to improve the systems by which markets play
the decisive role in resource allocation. It will
be important to continue with the market liberalisation programme to deliver a more
advanced and efficient electricity system.
• Rationalise investment planning. Clearly
defined metrics for reliability and economic
efficiency help network planners to identify
efficient investments. Meanwhile, the application of the beneficiary pays principle
encourages investment that increases productivity, avoiding diverting national resources to stimulate regional output. Together,
these approaches, when applied at national
and regional level, facilitate greater interconnection and sharing of generation services.
• Implement a coordinated approach to
investment. The use of a common investment
framework enables coordinated planning of
generation and network investment, harnessing both strategic decisions and market
enterprise. For example, the framework might
set out the role of generation zones for
large-scale renewables alongside alternatives
such as small-scale distributed generation.
Implement smart system architecture. Smart,
distributed resources are crucial to affordable
decarbonisation. Before building the distributed
resources, the system architecture to manage it
can be laid down. At a minimum, this includes:
deployment of smart meters to introduce
time-of-use pricing to consumers on the distribution network; upstream information and communications architecture; and R&D to develop
technical solutions for the smart grid.
(2) Move towards efficient pricing
• Deregulate prices. Cost-reflective pricing can
signal efficient investments and operations to
decision-makers. The deregulation of prices
can proceed sequentially, with further price
reform contingent on the success of previous
reforms. Price reform could commence
upstream
and
progress
downstream,
beginning with input fuels, followed by generation and 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 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 competitively procure new transmission investments, non-network alternatives to
new transmission assets, ancillary services
558
S. Yaodong and A. Gillespie
the decisive role in resource allocation. It will
be important to continue with the market liberalisation programme to deliver a more
advanced and efficient electricity system.
• Rationalise investment planning. Clearly
defined metrics for reliability and economic
efficiency help network planners to identify
efficient investments. Meanwhile, the application of the beneficiary pays principle
encourages investment that increases productivity, avoiding diverting national resources to stimulate regional output. Together,
these approaches, when applied at national
and regional level, facilitate greater interconnection and sharing of generation services.
• Implement a coordinated approach to
investment. The use of a common investment
framework enables coordinated planning of
generation and network investment, harnessing both strategic decisions and market
enterprise. For example, the framework might
set out the role of generation zones for
large-scale renewables alongside alternatives
such as small-scale distributed generation.
Implement smart system architecture. Smart,
distributed resources are crucial to affordable
decarbonisation. Before building the distributed
resources, the system architecture to manage it
can be laid down. At a minimum, this includes:
deployment of smart meters to introduce
time-of-use pricing to consumers on the distribution network; upstream information and communications architecture; and R&D to develop
technical solutions for the smart grid.
(2) Move towards efficient pricing
• Deregulate prices. Cost-reflective pricing can
signal efficient investments and operations to
decision-makers. The deregulation of prices
can proceed sequentially, with further price
reform contingent on the success of previous
reforms. Price reform could commence
upstream
and
progress
downstream,
beginning with input fuels, followed by generation and 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 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 competitively procure new transmission investments, non-network alternatives to
new transmission assets, ancillary services
558
S. Yaodong and A. Gillespie