(Yicai) June 22 -- China has completed its first market-based transmission rights trading transaction, paving the way for electricity generated in one region to be transmitted across grids to another part of the country in response to market demand, and marking an important shift toward market-based allocation of transmission capacity that better reflects supply-demand dynamics and the true value of grid resources.

The bidding process, in which 113 market participants from both the supply and demand sides took part, was organized by the Beijing Power Exchange Center, under the State Grid Corporation of China, and the Guangzhou Power Exchange Center, affiliated with China Southern Power Grid. State Grid and Southern Power Grid are the country’s two main power utility firms, with the latter serving five southern provincial-level regions and the former covering the rest of the country.

This is a major step towards the market-oriented allocation of transmission rights between State Grid and Southern Power Grid, and the construction of a unified national electricity market. The pre-agreed electricity volume for this transaction was 21.16 million kilowatt-hours, of which 16.07 million KWh was green electricity.

“If we compare the power transmission channel to a highway, transmission rights are the ‘right of passage’ on this highway,” said Zeng Zhiyong, a sales specialist in the marketing department of Guangdong Power Grid. “In the past, how this ‘highway’ was used, by whom and at what cost was mainly determined by administrative planning. Now, we are putting the remaining ‘passage rights’ up for market-based auction so that price signals for scarce resources can be properly reflected.”

China’s electricity market has already made significant progress in market-based reforms on both the generation and consumption sides, but the transmission segment is still at a stage of strong planning and has become a ‘bottleneck’ in the transmission of electricity price signals, Zeng said. The core purpose of introducing transmission rights trading is to shift transmission channel capacity allocation from 'administrative distribution' to 'market-based allocation' to better reflect supply-demand dynamics and the true value of transmission resources.

“Many export-oriented companies in Guangdong face international green trade requirements such as the European Union’s Carbon Border Adjustment Mechanism, and therefore have a strong demand for traceable and certified green electricity,” said Zeng, explaining why the initial transaction mainly involves green power.

The transmission rights trading mechanism enables renewable electricity such as wind and solar power from eastern China to be delivered directly to electricity users in Guangdong through a 'point-to-point' cross-provincial model, helping firms comply with international green trade rules, said Zeng.

Demand for green electricity among participating companies was strong, with total declared purchase intentions reaching 63.588 million KWh, much higher than the actual traded volume, according to data from Guangdong Power Grid.

In addition to promoting market-based consumption of green electricity, the market-oriented trading of cross-grid transmission rights can also attract surplus electricity from surrounding provinces and regions into Guangdong and improve the province’s power supply security during peak demand periods such as summer, said Zhang Qiaoyu, head of the market analysis team at the Guangdong Power Control Center’s spot market management department.

The 303-kilometer Yunxiao HVDC transmission channel is located at the border between southeastern Fujian province, served by the State Grid, and southern Guangdong province, served by Southern Power Grid. It is one of two existing interconnections between the two major grid operators and the only infrastructure currently used for pilot cross-grid, market-based transmission rights trading in China.

Editors: Tang Shihua, Kim Taylor