Power Market Reform

Market reform of the electricity sector is essential to enabling a clean energy transition and reducing the country’s carbon emissions. Historically, the lack of a wholesale power market has contributed to curtailment of renewable energy, which makes renewable energy artificially less economical. China’s administratively planned power system had historically encouraged the over-building of coal plants through inflexible planned operating hours contracts that enabled cost recovery for coal plant investments. To ensure the solvency of state-owned power companies and maximize provincial tax revenue, provincial governments had also favoured dispatch of within-province coal plants over trading power between provinces—creating a system known as “provincial fortresses.”

China’s power market reforms that were restarted in 2015 have been aimed at gradually resolving these issues through a combination of market and administrative measures, including phasing out planned operating hours and encouraging power trading among provinces. Today, electricity spot markets are being trialed on provincial level to gain experience for the introduction of a nationwide spot market in the near future. In 2000, Germany’s first electricity exchange started trading in Frankfurt. Two decades later, German and European power markets are ever more integrated with numerous products, from futures to intra-day products, offered on the trading floor.

Within the various Sino-German cooperation projects in the energy sector of GIZ, German and international experts share best practices and offer advice for China’s efforts to establish effective and efficient spot trading mechanisms and advance China’s ongoing power market reform.

Facts & Figures

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upper limit for curtailment by 2020 was set for grid companies and dispatch centers based on quotas for curtailment to avoid administrative penalties.
17 %
Falling curtailment of renewable energy has been one indicator of success of power market reforms. In 2019, China’s wind curtailment amounted to 4%, down from 7% in 2018 and a peak of 17% in 2014.
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spot market pilot provinces
Was set up after the full roll-out of bilateral markets, it established trading centers and began developing models for spot markets based on various practices in other countries.

News & Articles

Power markets: China’s spot markets gradually start to take shape

China’s current phase of electric power market reforms kicked off in 2015, when authorities announced plans to establish market-based mid- to long-term contracts for electricity, leading eventually to establishment of market for spot-trading of electricity and ancillary services (such as load-following, voltage support, and regulation

Markets are Key to Power Sector Flexibility

As part of its energy transition, the German Government has set itself the target to reach near carbon-neutrality by 2050. China wants to peak its greenhouse gas emissions by 2030. In the first half of 2019, 44% of Germany’s power demand was covered by renewable