Challenges and Responses to the Integration of Photovoltaics into the Power Market under Document No. 136

This article is a special contribution from the China Photovoltaic Industry Association (CPIA) and the copyright belongs to the Association.

 

Challenges Facing Photovoltaics

Under Document No. 136, new energy sources no longer have a certain revenue calculation model. Due to the well-known reason of inconsistent photovoltaic power output, the spot market price of photovoltaics generally does not exceed ¥200/MWh. If all electricity is settled at the spot price, a decline in revenue is almost inevitable.

 

However, fortunately, there is the mechanism of Document No. 136. With this mechanism, revenue is not necessarily reduced. In the spirit of Document No. 136, projects are divided into existing and incremental projects. For existing projects, the guarantee requirements are continuous. Taking Shandong as an example, at the time of issuance (April 21), the detailed rules of Document No. 136 in Shandong had not yet been released, but it is reasonably speculated that the mechanism electricity for existing projects is 90%, and the mechanism electricity price is the benchmark electricity price of ¥394.9/MWh, which is not much different from the current situation.

 

The electricity volume of incremental projects is estimated to still be 90% (speculation from the perspective of continuity in Shandong), and the price will be bid in May, covering June 1 to December 31, 2025, with a distinction between wind power and photovoltaics. Unlike wind power, photovoltaics face greater risks if they do not enter the mechanism. Therefore, it depends on the incremental mechanism electricity volume and the game mentality during bidding in various regions. If the volume is insufficient, the transaction price may be close to the lower limit. According to the spirit of Document No. 136, if the per-unit-cost is calculated based on the construction cost of the most advanced power plant as the lower limit price, the lower limit price is estimated to be around ¥170-¥200/MWh.

 

We decompose the electricity fee revenue of a photovoltaic power station into the following:

 

 

For both existing and incremental projects, there is little control over the mechanism electricity fee. Since the mechanism electricity does not participate in medium and long-term and day-ahead markets, it only passively accepts the spot price. Therefore, the mechanism electricity fee can be considered uncontrollable (unless Q real-time is changed). However, the key point is that the mechanism electricity may be able to participate in other trading products in the future (the original text of Document No. 136 states that "initially, no other forms of price difference settlement will be carried out," implying that it may be possible in the future). At that time, the power station can enjoy the dual benefits of mechanism guarantee and trading premium.

 

Based on this background, we can divide the strategies to improve power station revenue into two parts: "innate advantages" and "acquired efforts".

 

 

Response: Innate Advantages

 

Under Document No. 136, each kilowatt-hour of electricity is no longer equal, but has temporal and geographical differences. The price of a kilowatt-hour generated when everyone is short of electricity is higher than when everyone is not short of electricity, which is also in line with common sense. Innate advantages are difficult to change with acquired efforts and are mainly divided into three aspects:

 

First, from the perspective of resource selection, site selection can no longer only consider light resources. Under the same light resources, different price curves can lead to completely different revenue levels; in addition, at the same time, the electricity prices at different nodes can also be very different. Nodes closer to the load center have a natural stronger profitability.

 

Second, the bracket and installation angle can no longer only consider maximizing power generation, but should pursue maximizing revenue. This can be specifically reflected in the control of the tilt angle. For example, east-west vertically installed photovoltaics can move the power generation from noon to the morning and evening peak hours. If the price can be calculated, then a part of the power generation can be sacrificed in exchange for increased revenue; similarly, tracking photovoltaics can better control the time-of-use power generation according to price forecasts. Whether the revenue can cover the additional cost of the tracking bracket can be optimized and calculated according to the price characteristics of each region.

 

Third, active configuration of energy storage. As the cost of energy storage gradually decreases, whether photovoltaic energy storage can achieve a 1+1>2 effect compared to photovoltaics + independent energy storage depends on the region and price curve and requires additional calculation. For example, in regions with a high proportion of power restrictions, photovoltaic energy storage is likely to achieve 1+1>2. In addition, in regions with complex rules, such as the curve rationality linkage risk prevention mechanism in Inner Mongolia, whether the curve adjusted by photovoltaic energy storage can improve the risk prevention revenue is also a point that can be quantified and calculated.

 

An example of a vertically installed photovoltaic power station

 

 

Response: Acquired Efforts

 

If the innate advantages are fixed and the physical aspects cannot be changed, then acquired efforts become particularly important, and sometimes acquired efforts can also lead to a turnaround. From the perspective of trading "non-mechanism electricity," we will discuss the following possibilities:

 

First, inter-provincial trading. If electricity can be transported from regions with abundant light resources to regions with scarce light resources through inter-provincial trading, such as from the northwest to Sichuan/Chongqing, a higher medium and long-term price can be obtained. Ideally, if the photovoltaic power station is fully loaded and sends medium and long-term electricity at a price of over ¥300 to Sichuan/Chongqing, and the shortfall is settled at a lower spot price within the province, the trading revenue from medium and long-term to day-ahead can be improved. However, this depends on the topological structure and channel capacity limitations of inter-provincial ultra-high voltage transmission lines, as well as luck (whether the quota can be obtained).

 

Second, day-ahead trading. The improvement of revenue from day-ahead to real-time trading depends on three aspects: first, the prediction of the day-ahead real-time price difference can be sufficiently accurate, and the direction accuracy is at least greater than 50%; second, the power prediction of one's own power station also needs to be sufficiently accurate. Meeting these two prerequisites can improve day-ahead revenue; third, the improvement space depends on the local day-ahead real-time price difference and excess quota recovery rules. Currently, various regions can have a theoretical maximum per-unit-revenue of about 1-3 cents (God's revenue).

 

Third, high-frequency trading of all varieties. Utilizing the price difference between different batches of medium and long-term prices to achieve cross-variety revenue improvement. All trading entities can perform such operations, which puts very high demands on market judgment and mastery of weather, price forecasting.

 

Finally, green electricity. As a special medium and long-term product, mechanism electricity cannot participate, and only the market-oriented electricity portion is allowed. Judging from the transaction price of green electricity in Shandong in 2024, with an environmental premium of about ¥17/MWh, the transaction price is above the benchmark electricity price, with an annual average of ¥413.5/MWh.

 

 

Summary

 

The integration of new energy into the power market is an inevitable trend. If innate advantages can be changed, more refined calculations can be performed to find the optimal solution; if the innate advantages are fixed, acquired efforts may also change fate. However, regardless of the situation, trading ability has become an essential ability for new energy.

 

According to the price difference settlement mechanism of Document No. 136, new energy sources with excellent trading capabilities can obtain the dual benefits of mechanism guarantee and premium increase. Adjacent power stations may have huge revenue differences under the same light resources due to different trading levels. Without changing the innate assumptions, the gap in trading level mainly comes from the difference in understanding of trading rules and the difference in the level of weather/power/price prediction.