China's power market will achieve “dispatch independence,” which will not affect grid safety and reliability.

2022-11-05

“Dispatch independence” does not mean separating the entire existing dispatch organization from the power grid. It primarily refers to separating functions related to spot trading from the grid. However, Document No. 234 still retains spot clearing authority within the grid while simultaneously allowing the grid to participate in competitive electricity sales. Therefore, this remains a compromise reform plan acceptable as an initial starting point during the early stages of reform, but it should be continuously refined as reforms progress.

“Dispatch Independence” Actually Refers to Spot Exchange Independence

On February 18, the National Development and Reform Commission and the National Energy Administration issued the “Implementation Opinions on Promoting the Independent and Standardized Operation of Power Trading Institutions” (NDRC Reform [2020] No. 234) (hereinafter referred to as “Document 234”). This document, like a spring thunderclap, shattered the deepening silence surrounding power sector reforms. Unlike other supporting documents for power sector reforms, Document 234 was reviewed and approved by the Central Committee for Comprehensively Deepening Reforms, representing a further deepening of Central Document [2015] No. 9 (hereinafter referred to as “Document 9”).

System reform serves as the foundation and prerequisite for mechanism innovation. Document 234 emphasizes “accelerating the independent and standardized operation of power trading institutions, further improving open and transparent power market trading platforms, expediting the establishment of market-based electricity pricing mechanisms, and establishing power operation risk prevention and control mechanisms to create conditions for gradually achieving full liberalization of power generation and consumption plans for commercial power users.” It is evident that the “independent and standardized operation of power trading institutions” is not merely an adjustment to the operational management model of trading institutions, but involves multiple core issues of the related power system. It represents a new top-level design for institutional reform within the basic framework established by Document No. 9, becoming the central task for further deepening power sector reform and reflecting the firm determination of the Party and the state to advance reform.

Beyond specifying key issues like shareholding reforms for trading institutions, Document No. 234 clearly defines the functional roles and coordination mechanisms among trading institutions, market management committees, and dispatch centers. This is highly complex as it involves both institutional mechanisms and engineering technologies, requiring simultaneous assurance of economic operation and compliance with safety and stability constraints. This paper takes “dispatch independence” as its entry point to further explore relevant specific issues, providing reference for policymakers and implementers.

According to the supporting document to Document No. 9, “Implementation Opinions on Advancing Power Market Development,” the spot market primarily conducts day-ahead, intraday, and real-time electricity energy trading. The concept of the electricity spot market primarily originates from the international spot market, grounded in the theory of spot pricing, which depends on the supply and demand conditions of electricity during a specific time period. In actual electricity markets, spot prices are often derived from models such as the Security-Constrained Unit Combination (SCUC) and Security-Constrained Economic Dispatch (SCED). From the perspective of physical operations in power system dispatch, spot trading fundamentally mirrors traditional economic dispatch, differing only in the optimization basis—shifting from generation cost (coal consumption) to market participant bids. Since the day-ahead and real-time markets established via SCUC and SCED models essentially perform traditional economic dispatch functions through market mechanisms, primarily implemented by power dispatch agencies, the roles of electricity spot exchanges and grid dispatch are partially integrated. Furthermore, physical contracts for medium- and long-term transactions must also be executed through dispatch agencies, which serve as the critical hub and command center of the entire electricity market. To ensure fair and impartial market transactions, electricity spot trading institutions in all international power markets operate independently from grid companies. Typical examples include the Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) in the United States. Consequently, the corresponding dispatch functions are also independent from grid companies, giving rise to the term “dispatch independence.”

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