upstream and progress downstream, beginning with input fuels and progressing through
generation, network access and ending with
retail, with provision to protect retailers if
wholesale prices rise above retail prices
before deregulation is complete.
• Create harmonised trading arrangements
between transmission systems. Use prices to
determine interconnector flows between
provincial and regional transmission systems,
signalling which provinces or regions could
benefit from new investment. The prices
would stimulate lower-cost generators to
respond to demand.
• Implement time-of-use pricing. Time-of-use
pricing allows consumers and flexible
resources to respond to variation in generation costs and demand. Again, it can proceed
sequentially, starting with larger consumers,
such as industrial facilities with flexible production schedules, and ending with smart
household appliances.
• Consider locational pricing. Similarly, locational pricing can signal efficient investments
and operations, but it brings disadvantages as
well as advantages. China may consider
locational pricing, following the implementation of time-of-use pricing. That is, signal
geographical network constraints once
demand peaks have been shaved. Zonal
pricing is a potential intermediate step
between uniform and full nodal pricing.
• Protect end users. The deregulation of retail
electricity may result in rent-seeking by
retailers, raising consumer prices. This can
happen if consumers do not switch suppliers
readily or if for other reasons competition is
not effective. Policies to protect consumers
could be developed alongside any deregulation of retail electricity prices.
(3) Begin market trials
• Create small-scale trials. Create small-scale
trials to procure competitively new transmission investments, non-network alternatives to
new transmission assets, ancillary services
and so on. Use competitive tenders or auctions for the trials. These may provide
proof-of-concept and experience with innovative, cost-effective solutions. To be successful, procurement must be open-access and
transparent.
• Progressively introduce market procurement.
If the competitive procurement trials are
successful, they can be scaled up and wider
market procurement progressively introduced, where appropriate, across each transmission system. Market procurement can help
to reveal information about the relative costs
and benefits of a range of generation
technologies.
(4) Make institutional choices
• Develop transmission network institutions.
Options include the status quo, an enhanced
role for market procurement and a regulated
transmission system operator (TSO) or independent system operator (ISO). International
experience of the regulated TSO or ISO
model is yet to reveal the best performer of
the two, so it matters more to adopt a
good-quality institutional model early than to
choose between the options.
• Select a model of control for decentralised
resources. Initially, when the number of
resources is small, the transmission system
operator may be able to control them directly.
However, as the number of resources increases, and as temporal and locational pricing
become more sophisticated, the computational, commercial and contractual capacity
of a single operator model may be exceeded,
and new models of control may be needed.
8 Build a Unified and Dynamic
National Carbon Market
To control total carbon and carbon intensity,
China plans to launch a national unified carbon
market by 2018, which will cover key industries
518
S. Yaodong and A. Gillespie
generation, network access and ending with
retail, with provision to protect retailers if
wholesale prices rise above retail prices
before deregulation is complete.
• Create harmonised trading arrangements
between transmission systems. Use prices to
determine interconnector flows between
provincial and regional transmission systems,
signalling which provinces or regions could
benefit from new investment. The prices
would stimulate lower-cost generators to
respond to demand.
• Implement time-of-use pricing. Time-of-use
pricing allows consumers and flexible
resources to respond to variation in generation costs and demand. Again, it can proceed
sequentially, starting with larger consumers,
such as industrial facilities with flexible production schedules, and ending with smart
household appliances.
• Consider locational pricing. Similarly, locational pricing can signal efficient investments
and operations, but it brings disadvantages as
well as advantages. China may consider
locational pricing, following the implementation of time-of-use pricing. That is, signal
geographical network constraints once
demand peaks have been shaved. Zonal
pricing is a potential intermediate step
between uniform and full nodal pricing.
• Protect end users. The deregulation of retail
electricity may result in rent-seeking by
retailers, raising consumer prices. This can
happen if consumers do not switch suppliers
readily or if for other reasons competition is
not effective. Policies to protect consumers
could be developed alongside any deregulation of retail electricity prices.
(3) Begin market trials
• Create small-scale trials. Create small-scale
trials to procure competitively new transmission investments, non-network alternatives to
new transmission assets, ancillary services
and so on. Use competitive tenders or auctions for the trials. These may provide
proof-of-concept and experience with innovative, cost-effective solutions. To be successful, procurement must be open-access and
transparent.
• Progressively introduce market procurement.
If the competitive procurement trials are
successful, they can be scaled up and wider
market procurement progressively introduced, where appropriate, across each transmission system. Market procurement can help
to reveal information about the relative costs
and benefits of a range of generation
technologies.
(4) Make institutional choices
• Develop transmission network institutions.
Options include the status quo, an enhanced
role for market procurement and a regulated
transmission system operator (TSO) or independent system operator (ISO). International
experience of the regulated TSO or ISO
model is yet to reveal the best performer of
the two, so it matters more to adopt a
good-quality institutional model early than to
choose between the options.
• Select a model of control for decentralised
resources. Initially, when the number of
resources is small, the transmission system
operator may be able to control them directly.
However, as the number of resources increases, and as temporal and locational pricing
become more sophisticated, the computational, commercial and contractual capacity
of a single operator model may be exceeded,
and new models of control may be needed.
8 Build a Unified and Dynamic
National Carbon Market
To control total carbon and carbon intensity,
China plans to launch a national unified carbon
market by 2018, which will cover key industries
518
S. Yaodong and A. Gillespie