With the first clarification of the rules for the electricity spot market at the national level, the sources of revenue for emerging industries such as energy storage and virtual power plants are expected to be greatly enriched.

The National Energy Administration recently released the "Basic Rules for Electricity Spot Market (Draft for Comments)" (hereinafter referred to as the "Rules") for public consultation. The "Rules" clarify the main tasks of constructing the electricity spot market, and provide detailed explanations on market members, market composition and prices, spot market operation, and market linkage mechanisms.

In the recent construction tasks, the "Rules" mention: promoting the participation of new energy in the electricity market in a steady and orderly manner, and coordinating with existing new energy guarantee policies; Promote emerging market entities such as energy storage, distributed generation, load aggregators, virtual power plants, and new energy microgrids to participate in electricity spot trading; Explore the establishment of a market-oriented capacity compensation mechanism, etc.

Wang Yongli, deputy director of the Energy Internet Research Center of North China Electric Power University, said to First Finance and Economics that since Guangdong and other provinces launched the first batch of spot electricity pilot projects, over the past two years, various regions have "released water to raise fish" to stimulate market vitality and made many useful explorations. Based on these experiences, the 'Rules' provide more detailed, comprehensive, and actionable practical solutions. Once the document is officially released, it will provide normative guidance for the construction of the electricity market, and the profit margins of emerging market entities such as energy storage are expected to be further opened up.

Energy storage and virtual power plants accelerate the opening of profit margins

The proposal of China's electricity spot market has a long history. In 2015, the "Implementation Opinions on Promoting the Construction of the Electricity Market" proposed to "gradually establish a market-oriented electricity balance mechanism with medium and long-term trading as the mainstay and spot trading as a supplement"; In 2018, China launched the first batch of spot electricity pilot projects, including 8 regions, and then added a second batch of pilot projects in 2021.

Multiple research reports believe that the introduction of the "Rules" means that the spot market is about to move from a pilot to a comprehensive deployment. The mechanism for the transmission of construction costs, fuel costs, and regulation costs downstream in the entire power industry will gradually become smooth, and the industry space will be fully opened up.

Wang Yongli told reporters that for a long time, the construction cost of energy storage power stations has been high and there is a lack of guidance mechanisms. Due to economic factors, they are often "losing money and making noise", and most of them are difficult to say profitable. Therefore, in the context of mandatory energy storage requirements in various regions, there is often equipment vacancy and waste, and even product safety hazards are left due to investors' one-sided pursuit of low-priced procurement.

With the introduction of new regulations, these power sources that provide stability or flexibility for the power grid are expected to receive the expected economic benefits.

In terms of energy storage, on the one hand, the electricity spot market widens the peak valley price difference, and energy storage can completely arbitrage from it. On the other hand, promoting the joint clearing of frequency regulation auxiliary services and spot markets can achieve market-oriented pricing of frequency regulation auxiliary services and improve energy storage profitability. In addition, capacity compensation is also beneficial for energy storage. Overall, after the expansion of the electricity market, the sources of income from energy storage have greatly expanded, "said Wang Yongli.

Virtual power plants are also beneficiaries of promoting the electricity market.

Since 2019, domestic power grid enterprises have launched pilot projects for market-oriented trading of virtual power plants in the electricity market with government support, exploring methods to solve the problem of new energy consumption through market-oriented trading. Among them, the Jibei Virtual Power Plant is the first landing project in China.

Wang Xuanyuan, Director of the Science and Technology Innovation Department of State Grid Jibei Electric Power, told First Financial that since 2019, Jibei Virtual Power Plant has participated in the operation of the North China (Beijing Tianjin Tangshan) peak shaving auxiliary service market. As of early November 2022, Jibei Virtual Power Plant has continuously provided peak shaving services online for more than 4800 hours, and has cumulatively added 37.01 million kilowatt hours of new energy electricity; The total revenue of virtual power plant operators and users reached 6.737 million yuan, with an average electricity revenue of 182 yuan/megawatt hour.

At present, we have not started the pilot work of the electricity spot market. We have only participated in the operation of the peak shaving auxiliary service market, but the results have been significant. I believe that with the gradual expansion of the spot market and the release of detailed documents in segmented fields, the profit sources of virtual power plants will be more abundant, and it will also accelerate the exploration of new business models by load aggregators and other entities, "said Wang Xuanyuan.

New energy revenue is facing downward pressure

Due to the mismatch between new energy output and load, as well as the low accuracy of power forecasting, in the pilot projects of spot electricity markets in Shanxi, Shandong, and other regions this year, there were instances of low electricity prices during the peak of new energy generation, and even negative electricity prices at one point. After entering the electricity spot market, the returns have not been as good as before, which has caused many new energy companies to complain.

According to a research report by Xinda Energy, the risk of declining returns in the spot market and ancillary service market is essentially due to new energy paying regulatory service fees to controllable units such as thermal power plants. But the green electricity market brings environmental premiums, and future policies may balance the two markets and provide relatively reasonable rates of return for new energy generation.

The independent pricing of electricity value and environmental value may be a better model, but currently the green electricity market combines the two types of values for pricing, and the market mechanism still needs to be clarified.

A new energy investor from a central state-owned enterprise told First Financial that for a large centralized power station with an investment scale of several hundred million to one billion yuan, companies do not pursue high returns for such heavy asset investments, but rather value their stability. An annual return rate of 7% to 8% is already considerable. However, after entering the electricity market, the price of electricity may be high or low, making it difficult to calculate. This makes it difficult to obtain an accurate rate of return, and investment risks are bound to increase. Although the wind and photovoltaic power plants we currently invest in and operate have hardly participated in the electricity spot market, we are also closely monitoring the development of the situation

The above-mentioned person also stated that the current focus of their local inspection of power station projects includes compliance with certification procedures, the operating years of the power station, and whether there are electricity price subsidies. Due to the limited number of pilot areas and small trading scale in the current electricity spot market, it has not been included as a key consideration. The next step will depend on policy conditions.