Electricity Markets and Systems in the EU and China: Towards Better Integration of Clean Energy Sources: Joint Statement Report Series, #1

1.  PREFACE

1.1  Background

ON APRIL 9TH 2019, Li Keqiang, Premier of the State Council of the People's Republic of China, Donald Tusk, President of the European Council, and Jean-Claude Juncker, President of the European Commission, met in Brussels for the 21st China-EU Summit. China and the EU signed a joint statement on the implementation of China- EU cooperation on energy and endorsed the start of implementation of the newly established China-EU Energy Cooperation Platform.

In establishing the China-EU Energy Cooperation Platform, the aim is to support the implementation of the joint statement, enhance exchanges and cooperation between China and the EU in the energy field, enhance mutual understanding and trust between China and the EU, and contribute to a clean energy transformation in a mutually beneficial pattern of cooperation.

Five years have passed since China’s central government started a new round of power sector reform, in March 2015. Over the past five years, China has worked to ‘regulate transmission & distribution’ and open up the retail market. The reform was focused on creating a competitive electricity market and improving market efficiencies and the service level of power supply, the ultimate aim being the optimisation of resource allocation. Although the reform has made great progress, many challenges remain.

1.2  Purpose

ELECTRICITY REFORM has entered the deep-water zone. A number of barriers continue to hinder effective implementation of reform, in particular the complex and often conflicting interests of the government agencies, grid companies, generation companies, heavy industry, the coal industry and other stakeholders. The previous incentive structure of the electricity industry is facing unprecedented challenges, while various production relationships are likely to require adjustment. On the one hand, contradictions between market behaviours and system operations are becoming apparent. On the other hand, ways of collaboration between multiple departments will likely be a key area of attention. As we stand at a new historical crossroads, it is necessary to review and summarise the initial results and continue to develop China’s electricity market structure.

This project is one of the main tasks of China-EU Energy Cooperation Platform. The objective is to complete a joint statement and submit a research report, the results of which will be discussed at the 9th meeting of the EU-China Energy Dialogue in 2020. The content of discussions will be divided into the following three areas:

First, learning from the lessons and experiences of the EU market. The discussions will identify on the best practice/lessons for China from institutional, policy, regulatory and commercial perspectives, including the regulatory framework that promotes cross-border, regional and provincial trading, a market-based electricity price mechanism, and the role of system operators in facilitating competition and system development.

Second, investigating the electricity market in China. In this section, the discussions will aim to offer a comprehensive understanding of the issues and achievements of China’s power sector reform. We will identify its major achievements, immediate issues and the barriers that limit competition and participation, as well as the challenges confronting the development of an efficient power market in