Pricing Mechanism of China ’ s Transregional and Trans-provincial Electricity Trading

With the large-scale development of Chinese electric power, the contradiction of China’s energy supply and demand that reverse distributed is very prominent, therefore, promoting electricity trading is one of the important measures to get optimized configuration of energy resources in nationwide. For the two kinds of trading method, the “power point to the grid” trading and the “grid to grid” trading, this paper designed pricing mechanism model, and took one area as an example, we analyzed the impact of the participants by using different pricing mechanism, and put forward reasonable policy proposals for China’s pricing mechanism of trans-regional and trans-provincial electricity trading.


Introduction
China's trans-regional and trans-provincial electricity trading has increased year by year. While with the scale enlargement of the trading, some problems happened: the low level of marketization, the imperfect price mechanism, and the unified pricing mechanism which is difficult to meet the interests and the needs of different trading regions and different trading participants, etc. The formation of scientific price mechanism has important significance to promote the development of power trading.
Literature [1] researches the pricing problems of Contract for Differences (CFDs) in the Nordic power trading. Through integrating the power market in South Asia Regional, examining the opportunities, benefits, and challenges, Literature [2] promoted a trans-regional power trading scenario model of South Asia, in this model, the trans-regional power trading price is determined by biding. The studies in Literature [3] show that the convergence of power price can be induced by cross-border and trans-regional electricity trading, and the re-allocation of resources in various countries can be promoted by the optimization of exchange volume and exchange price. Based on the Markal model, Literature [4] assess the effectiveness of the trans-regional power trading between Thailand and Laos, and pointed out that Thailand is expected to gain benefit from the increased level of power imported from Laos in terms of the lower energy system cost, better environmental quality and, greater diversifycation of energy sources. On the basis of an analysis on the price mechanism and methods for power trading between trans-region or trans-provincial grids in China, Literature [5] puts forward some policy recommendations for innovation of power trading price systems and mechanisms in China from different aspects. The characteristics of Chinese cross regional transmission trading price framework are summarized in Literature [6], based on that, the targets of Chinese cross regional trading pricing are proposed, and suggestions on related price framework and mechanism are put forward. Based on the different power supply and demand situation, and the power purchase cost, the price model in trans-regional power consensual dealings, as well as price compliance mechanism are established in Literature [7]. The feed-in tariff, the transmission price, the line loss as well as the sales price are discussed in Literature [8] on the basis of different costs: long-term, medium-term, short-term, accident support as well as spare power to each other. Literature [9] considers that, rational transmission pricing mechanism is a key issue for the development of cross regional electricity trading. The application of the Nash bargaining principle in trans-regional and trans-provincial power trading is studied in Literature [10], aim for maximize the overall effectiveness of the trade subject, the Nash negotiation price model in trans-regional and trans-provincial power trading have been established perceptively.

Design of Pricing Mechanism for
Trans-regional and Trans-provincial Trading The operation period price, namely inspecting the annual cash flow in project life cycle so as to meet certain financial internal rate of return, that is: where is the net present value, t is the t-th year inflow; t is the t-th year outflow; n is the depreciation life, i is internal rate of return, B is the total investment for unit kW.

NPV CI CO
The transmission pricing mechanism based on the operation period price, namely taking the operation period price as trading price, that is, where a and P j P is the trading price for transmission side and operation period price for generation companies respectively.

Pricing Mechanism Based on the Benchmark
Price of Coal-fired units of Power Accepted Side Currently, in China, benchmark price of coal-fired units of power accepted side in each province (autonomous regions and municipalities directly under the Central Government) based on the operation period price, determined by the average cost of advanced generating sets in the same period.
where , a B is the benchmark price of coal-fired units at transmission side.

Pricing Mechanism Based on Consultation of Incremental Power Proportion
The trading price of generator set can maintain the same in utilization time, above that, the price can be set through consultation, and the determination methods include marginal cost pricing, etc. While, the ratio consists of two parts: one is the charge proportion, and the other one is the price ratio of negotiation. The pricing model based on consultation of incremental power proportion is as follows: where is the current tariff at the transmission side, K proportionality , a g P is the power coefficient,  is the 1 consultation coef (5) ficient, and   , is the transmi quantity in the governments' plan, Q is the total transmission power. ssion  is determined by negotiation en the two sides. From Game theory and Pareto optimal theory we know, betwe   , the optimal value of  , represent the equal dem incremental profit under negotiations, which being adjusted according to national policies, power supply and and. The incremental profit distribution is shown as following formulas. .
are the incremental p transm de a pted side respectively the trading volume rofit at , Q is ission si nd acce , P  is the transmission price, P  is ani of rice Difference Definition 1, "price pushed forward by market": the price Def y market": the price two minimum, generatio the line-rice.

Pricing Mech sm Based on Consultation
Interests of P loss p is determined by the transmission side. inition 2, "price pushed down b is determined by benchmark price of coal-fired units minus the cost in transmission link.
In this mechanism, by locking the "price pushed forward by market" and the "price pushed down by market" at transmission side, based on the n enterprise's final trading price can be determined through consultation of interests of price difference. min , where is the minimum of "price pushed market" a price pushed down by market", benchm price of coal-fired units at accepte ion the jointly consultation of both sides with considering the k facrket In this mechanism, the trading price is determined by ing patter min P nd " ark forward by , b B P is the d side.

Pricing Mechanism Based on Negotiat
In this mechanism, the trading price is determined by market situation, the supply cost and the market ris rs, etc.

Pricing Mechanism Based on Competitive Ma
part or full market competition, which is, bid trad ns.

Design of the Pricing Mechanism for the "Grid to Grid" Trading
For the "grid to grid" trading, it can also adopt the menism cing princ However, it is differ in oned pricing mechanism except "Pricing mechan based on the operation period price", and the pri iples are described as above. incremental distribution, pricing mechanism at accepted side based on consultation of interests of price difference as well.
Incremental profit distribution of "grid to grid" trading is shown in the following formula.
Pricing mechanism at accepted side based on consultation of interests of price difference is shown in t lowing formula.

Basic Data
The "power point to the grid" trading took an energy owns 2 × 600 MW coal-fired units, y to A province as an example. For consumption rate of power supply is 57 yuan ing Mechanism Based on the Operation the e n/kWh, according to formula 298 377 on is an local b n base plant, which transmits electricit this plant, the coal 345 g/kWh, unit annual utilization hours is 5000 h, coal price is 140 yuan/ton, and ROI is 8%. We assume that transmission price is 0.0623 yuan/kWh and line-loss price is 0.0167 yuan/kWh. Then analyzing the effect on main participants by using energy base plant electricity substitute for local one, the replacement ratio between 1%-3% and 0.5% alternative electricity each increase, on the basis of the total electricity purchase in 2011.
The "grid to grid" trading took provinces like B and C transmit electricity to A province as an example. The benchmark price of coal-fired units in these areas are: A province is 0.4142 yuan/kWh, B province is 0.40 /kWh, c province is 0.3179 yuan/kWh. We assume that transmission price in province "B to A" "C to A" is 0.03 yuan/kWh and 0.02 yuan/kWh, respectively. We also use alternative methods to analysis the effect on main participants.

Measurement Results on the "Power Point to
the Grid" Trading

Pric
Period price By formula (1), the operation period price of this plant in nergy base is 0.298 yua (2), price at the power transmission side is 0. yuan/kWh, and the power accepted side is 0. yuan/kWh which is 0.0372 yuan/kWh lower than local benchmark price of coal-fired units.
For the power transmission side, that its trading price is 0.0963 yuan/kWh lower than local benchmark price of coal-fired units by using this pricing mechanism, not only does it guarantee a reasonable return of investment, but also helps to improve the level of electricity trading, so as to gain more profit. For the power accepted side under this pricing mechanism, when the replacement ratio is between 1% and 3%, the average electricity purchase price could drop 0.07 -0.21 percent, that the decline in the cost of power purchase is very significant.

Pricing Mechanism Based on the Benchmark
Price of Coal-fired units of Power Accepted Side According to formula (3), price at the power transmissi side is 0.3179 yuan/kWh, at the power accepted side 0.3969 yuan/kWh which is 0.0173 yuan/kWh lower th enchmark price of coal-fired units. For the power transmission side, if it uses this price as its trading price, the plant would probably reduce its trading size, so as to influence its profit. For the power accepted side under this pricing mechanism, when the replacement ratio is between 1% and 3%, the average electricity purchase price could drop 0.03-0.10 percent.

Pricing Mechanism Based on Consultation of
Incremental Power Proportion It can be seen from formula (4) -(6) that this mechanism is related with consultation coefficient as well as re placement ratio of electricity. Thus, according to formula (7) -(8), we measured the price in different consultatio coefficient as well as replacement ratio at the power transmission side under this pricing mechanism, and the result is shown in Table 1.
For the power transmission side, the essence of this mechanism is to reduce its trading price to get more electricity deal, and certain conditions such as improving unit annual utilization hours could the plant gain a lot of profit. For the power accepted side under this pricing mechanism, when the consultation coefficient is between 0.7 -0.9 and the replacement ratio is between 1% and 3%, the average electricity purchase price could drop 0.04 -0.08 percent. The smaller the consultation coefficient is, the greater the average electricity purchase price would fall. side and accepted side is shown in Table 3.
 is 0.5, according to formula (9), price at the pow ission side is 0.3166 yuan/kW er transm h, at the power acricing Mechanism Based on the Benchmark d as transmit electricity to A province, acn Price at the power accepted side, when electricity is provided by B province, is 0.0215 yuan/kWh higher than local benchmark price of coal-fired units; while when electricity is provided by C province is 0.0763 yuan/ kWh lower than local benchmark price of coal-fired units. By contrast, this mechanism makes C province more competitive in the power trading.
cepted side is 0.3956 yuan/kWh. Taking the changes in market supply and demand into account, the result of nsultation may be fluctuated by optimal consultation coefficient. Therefore, we measured the price in different consultation coefficient and the result is shown in Table 2.
For the power transmission side, the trading price is 0.0043 -0.0149 yuan/kWh higher than local benchmark price of coal-fired units, this part is excess profit of energy base plant. For the power accepted side, when the co co As For the power accepted side, when electricity is provided by C province and the replacement ratio is between 1% and 3%, the average electricity purchase price could drop 0.2 -0.6 percent. nsultation coefficient is 0.5 and the replacement ratio is between 1% and 3%, the average electricity purchase price could drop 0.04 -0.11 percent. The higher the replacement ratio, the greater the profit gained by both sides.

Pricing Mechanism Based on Consultation of Incremental Power Proportion
According to formula (9), when electricity is provided by B province, the measured consultation coefficient is greater than 1, that is conflict with the constraint of 1   due to B's benchmark price is higher than A's after deducing transmission costs. According to formulas (4) -(8) we measured the price in different consultation coefficient as well as replacement ratio at the power transmission side under this pricing mechanism when electricity is provided by C province, and the result is shown in Table 4.

Price of Coal-fired units of Power Accepted
Side ifferent are cording to formula (3), price at the power transmissio

Pricing Mechanism Based on Consultation of
Interests of Price Difference As the price difference between C province and A province is larger, we measured that price at the power transmission side is 0.3560 yuan/kWh which is 0.0382 y an/kWh lower than local benchmark price of coal-fir units, at the power accepted side is 0.3760 yuan/kWh which is 0.0382 yuan/kWh lower than local benchmark price of coal-fired units.
For the power accepted side, when the consultation coefficient is 0.5 and the replacement ratio is between 1% and 3%, the average electricity purchase price could drop 0.10 -0.30 percent. The higher the replacement ratio is the greater profit it gained.

Conclusions
Establish a reasonable pricing mechanism is one of the core issues in China's trans-regiona trading and the "gr we draw the conclusions as follows: 1) The pricing mechanism based on operation period price ensures the power generation companies' recovery of the cost, is the most competitive trading price compared to other pricing mechanism of "power point to the grid" trading, thus, it is suitable for energy base power trading.
2) The pricing mechanism based on consultation of incremental power proportion considers the fairness of the planned trading and the flexibility of the unplanned trading benefit both sides at the same time. It is suitable for the "grid to grid" trading.
3) As for the pricing mechanism based on consultation of interests of price difference, its essence is the reasonable distribution of the price difference and suitable for the "grid to grid" trading.
4) The pricing mechanism based on negotiation as well as the pricing mechanism based on competitive market could reflect the actual market situation better, thus they apply to the electricity trading at the mature stage of the market. Before that, the above pricing National Natural Science Foundation of China mech

A edgem
The w ribed r was su ted by China (Grant No.9122022)