Transitional Revenue Scheme for High-cost Generator Unit in Guangdong Electricity Market Based on Government Authorized Contracts

Abstract

High-cost generator units are at a cost disadvantage in electricity spot markets. This study focuses on revenue mechanisms of gas-fired units affected by power market reform in Guangdong province, China. For the first time, we compare impacts on market indicators of five settlement mechanisms: feed-in tariff (FiT), location marginal price (LMP), contract for difference (CFD), direct subsidy (DS), and estimated revenue method (ERM). In particular, we design key parameters, including authorized CFD and ERM of two kinds of government authorized contracts based on traditional dispatching patterns to avoid significant profit fluctuations brought by market reforms. We also analyze impact of factors such as climbing performance, seasonal load, and subsidy amount on the overall market and its players. Results of a case study show to directly subsidize gasfired units will lead higher-cost units to generate more electricity, with a resulting loss of social welfare. Disruption of market prices and provision of unreasonable incentives are fatal disadvantages of this subsidy method. The government and policymakers should consider financial means to adjust benefits to reduce production costs and increase social welfare. Also, by case analysis, the ERM shows its stable performance in revenue of high-cost units, while we find that authorized CFD is not applicable for gas-fired units whose output is unstable as a marginal unit frequently. Therefore, we suggest government agencies adopt ERM to sign contracts with gas-fired units, to attain a balance between fairness and efficiency.

Keywords

• Guangdong electricity market
• high-cost generator unit
• settlement mechanism
• subsidy