Northeast China Regional Power Market

Han Shui Northeast China Bureau

State Electricity Regulatory Commission

First Annual Meeting of CAREC Members Electricity Regulators Forum (CMERF) Beijing, 5 July 2005

The views expressed herein are those of the author and do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its Board of Directors or the governments they represent. ADB makes no representation concerning and does not guarantee the source, originality, accuracy, completeness or reliability of any statement, information, data, finding, interpretation, advice, opinion, or view presented.

2005-6 1 Outline

1. Northeast Power Industry Status and Planning

2. Northeast Regional Power Market Framework and its Features

3. Trial Operation and Development of Northeast Regional Power Market

4. Lessons and Future Work

2005-6 2 1. Northeast Power Industry Status and Planning

z Basic information z Installed capacity z Electricity output z Electricity consumption z Power grid z Power price z The 11th five-year Planning

2005-6 3 Basic Information z Region：Liaoning, Jilin, and Heilongjiang province; some areas of Eastern Inner Mongolia such as Hulunbeier League,Xingan League,Tongliao City and Chifeng City z Area: 1252.2 thousand sq. km z About 120 mil. service population z In addition to the Northeast Power Grid, 3 small independent 660KV or higher networks in Hulunbeier League, Daxinanling Area, and Yichun Area, are also included in the Northeast Regional Grid.

2005-6 4 Installed capacity （at the end of 2004）

z Installed capacity： 41490 MW hydro wind Thermal power: 35640MW，85.9％ of 14% 1% the total capacity

Hydropower： 5610MW, 13.5％ thermal 85% Wind power： 240MW, 0.6％

East z According to administrative division inner Mongol 9% liaoning HLJ 39% Liaoning： 16300MW, 39.3% of the total 29%

Jilin： 9430MW, 22.7% Jilin 23% Heilongjiang：12040MW, 29% Eastern Inner Mongol ： 720MW, 9%

2005-6 5 Installed capacity-cont’d (by the end of 2004）

zAccording to capacities of company

China Huaneng Group：5070MW, accounts for 12.2% of the total capacity

DT Group：2530MW, 6.1% Grid Huaneng compnies 12% 14% Huadian Corp.：5860MW,14.1% Datang 6% Guodian Corp.: 3290MW, 7.9% local/self- Huadian reserved 14% CPIC：3690MW,8.9% 26% CPIC Guodian others 9% 8% Foreign-invested plants : 1750MW, 4.2% 7% foreign Plants with other investment: 3100MW, 7.5% Investors Local/self-reserved power plants: 10420MW, 25.1% 4% Northeast Grid Company owned plants5780MW,13.9%

2005-6 6 Electricity output （by the end of 2004） z Total electricity output: 203.2bil kWh z Peak load: 30.16 mil KW z Annual utilization hours of thermal capacity: 5439 hrs Chifeng and Tongliao : 5808 hrs Liaoning Province： 5720 hrs Jilin Province： 5633 hrs Heilongjiang6000 Province： 4838 hrs 5808 5500 5720 5633

5000 4838 4500

4000 Chifeng Jilin and tongliao 2005-6 7 Electricity Consumption(2004) z Electricity consumption was 199.4 bil kWh in 2004, a year-on-year increase of 10.37%, of which： Liaoning: 102 bil kWh, an increase of 12.32% Jilin： 37.2 bil kWh, an increase of 9.77% HLJ： 52.5bilkWh, an increase of 6.5% Eastern inner Mongol : 7.7bil kWh, an increase of 14% z Since 2004, power demand and supply across the region has reached a basic balance, though shortage appears in some areas

Easr inner Mongol 4% HLJ 26%

Liaojing 51% Jilin 19% 2005-6 8 Power Grid

z 18 substations of 500KV, with the total capacity of 16.81 mil KVA z 39 lines of 500kV, with the total length of 5,786km z 233 substations of 220kV, with the total capacity of 46.88 mil KVA z 533 lines of 220kV, with the total length of 24,998km

2005-6 9 Power Grid – cont’d

Northern system Heilong Hulun. Lea. jiang

Ji-Hei Central Cross section area system Tongliao Jilin

Liao-Ji

Southern Cross section system Chifeng Liaoning

North China

2005-6 10 Tariff Level （by the end of 2004） Unit：RMB yuan/1000 kwh

Liaoning Jilin HLJ Eastern inner Mongol

Average retail tariff 434 439.5 435 381.5

Generation tariff 278.7 260.69 261.61 261.42

434 439.5 435 381.5

278.7 260.7 261.6 261.4 500

400

(yuan/MW.H) 300

rice 200 p 100

0 liaoning Jilin HLJ East inner Mongol

generation tariffretail tariff

2005-6 11 11th Five-Year Planning （generation）

• Construction scale 20.32GW • Thermal power 16.94GW 83.4％ • Hydropower 0.10GW 0.5％ • Pumped storage station 0.8GW 3.9％ • Nuclear power 2GW 9.8％ • Wind power 0.48GW 2.4％。

pumped storage nuclear wind 2% 4% hydro 10% 1%

thermal 83%

2005-6 12 11th Five-Year Planning （power grid） z Construct 2 transmission lines of 500KV from Jilin to HLJ ( total of 6 loops) z Construct 1 transmission line of 500KV from Liaoning to Jilin (total of 5 loops) z Construct 500KV lines from Huolin River to the load center of Liaoning z Form a 500KV loop-net in main load center

2005-6 13 2. Northeast Regional Power Market Designs and Features

z Preliminary goals z Mid-term goals z Long-term goals z Early market designs z Market features

2005-6 14 Preliminary Goals

z Establish preliminary trading system and market regulation mechanism in the northeastern regional power market z Set up a uniform regional power market with the Northeast Power Dispatching Center as its trading platform z Establish a bidding model of two-part tariff with all electricity ? participating in the competition z Open access to generation market at the right time z Carry out experiments on bilateral trading between generators and large consumers z Establish compensation mechanism for auxiliary services

2005-6 15 Mid-Term Goals

z Establish an auxiliary service market z Extend the range of generation competitors z Establish bilateral trading between generators and major consumers z Undertake study on experiments of bilateral trading between generators and independent distribution companies z Introduce environmental discount factors in the bidding process after the central government issues the discount standards for discharge of pollutants

2005-6 16 Long-Term Goals

z Introduce retail competition z Make all market entities to participate in all-round competition z Introduce power futures or market options z Establish a credit market of generating capacity to determine the generation tariff determined by competition

2005-6 17 Early Market Designs

Market participants

Power grid Generation companies companies

Northeast grid Liaoning Power Corp Corp 100MW or higher thermal power plants （excluding CHP plants and Jilin Power HLJ Power self-used plants) Corp Corp

2005-6 18 Early Market Designs Market participants—cont’d HN Guodian Huadian DT CPIC Others Total companies 7 4 5 4 3 6 29 （number） capacity（10MW） 490 242 542 140 220 510 2144

Liaoning Jilin HLJ East inner Total Mongol generators（number） 10 6 9 4 29 capacity（10MW） 890 240 684 330 2144 East inner others Huaneng Mongol 24% 23% 15% laioning 42%

CPIC DT HLJ 10% 11% 32% GD jilin HD 7% 11% 25% According to According to company province/region portion 2005-6portion 19 Early Market Designs Organization

StructureRegulator

Market regulation

Bidding Northeast electricity dispatching center generators （trading platform） ƒBid-trading

General Forecasting and Tariff and revenue Dispatching- management contract-trading settlement division communication division division management ƒMarket ƒElectricity construction balance across and the regional Electricity dispatch sector of management system settlement center 3 provinces of 3 provinces ƒElectricity revenue ƒElectricity dispatch settlement

2005-6 20 Early Market Designs

Tariff Structure Two-part generation tariff

Energy about69% Market determined charge

Capacity about31% Set by government charge pricing department

2005-6 21 Early Market Designs Capacity charge

Capacity charge=K×（Depreciation charge +financial expenses）/ available capacity×annual utilization hours）

0.080 0.075 0.075 0.070 0.065 0.060 0.056 0.055 0.051 0.050 0.045 0.040 normalplants decarblized equipments with equipments cost of RMB7000 and over

2005-6 22 Early Market Designs

Basic tariff

Take average generation tariff of bidding plants in base year as baseline, considering country’s price adjustment and deduction of electricity sent to North China

Price limit baseline Baseline tariff energy charge (calculating revenue from price differentials)) calculation Capacity charge

2005-6 23 Early Market Designs Price limit scheme

Highest limit 5 times of Highest limit baseline 3 times of baseline

Highest limit 50% over baseline

Baseline tariff 1 day before Real time trading trading

Lowest limit 50% below Yearly or monthly trading 2005-6 24 Early Market Designs Balance account

If bid price is higher than baseline, balance funds decrease

Baseline tariff balance account If bid price is lower than baseline, balance funds increase

2005-6 25 Early Market Designs

“Electricity-Respond-to-Coal” Tariff Mechanism market joint action 20%

coal-electricity joint action 80%

2005-6 26 Early Market Designs Trading Pattern

Yearly trading trial operation Monthly trading

The other day trading Trading Real time trading carry out at a type convenient Generating rights time trading

Bilateral trading trial operation

Auxiliary services trial operation

2005-6 27 Early Market Designs Offering in phases 5 phases per year and 3 phases per month

price Generating capacity

Trade-off price

Settlement price

Winning-tender Electricity Electricity output price

Electricity output 2005-6 28 Early Market Designs Electricity Trading Principles Unrestrained

竞价空间 Restrained High offer capacity

Ordering of grid losses - modified offer

Low offer capacity Electricity trading

2005-6 29 Early Market Designs Annual trading Unrestrained Annual bidding quota（％）-price 100 High offer capacity Restrained 80

Ordering of grid losses Restrained -modified 40 First offer trading concluded

0 Low offer capacity First Second trading trading

2005-6 30 Early Market Designs Monthly Trading

Monthly Restrained High offer load forecast 100％ capacity

80％ Ordering Electricity of grid losses trading -modified Yearly offer contracts electricity disassembled into monthly contracts Low offer 20％ capacity

Unrestrained Restrained

2005-6 31 Early Market Designs

Signing Annual Contracts

Northeast Grid Corp Plants directly dispatched by Northeast Grid Corp

Jilin HLJ Grid Corp Grid Corp

Generation bidder Generation bidder within province Generation bidder within province within province

2005-6 32 Early Market Designs Trading Time Ordering Trading time ordering

settlement

The Yearly Monthly Real time other day

16:00 time 25th each Half an 13th Dec. month Daily hour ago 22nd each 2nd Dec. 10:00 starting month Monthly point starting Yearly point Before starting 25thmonthly point

2005-6 33 Early Market Designs Trading Process

Pattern arrangement NortheastNortheast GridGrid dispatch dispatch Pattern arrangement Dispatch Trading from results Liaoning Regional Liaoning generation dispatching bidder offering trading center dispatching calculation modifying calculation Trading modifying Security results trading Trading Security results trading JilinJilin dispatchingdispatching

HLJHLJ dispatchingdispatching Generation bidder Trading Generation bidder results dispatch Settlement within province 2005-6system 34 Early Market Designs “The other day” Trading load Unrestrained ordering

High offer capacity

Monthly disassembly

Yearly disassembly

00:00 Low offer 05:00 17:30 24:00 capacity

2005-6 35 Early Market Designs Real Time Trading

load Unstrained

Monthly disassembly “the other day” Yearly disass disassembly embly

00:00 05:00 17:30 24:00

2005-6 36 Early Market Designs

Generating Rights Trading

Trading platform

Make a Can’t fulfill the match contract—specified Buy Sell between electricity quota generating generating sides rights rights

2005-6 37 Early market Designs

Bilateral Trading

Direct provision to large consumers

Occupy annual trading quota

generators consumers

2005-6 38 Early Market Designs

Auxiliary Services

Auxiliary service types

Automatic control Peak of generation Reactive Black start regulating

2005-6 39 Early Market Designs Dispatch Pattern

Northeast Power Dispatching and Trading Denter（regional grid ） ƒCross connection of tie lines dispatching Liaoning dispatching Jilin HlJ dispatching ƒEast Inner dispatching Mongol supply dispatching ƒDirect dispatching from generators

ƒLiaoning Supply ƒJilin Supply ƒJilin Supply dispatching dispatching dispatching ƒDirectly ƒDirect ƒDirect dispatching from dispatching from dispatching from generators generators generators

2005-6 40 Early Market Designs Power Purchasing Pattern

GenerationGeneration BiddersBidders Power purchasing

Northeast Power Dispatching and Trading Center

Power purchasing

Northeast Corp Liaoning Corp Jilin Corp HLJ Corp

Power selling East Inner Liaoning Jilin Heilongjiang Mongol

2005-6 41 Early Market Designs Settlement System

Energy revenue Settlement on settlement offer Yearly/monthly trading Settlement on marginal tariff The other day/real time trading Capacity revenue=capacity charge×capacity available ×available hours Capacity revenue available hours assessing settlement

2005-6 42 Early Market Designs

Settlement Procedures

Settlement data of electricity bidding

Executive results of Differential electricity trading revenue Trading SettlementSettlement body body Technical center Capacity support system revenue Assessing results for capacity available Assessing results of Capacity revenue available capacity Energy revenue settlement settlement

Generation Bidder 2005-6 43 Technical Support System Early Market Designs Bilateral trading management Information management Generating rights Operational information trading management record Information Real time trading Information website Operation examination Maintenance management management management management Monthly contract Switching compensationRelated information Transmission capacity available Auxiliary services trading Safety management management charge Bilateral-trading Analysis and forecast Safety managementControlling management Yearly contract constrain adjustmentTransmission charge offering Supply and demand management settlement Generating rightsAnalysis and forecast Blocking management Trader informationParameter management Settlement of electricity offering Information contract Bid-trading in breach Settlement information Safety analysis and forecast Contract decomposing safety checking Trading type offering Settlement of Power tariff And balancing Public information Load allocation auxiliary services Jurisdiction managementSafety managementAnalysis and forecast maintenance /repair Settlement of bidding Generating equipments Trading information Market analysis management planning electricity Consumer definitionInformation checking Non-bidding Profile Settlement of mid/long-term Market informaiton Information capacity managementBasic load distribution Network description Load prediction capacity charge management Assessment & Market Contract Trading Issue System Generation settlement forecast management management information management offer management and analysis

Support software platform Common software platform

2005-6 44 Early Market Designs Regulation Information System

Market Market regulation Market Information Market System Standard information system analysis release simulation management system

Application software system

Specific intermediate soft ware （integrated safety measures ), specific database…

Supportive software platform

Operation system commercial database

common software platform

Computer data network (wide area network, local area network)

Hardware platform

Power market technical support system Information management Communication system

Basic information resources

2005-6 45 Market Features

z Regional platform, single buyer z Two-part generation tariff z Aggregate electricity competition z Yearly trading in batches z Phase approach: 5 phases per year and 3 per month z Settlement on offer in long-term market, and on marginal power price in spot market

2005-6 46 3. Trial Operation and the Development of the Northeast Regional Power Market

z Development of transient single-part tariff market

z Development of two-part electricity tariffs

z Trial operation

2005-6 47 Market Development of Transient Single-Part Tariff

z In February 2003, the State Electricity Regulatory Commission (SERC) decided to experiment with electricity market in the North East Company z On 6 June 2003, SERC issued the “Instruction on Establishing Northeast China Regional Power Market”(No. 2003 15） z The North East Power Grid Company Ltd. was officially established on 25 September, and the Northeast Power Dispatching and Trading Center was set up under it. z On 31 December 2003, a series of publications and regulations on this subject were issued , including the Single-Part Transient Tariff Executive Program z On 15 January 2004, the single tariff simulation operation was started, and 5 monthly simulation sanctions were concluded

2005-6 48 Market Development of Two-part Tariff

z On February 2004, the Northeast Electricity Regulatory Bureau preparatory group was found. z On April 27th 2004, the NDRC issued the Notice of Generation Tariff Reform Pilots in Northeast Regional Power Market(No 2004. 709). z From May 10th to 11th in 2005, a meeting was held in Dalian to seek comments from relevant parties on regulations and methods on the northeast regional power market z From 17th to 18th in May 2004，the meeting to seek comments from grip companies and generation corporations was held in Beijing. z On May 24th 2004, the executive plan and regulations on two- part tariff came out.

2005-6 49 Market Development of Two-part Tariff—cont’d

z On 19 June 2004, the simulation operation on two-part generation tariff was started. z From 13 to 22 December 2004, the annual contract bidding for 2005 was consummated. z However, the monthly bidding from January to April 2005 was deferred because of the difficulties in coordinating generation companies after the yearly bidding. z In April, the SERE and NDRC jointly issued the Notice of Starting Trial Operation on Monthly Bidding in the Northeast China Power Market (No. 6 , 2005). z From April 22 to 25, the monthly contract trading for May was concluded. z From May 22 to 25, the monthly contract trading for June was concluded

2005-6 50 Trial Operation

Yearly Trading

z The annual trading quota was 86.278 bil kWh, with a quota of 43.139 bil kWh for each time. It concluded in 2 phases.

z The weighted average tariff of the tender electricity of the two yearly sanctions was 191.029/kWh. Accordingly, 0.2 billion surplus of balance funds is expected.

2005-6 51 Trial Operation

Monthly Trading

z The quota of bidding in May was RMB 1.884 billion and the average tender tariff was 270.092 yuan/1000 kwh. Therefore, the deficit of balance funds is expected to be 78.46 million.

z The quota of bidding in June was 1.728 billion and the average tender tariff was 267.388 yuan/1000 kwh. A deficit of 47.62million is expected.

2005-6 52 Trial Operation

Features

z Generation companies were serious, active, and rational for market offering z Reasonable tender results reflected market laws z The allocation of resources was optimized within the Northeast region z With accurate and serious safety check, the trading results were able to ensure the network to operate safely z Technical support system operated steadily and trading calculation went right z Rules are specific and clear, and show no apparent weakness

2005-6 53 4. Lessons and Future Work

z Lessons

z Future Work

2005-6 54 Lessons

z Reaching a consensus and changing mindsets are necessary for the establishment of market

z Make a master plan and take all participants’ interests into consideration

z It is necessary to have an overall design, implement it by phases, ensure safety, and implement plan steadily.

z Pay attention to risk prevention ( risks on both safety and business)

2005-6 55 Future Work

z To evaluate the trial operation, establish and revise rules to make it perfect, then, turn to formal operation at appropriate time

z Further study “Next day” Trading and implement it at the right time

z Resolve the problem of North China electricity to have access to market

z Increase market players and extend the scale of large consumers for direct provision of electricity

z Study auxiliary service market and introduce it at the right time 2005-6 56 Thank You!

2005-6 57