This February, two major Chinese cities announced the launch of new electricity distribution pilot projects. In these projects, private electricity retailers will provide electricity services directly to consumers, representing a major step forward in China’s eagerly awaited power sector reforms.
The Guangzhou Development District
The first of these reforms takes place in Guangzhou. According to a policy released by the Guangdong Economy and Information Technology Commission, the Notice on Launching Retail Reforms in the Guangzhou Development District, entities within the Guangzhou Development District that consume at least 10 gigawatt-hours of electricity per year may participate in a direct electricity purchasing program. These entities may either purchase electricity in a bilateral agreement with generators or choose an electricity retailer.
As a result of these reforms, power plant owner Hengyun and Guangzhou Economic Technology Development Zone State-Owned Asset Investment Company, formed an electricity retailer, Guangzhou Suikai Electric Services. It’s important to note that the distribution grid is owned by the development district. As Hengyun owns generators that can serve the District and because the district itself – rather than China’s giant state-owned grid company -- owns the distribution grid, the entire value chain from generation to distribution is controlled by this newly-formed utility.
Although on paper it looks as if only consumers meeting a minimum consumption of 10 GWh will be able to participate in the retail market, it’s likely that smaller users will be able to participate by aggregating their loads.
Reforms in Chongqing
Retail reforms are also taking effect at an industrial park in Chongqing. On February 3rd, the Chongqing Liangjiang Changxing Electric Co. signed agreements with twelve businesses located at the Liangjiang New Area. Electricity sales to the first of these companies will begin this March.
This electric retailer was formed by four companies: Chongqing Liangjiang Group, Yangtze Power, Fuling Julong Electric, and Zhongfu Thermoelectric. Chongqing Liangjiang Group is a state-owned distribution grid developer responsible for the Liangjiang New Area. Yangtze Power, the country’s largest listed hydropower company, owns a number of large power stations including the Gezhouba and Three Gorges Dams. Fuling Julong is a state-owned enterprise primarily involved in power generation and retail, electrical equipment and transmission maintenance. Zhongfu Thermoelectric is a thermal generation owner.
The retailer formed by these companies covers each link in the power chain, from generation to retail. Although the distribution grid at the Liangjiang New Area is partly owned by the grid, any new additions will be built and owned by the retail utility.
The Role of Industrial Parks in Retail Reform
One reason that retail pilot projects are taking off in these two industrial parks first is the fact that the retailers in these cases are vertically integrated from generation to distribution. It’s important that in each case, the industrial park owner is a part owner of the utility, allowing the utility to gain control over the park’s assets – such as the distribution grid. Moreover, the utility is guaranteed to have customers in the companies that operate in the park. This vertical integration is expected to result in savings of 26 million yuan (US$4 million) in 2016.
It’s unusual for business and industrial parks to own their own distribution grids, which makes the Guangzhou Development District a special case. Though now that electricity retail is now opening up, yet-to-be-built industrial parks are likely to become a focus point in retail reform.
Where does energy storage sit in all of this?
For industrial parks with access to their own generation, retail reforms are likely to vastly reduce electricity prices. These reforms also open up possibilities for distributed generation and microgrid development, both of which do well when combined with energy storage technologies.
Additionally, now that retail companies are directly serving industrial parks, there is likelihood that consumers will have access to a wider range of services, including energy efficiency, energy management, and demand response. Freed from the shackles of the traditional grid system, energy storage has new opportunities ahead.