Summary of Key Points
Recently, departments including the National Energy Administration issued a notice stating that starting from June 1st, market-based transactions for transmission rights will be conducted on the Yunxiao DC transmission corridor connecting Fujian (State Grid) and Guangdong (South Grid). This marks a shift away from the previous fixed-price model of "one case, one discussion" for cross-regional power transmission. Instead, the surplus capacity of the corridor will be allocated through market-based bidding, which not only ensures grid safety but also makes more efficient use of the infrastructure. It can also save electricity costs for industrial and commercial users and attract private capital to invest in grid construction, setting an important precedent for the establishment of a unified national power market.
Detailed Explanation
1. Why the Change?
The previous method of using cross-regional transmission corridors was inefficient: during peak demand periods, there was intense competition for capacity, while during off-peak times, the corridors were underutilized.
- Insufficient Capacity During Peaks: During summer peak seasons, many regions competed for transmission capacity, preventing green energy (such as wind and solar power from southern provinces) from reaching eastern regions.
- Waste During Off-Peak Times: The corridors remained idle during low-demand periods, failing to maximize their potential.
- Difficulty in Absorbing Renewable Energy: With the increasing share of renewable energy, the fixed pricing system hindered its distribution.
In short, while the previous approach addressed whether there was enough capacity available, the new system focuses on how to use that capacity more wisely.
2. How Does Yunxiao DC Work?
The core principles are "safety first" and market-based allocation. Key points for understanding the rules include:
- Prioritizing Basic Needs: Transmission capacity is first allocated to meet national designated priority power generation needs, such as ensuring electricity supply for essential services.
- Bidding for Surplus Capacity: Any unused capacity is made available for companies to bid for; the party that offers the highest price gets the use of that capacity.
- Bid Range: Bids range from a minimum of 25.6 yuan per megawatt-hour (approximately 2.56 cents per kilowatt-hour, similar to the previous fixed price) to a maximum of 100 yuan per megawatt-hour.
- Safety Constraints: Companies from outside Fujian and Guangdong cannot reverse the direction of electricity flow; for example, power cannot be transmitted from Guangdong to Fujian.
- Profit Sharing: The profits from the transactions are split equally between Fujian and Guangdong, which can be used to offset their respective fixed capacity fees, ultimately reducing the costs for industrial and commercial users.
*Note:* Unlike in Europe and America, where "financial transmission rights" are primarily used for risk hedging, China's system involves "physical transmission rights"—the actual use of the transmission corridor for power delivery, linking transmission rights directly with electricity buying and selling, which is more suitable for China's grid safety and renewable energy integration needs.
3. Direct Benefits
- Improved Utilization: For instance, the utilization rate of the Yanhuai DC corridor in Shanxi increased significantly after market-based transactions were implemented. With Yunxiao DC, surplus capacity will not be wasted.
- Cost Savings for Users: The profits from transactions help reduce the fixed capacity fees for both regions, lowering electricity costs for industrial and commercial users.
4. Demonstrative Significance
Yunxiao DC serves as a pilot project for a unified national power market. It demonstrates how two major grids can collaborate to allocate power more flexibly:
- Other cross-regional corridors (such as ultra-high-voltage lines) can adopt this model, enabling the flexible allocation of electricity, especially renewable energy, wherever it is needed or surplus.
- This move contributes to the development of a unified national power market by moving from simply trading electricity to also marketizing transmission resources, addressing existing institutional shortcomings.
5. Attracting Private Capital
Grid projects, particularly those involving large investments (such as ultra-high-voltage lines), were traditionally dominated by state-owned enterprises. However, the government is now encouraging private capital participation:
- A 2025 State Council document specifies that private capital can hold more than 10% in cross-provincial DC corridors.
- If Yunxiao DC proves successful in increasing utilization and profitability, it will inspire private investment (as seen with ultra-high-voltage projects in Gansu and Qinghai, which have attracted private investors with returns of around 5%).
- Increased capital participation can accelerate grid development and share the benefits of energy growth.
In Summary
The reform implemented through Yunxiao DC uses market mechanisms to make cross-regional transmission corridors more efficient and equitable. It not only saves users' money but also encourages private investment, setting an example for broader power market reforms across the country.