Recently, the National Development and Reform Commission issued a notice on further improving the time of use electricity pricing mechanism (hereinafter referred to as the "Notice"). The Notice proposes an overall idea and specific measures to further improve China's time of use electricity pricing mechanism from four aspects: overall requirements, optimization of the time of use electricity pricing mechanism, strengthening the implementation of the time of use electricity pricing mechanism, and enhancing the implementation guarantee of the time of use electricity pricing mechanism. Propose corresponding policy measures for the widely concerned issues of peak and valley time division, peak and valley price difference space, and the connection between time of use electricity prices and electricity market trading.

 

1、 Background and Overall Requirements for the Issuance of the Notice

 

China's time of use electricity pricing policy includes both the grid side and the user side. With the opening up of the grid side market, the current time of use mechanism is mainly implemented on the user side. Its purpose is to guide users to use electricity off peak, achieve peak shaving and valley filling of the power system load, save power system investment while ensuring power generation and consumption balance, and promote the consumption of new energy.

 

There are two background factors behind the release of this notice. Firstly, in recent years, the country has continuously promoted the deepening of electricity price reform, improved the electricity price mechanism, and continuously put forward requirements for timely and accurate reflection of the electricity supply and demand relationship, optimization of resource allocation, and other aspects of price signals; Secondly, after the establishment of the goals of "peak carbon emissions and carbon neutrality", the construction of a new type of power system with new energy as the main body urgently needs specific mechanisms such as time of use electricity prices to provide support. By tapping into flexible resources on the user side, controlling the cost of the power system, and supporting the healthy and rapid development of new energy.

 

To this end, the "Notice" further proposes an overall requirement covering "one constraint, three objectives", which is to better guide users to cut peak and fill valley, improve the power supply and demand situation, and promote the consumption of new energy while maintaining the basic stability of the overall sales electricity price level.

 

2、 Optimizing the time of use electricity pricing mechanism: making price signals more accurate and powerful

 

In terms of optimizing the time of use electricity pricing mechanism, the improvement measures proposed in the Notice can be understood from two perspectives: "more accurate" and "more powerful".

 

'More precise' is first reflected in the adjustment of peak and valley periods. Require all regions to comprehensively consider factors such as local supply and demand conditions, system electricity load characteristics, proportion of new energy installed capacity, and system regulation capacity, especially in dividing peak and valley periods based on fluctuations in new energy generation output and changes in net load curves. The marginal power supply cost of the system should be included in the time period division decision, which has stronger scientificity and sufficient connection with the development of new energy.

 

More precise "is also reflected in the requirement to improve the seasonal electricity pricing mechanism. For areas where there are significant seasonal differences in daily electricity load or electricity supply and demand, it is explicitly proposed to set peak and valley periods and price differences by season; For areas that are significantly affected by seasonal factors, such as uneven water and electricity output, and areas with winter heating demand, it is required to improve the mechanism to better leverage the role of time of use electricity prices.

 

'More powerful', on the one hand, is reflected in the requirement to widen the peak valley price difference level. For areas where the expected maximum system peak valley ratio exceeded 40% in the previous year or current year, the price difference should not be less than 4:1, and for other areas, it should not be less than 3:1. Taking the State Grid Business District as an example, it is expected that most of the 27 provincial-level power grids will need to adjust the peak valley difference, which will significantly amplify the role of peak shaving and valley filling, as well as incentivizing user power response.

 

More powerful ", on the other hand, is reflected in the implementation of peak and valley electricity prices. The peak period is required to be determined based on the period when 95% or more of the local maximum load is used in the previous two years, and the electricity price during the peak period should be increased by no less than 20%; For the first time, it is proposed to use the deep valley electricity pricing mechanism to address the prominent problem of periodic supply-demand imbalance, which is in line with the volatility characteristics of new energy generation.

 

3、 Strengthen the implementation of time of use electricity prices: expand the scope, dynamically adjust, and link with the market

 

In terms of strengthening the implementation of the time of use electricity pricing mechanism, the Notice has put forward requirements for three aspects: the scope of implementation, dynamic adjustment, and improvement of market-oriented user implementation methods.

 

Regarding the scope of implementation, it is clarified that time of use electricity prices should cover all other industrial and commercial users, except for electrified railways and traction electricity; More noteworthy is the requirement for places with conditions to promote residents' time of use electricity prices according to procedures. In recent years, with the continuous improvement of residents' living standards in China, high-power appliances such as air conditioners have been popularized. The system load during some peak periods is mainly affected by residents' electricity consumption behavior. The necessity of guiding residents to use electricity off peak through time of use electricity prices has become prominent.

 

Regarding dynamic adjustment, for regions with existing electricity spot markets, it is required to refer to the effective price signals of the spot market and adjust the catalog time of use electricity prices in a timely manner. China has never had a clear method and period for adjusting time of use electricity prices, and some regions have not made any adjustments for more than 20 years. The problem of deviation from the actual operation of the system in peak and valley periods is frequent. Foreign experience has shown that spot prices can serve as an important reference for time of use retail packages. Therefore, this policy optimization in China provides a feasible basis for further scientific formation of time of use electricity prices.

 

Regarding market-oriented user execution, for regions where a spot electricity market has not yet been established, it is required to sign medium - and long-term contracts with a curve including electricity prices, and the peak valley price difference in the contract shall not be lower than the catalog peak valley price difference; If the peak valley electricity price contract is not signed according to the curve, the user's purchase electricity price shall be executed according to the catalog time of use electricity price during settlement. This regulation clearly explains the connection between catalog time-sharing, medium - and long-term contracts, and spot markets, providing feasible solutions to a series of problems such as high proportion of valley electricity users not actively participating in market transactions, mismatched catalog peak valley prices and spot clearing prices.

 

4、 Evaluate the effectiveness and coordinate profits and losses

 

The Notice requires a thorough evaluation of the implementation effect and problems of the time of use policy, with particular emphasis on the need for power grid enterprises to separately collect and reflect the income from time of use electricity prices, and to consider the profits and losses generated in the next regulatory cycle when verifying the provincial power grid transmission and distribution electricity prices. It can be said that time of use electricity pricing is a regulated pricing policy that is linked to market prices. Its effective implementation relies on objective and accurate feedback from power grid enterprises. Therefore, requiring independent account management for power grid enterprises is an important means to improve the credibility of evaluations. On the one hand, it can ensure that the execution surplus is used for funding sources including interruptible policies, encouraging user demand response; On the other hand, it can ensure that power grid enterprises do not advance funds due to execution losses, which actually encourages the power grid to provide good feedback.