, pricing can be based on a market-backward mechanism; for newly built hydropower stations that are consumed locally, classified benchmark electricity prices can be considered; for old hydropower stations, prices should be gradually increased, with the increased revenue mainly used to address immigration support and reservoir area ecological issues; and the on-grid electricity prices for hydropower stations developed in stages in the same river basin should be gradually unified.
3. Continuing to promote and improve renewable energy electricity prices and supplementary policies.
Based on the changes in the development of renewable energy, the electricity price policy should be further revised and improved to maximize the regulatory and guiding role of the electricity price policy, promoting the healthy, coordinated, and orderly development of renewable energy, while minimizing upward pressure on sales prices and reducing the electricity burden on users. The main measures include: First, revising and improving the relevant methods and regulations on on-grid electricity prices; second, increasing the grid connection fee standards for renewable energy power generation, improving the pricing methods, and adopting different policies for different types of projects; third, appropriately increasing the renewable energy electricity price surcharge standard in a timely manner to make up for the insufficient subsidy funds; fourth, researching and establishing a compensation mechanism for auxiliary services for renewable energy development; and fifth, implementing dynamic management of the determined renewable energy on-grid electricity prices and accelerating the research and establishment of a mechanism for annual reduction of on-grid electricity prices.
4. Continuing to implement and improve energy-saving and environmental protection electricity price policies.
The main measures include: First, improving and issuing desulfurization and denitrification electricity price policies and regulatory measures to ensure that national policies and measures are implemented effectively, promoting the reduction of pollutants in the power industry; second, improving the policy of differential electricity prices for industrial users based on industrial policies and the policy of punitive electricity prices for exceeding energy consumption limits to curb the blind development of high-energy-consuming industries, reduce energy consumption levels, and promote economic structural adjustment and industrial upgrading; third, issuing and improving the economic compensation mechanism and methods for energy-saving power dispatching to promote energy-saving power dispatching work; and fourth, improving the tiered electricity price mechanism for residents to promote reasonable electricity use and electricity saving among residents.
5. Continuing to promote and improve demand-side management electricity price policies.
Including peak-valley (peak-off-peak) time-of-use electricity price policies, high-reliability electricity price policies, and interruptible electricity price policies. Adjusting the sales-side peak-valley electricity prices and peak-off-peak electricity price policies in a timely manner based on changes in electricity load, implementing peak electricity prices in areas where conditions permit, encouraging users to reduce peak demand and fill valleys, alleviating supply and demand contradictions during peak hours, and improving the utilization efficiency of electricity resources. Especially during peak summer or peak winter periods, additional charges should be applied to large industrial electricity users (including high-energy-consuming enterprises) in some power-deficient areas during peak seasonal periods, and subsidies should be added to peak generating units, while accelerating the development and issuance of a compensation mechanism for frequency modulation, peak regulation, and standby units.
In improving electricity price management, the following work should be prioritized:
First, accelerating electricity price regulatory legislation. To address the slow progress of electricity price legislation and the serious lag in legal construction, the "Energy Law" and "Electricity Regulation Law" should be introduced as soon as possible, the revision of the "Electricity Law" should be accelerated, and the "Electricity Regulation Regulations," electricity price reform plan, and electricity price management measures should be implemented to ensure that electricity price reform and management are quickly put on a legalized, scientific, and institutionalized track.
Second, streamline electricity price management relations. Currently, the responsibilities of government departments and regulatory agencies regarding electricity prices are not clear enough, and the relationships are not smooth. We must quickly streamline the relationship between relevant government departments and electricity regulatory agencies in electricity price management, strengthen cooperation, share results, and improve regulatory efficiency.
Third, improve government electricity price management. For many years, electricity price management has overemphasized the role of macroeconomic regulation and weakened the market adjustment function of electricity prices. At the same time, there are problems such as over-centralized power in electricity price management, difficulty in reflecting the actual situation in various places in a timely manner, and room for improvement in management efficiency. We must change the practice of using electricity price adjustments as a macroeconomic regulation policy tool and return to its micro-market adjustment function. Strengthen research on electricity price management issues, and timely delegate the authority to manage sales electricity prices to provincial governments. For monopolistic grid companies, we must improve regulatory capabilities, improve regulatory methods, strengthen regulatory measures, and improve the effectiveness of regulation.