Mar 15, 2023
China to Let Power Prices Turn Negative in Solar-Rich Province
(Bloomberg) -- Power traders in China’s Shandong province can now ask to be paid for taking electricity as the province’s growing rooftop solar capacity threatens to overwhelm the grid.
The province officially set the lowest price on its spot market below zero, according to a draft rule released by Shandong Development and Reform Commission. Negative prices that encourage generators to switch off are typically seen on more advanced electricity exchanges in the US, Germany, and Australia and suggest another step forward in China’s slow march toward liberalizing its power sector.
“Shandong, with abundant wind and solar generation sources, appears to be the only provincial spot electricity wholesale market that allows negative prices,” said Jeff Huang, the founder of AEX Holdings Ltd., a Hong Kong based company seeking to create a trading platform for hedging power and emissions in China.
Negative prices haven’t been a formal part of trading in Shandong, but have regularly occurred during the market’s trial period over the past year, according to an industry media report. They appear when supply is greater than demand, typically during the middle of the day when solar generation peaks and adds to the round-the-clock supply from large coal and nuclear plants that are costly and slow to switch on and off.
Shandong has the largest amount of distributed solar capacity in China, with over 30 gigawatts. The province asked rooftop solar projects to stop generation during the Lunar New Year holidays as power demand dropped, and some regions required them to install battery storage to soak up some of the excess.
China rolled out eight pilot power markets in 2017, as part of a plan to liberalize prices and let market signals drive more decision-making. Shandong, Shanxi and Guangdong are among provinces that have now had more than 12 months of continuous spot trading.
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