Cao Renxian, chairman of Chinese photovoltaic giant Sungrow Power Supply and deputy of the National People's Congress, suggested China promote the establishment of an electricity futures market to avoid price volatility risks.
China should build an electricity futures exchange market in the renewable energy-rich northwestern regions or the economically developed Yangtze River Delta or Pearl River Delta regions or add electricity futures products to existing futures exchanges, Cao said in its proposal to the Two Sessions. Afterward, a variety of futures contracts covering different regions, load characteristics, and delivery cycles should be released, he added.
The Two Sessions are the annual plenary meetings of the NPC and the Chinese People's Political Consultative Conference, which are China's top legislative and political advisory bodies, respectively.
The large-scale integration of new energy into the grid not only calls for higher regulatory capabilities for the power system but also exacerbates the volatility of spot electricity prices, bringing risk management challenges to new energy companies, especially power generators, Cao explained.
These issues are reflected in the frequent occurrence of negative electricity prices in provincial electricity markets. For example, the Shandong electricity spot market experienced 22 consecutive hours of negative prices during the Labor Day holiday last year, and the Shanxi electricity spot market saw 11 hours of zero prices during the same holiday the year before.
Negative market prices occur when there is low electricity demand and high supply, so generators pay buyers to stimulate demand and avoid losses in operation, maintenance, energy storage, and downtime.
Investors are concerned that if negative prices become more and more frequent in the future, they will negatively impact the investment returns on new energy assets.
Cao also proposed establishing a joint regulatory framework for electricity trading centers and futures exchanges that unifies delivery and settlement rules and promotes the sharing of information, as well as creating a whole-chain risk control system that can guide market entities to actively participate in trading and strengthen regulatory intervention to avoid excessive speculation.
Electricity futures prices are also affected by market expectations, so they can predict the development of the electricity market, helping enterprises to more rationally adjust the rhythm of their capacity deployment," said Tang Huiting, an analyst at Citic Construction Investment.
