New Perspectives in Electricity Price Research

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【Readers in the energy sector: Click the button in the upper right corner to ‘Follow’.】 New Perspectives on Electricity Price Research by Xu Zhao (Source: WeChat official account “China Electric Power”, ID: ELECTRIC-POWER; Author: Institute of Finance, Accounting and Auditing, State Grid Energy Research Institute) Currently, countries around the world are working together to address climate change, with an unprecedented consensus on the goal of carbon neutrality. Development that focuses on emission reduction represents not only a significant challenge to traditional patterns of development but also an opportunity that must be seized in order to move toward new paths of development in the future. China has set the goal of reaching peak carbon emissions by 2030 and striving for carbon neutrality by 2060; on the international stage, this represents a solemn commitment by China to assume its responsibilities as a major world power ； Internally, it involves seizing historical opportunities to vigorously promote economic transformation and upgrading, in order to fulfill the goal of overtaking competitors on a curve. For research purposes, the \"dual carbon\" goals have a direct impact on studies related to electricity prices, and the perspective of such studies has also changed. How to reconcile the increase in costs on the power generation and transmission sides resulting from the development of new energy sources with the expectation of lower energy costs due to current economic developments has become one of the factors that hinder the high-quality development of the power industry. At the ninth meeting of the Central Financial and Economic Affairs Commission, it was proposed to \"establish an energy system that is clean, low-carbon, safe, and efficient; control the total amount of fossil fuels used, focus on improving their utilization efficiency, carry out actions to replace them with renewable energy sources, deepen reforms in the electricity sector, and build a new type of electricity system centered around new energy sources.\" ”While focusing on deepening electricity system reform and reducing energy costs, electricity price research has further expanded to cover new power systems centered around new energy sources. In light of the current economic development and progress in electricity reform, the new trends in electricity price research should focus on the following key aspects: First, enhance the adaptability of the electricity market pricing mechanism. For the electricity market price mechanism, it is necessary to address at least two issues: value reflection and efficiency improvement. First, the value attributes of electric energy are shifting from single to diversified, and the market electricity pricing mechanism needs to have a stronger ability to reflect these values. As traditional power systems are upgraded to new types of power systems, their material and technical foundations continue to change. In addition to the traditional values of electricity in terms of quantity and capacity, it now possesses various other value attributes such as flexibility, controllability, reliability, and low emissions. Therefore, the design of market electricity price mechanisms should be based on an in-depth analysis of the laws governing the value of electric power, in order to expand their scope and enable more precise pricing. Secondly, new energy is shifting from a \"supporting role\" to a \"leading role\", and the market electricity pricing mechanism needs to shift its function from promoting the consumption of new energy to improving allocation efficiency. Policies ensuring guaranteed consumption play a positive role in the rapid initial development of the renewable energy industry. However, as new energy gradually becomes the main source of power in electrical systems, focusing solely on its utilization while neglecting the efficiency of its allocation will impose a heavy burden on the new type of electrical system. Renewable energy sources should also assume corresponding responsibilities for ancillary services, gradually shifting from merely ensuring the consumption of renewable energy to achieving its efficient allocation, thereby improving the overall effectiveness of the market and ensuring a fair distribution of costs. Second, understand the characteristics of energy transition. For the energy industry, based on the concept of “four revolutions and one cooperation,” the trend toward clean and low-carbon development expands and enriches the meaning of high-quality energy development ； “The requirement to build a new power system centered on new energy further clarifies and specifies the main goals for high-quality energy development over the coming period. The power grid connects electricity production and consumption; it is an important network platform, a key element in the energy transition, and a core mechanism for reducing carbon emissions in power systems. It must ensure the large-scale development and efficient use of new energy sources while simultaneously meeting the electricity demands of economic and social development. It is necessary to continuously improve the level of green energy technologies in order to meet the demands of the green transformation in energy consumption and supply ； It is necessary to further improve the institutional mechanisms for green energy, so as to ensure and support green energy consumption and supply transformation, as well as promote the development of green energy technologies. Third, understand the impact of the \"dual carbon\" goals. “The costs associated with the \"dual carbon\" goal are expenses incurred for the benefit of society as a whole; only by strengthening top-level planning and ensuring equitable sharing can these costs contribute to the achievement of long-term goals. From the perspective of development goals, the \"dual carbon\" target represents the overall economic and social goal of pursuing high-quality development while meeting climate action requirements; it is not the development goal of any single sector. For the energy and power industry, while meeting the \"dual carbon\" targets, it is also necessary to ensure a more economical and safer supply of energy and electricity. There are numerous specific goals that need to be addressed, and the costs associated with these efforts have a public nature, requiring fair sharing. From the perspective of development benefits, the \"dual carbon\" initiative exhibits a \"long-tail\" characteristic: it enables large-scale development and utilization of emerging fields such as \"low-carbon energy+\" technologies and materials, thereby creating a long-term driving force for innovative economic and social development. Instead of providing immediate benefits, it requires that some future gains be used in the early stages to cover the costs. “The “dual carbon” development also exhibits \"positive externalities\"; by reducing the resource, environmental, and climate costs associated with economic and social development, it benefits a wide range of societal groups. The shared assumption of these development costs aligns with the principle of fair burden-sharing. As the reform of the power system progresses and new energy sources develop rapidly, the effects and issues associated with power market reforms are also becoming increasingly apparent. Future research on electricity prices should focus on supporting the goals of achieving carbon neutrality, promoting energy conservation and efficiency improvements, enhancing the quality of power supply, and ensuring adequate electricity supply for people’s daily needs. A strategic framework should be established to keep up with new developments and ensure the high-quality development of the power grid. According to experts, Xu Zhao is a doctor and a researcher at the Institute of Accounting and Auditing of the State Grid Energy Research Institute. Has long been engaged in research on energy and electricity prices, power sector reform, and corporate finance. Has successively undertaken and participated in over 20 research projects commissioned by the **Development and Reform Commission, the Ministry of Finance, and** power grid companies. It has won awards such as the First Prize for Scientific and Technological Progress from power grid companies, as well as the First Prize for soft science achievements. Original title: Xu Zhao | New Trends in the Field of Electricity Price Research. Disclaimer: The content above is reproduced from Polaris Power Sales Network; it does not represent the position of this platform. National Energy Information Platform: Phone number: 010-65367702, Email: hz@people-energy.com.cn, Address: No. 2 Jintai West Road, Chaoyang District, Beijing, People’s Daily Press. Source: National Energy Information Platform