The Research Of Electric Power Market Establishment

With the deepening of the market-oriented reform of the electric power industry, how to establish the financial market for electricity have been increasingly concerned and thorough investigations are necessary. As an optimized form of energy in contrast to the raw forms such as coal and oil, electricity is convenient for utilization along with its unparalleled advantages in transmission and environmental protection. Consequently electricity has become a high-speed channel for the transfer of production ingredients. It is not uncommon in China that the areas rich in energy reserve have less demand in energy consumption while the areas with great demands are limited in energy resources. From the overall economic perspective, an efficient medium is needed to establish the complimentary interactions between these areas with supplies and demands and combine the geographically distributed resources such as funding and technology. Converted and transmitted in the form of electricity, other types of energy such as coal, wind, hydro and geothermal resources can be transported to the areas with demands. In this manner, the area with the energy reserves utilizes the natural resources and the development of the area with demands is supported, which effectively combines the complementary advantages of various economic factors.The above advantages have greatly promoted the development of the electric power industry and now its role as a pillar industry of the nation has been firmly established. Industrial production and people’s daily life have become increasingly dependent on electricity. In the Industrial production, electricity serves as the power for automated manufacturing and pipeline operations. Computers have replaced hand computation long ago in the finance and other services. A safe conclusion can be drawn that the electric power has become the most significant ingredient in various industries. Meanwhile, almost all the aspects of people’s daily life rely on the supply of the electric power because there have been appliances in each families requiring electricity as the power. The significance in people’s daily life has given a distinctive mark on the electric power from other forms of energy. The electric power industry has become a barometer reflecting the economic development due to its increasing influence on various industrial productions as well as people’s daily life. In2007when talking with the U.S. ambassador about the GDP of Liaoning province, Keqiang Li emphasized that three indicators had more of his concern:the amount of rail freight traffic, the electric power consumption and the loans in banks. At the end of2010,"The Economist" magazine created a "Keqiang index" to summarize these three factors. When Citibank determined the weights in Keqiang index, the electric power consumption was40%in contrast to the amount of rail freight traffic25%and the loans in banks35%. Apparently the economic structure and the speed of the economic development in a certain area can be known through the variation and constitution of the electric power consumption. Generally, the areas with rapid growth and reasonable constitution of the electric power consumption will demonstrate faster and better economic developments.Nowadays the discussion about the reform of the electric power industry is becoming heated once again. In the Chinese Economists50Forum in February2013, Jinglian Wu pointed out that in the reform of the electric power industry, among the four steps as "separating the power plants and the power grid, the power plants entering the power grid through bidding, separating the transmission and distribution of electric power, and the unrestricted sale of electric power", only the first step has been effectively accomplished. However it is not a normal competitive market because the only consumer is the power grid. A few days later in the Yabuli Forum, Jinglian Wu further suggested the necessary measures to improve the market-oriented systems in China, including:a) establishing the property right basis of the market system; b) releasing the control of the prices of all kinds of products and various production ingredients; c) clarifying the competition rules in the markets; d) breaching the monopoly and enhancing competitions; e) achieving judicial fairness and strengthening the compliance supervision. On March10,2013when the new round of the reforms of the Departments begins, the State Electricity Regulatory Commission was revoked and incorporated into the National Energy Board, restarting the reform of the power industry.However, the reform of the electricity spot market cannot succeed on its own in the reform of the electric power industry. According to the paper "the California electricity crisis:lessons to the developing countries" presented in the World Bank by John Besant-Jones and Bernard Tenenbaum (2001), with the gradual deregulation of the electricity market, both the suppliers and consumers are inclined to control the risks with forward contracts because substantial fluctuations will inevitably occur to the prices in the electricity spot market. In another word, with the background of the electricity market, both the suppliers and consumers of the electric power have a great demand for electricity financial derivatives. With the absence of electricity financial markets, the suppliers and consumers of the electric power will be exposed to the risk of sharp fluctuations in the spot prices. The lack of an effective means to control their risks will in turn hinder the reform of the electricity market. Consequently, how to build, improve and perfect the financial market for electricity in China has become an inevitable problem worth investigating to promote market-oriented reforms in the electric power industry.Following the question-analysis-solution logic, this thesis is devoted to presenting a systematic discussion about how to build, improve and perfect the financial market for electricity:In Section1, the questions worth concerning in the process are systematically raised as the basis for further discussion.Section2gives a detailed review of the relevant researches. Following the summarization of the evolution of the electricity market as well as the concept of financial market for electricity proposed in the literature, the trading patterns and the risk management in financial market for electricity are discussed and concluded. Finally the researches about the futures and options in the financial market for electricity are reviewed.Section3summarizes the current situation of the financial markets for electricity in the foreign nations, including the Nordic electricity financial markets、the European energy market、the PMJ energy market in United States, and other energy market around the world.In Section4, the course of the reform of the electricity market in China is reviewed. Three stages can be seen as "Breaching the state monopoly","Separating the administrative power from the enterprise " and "Breaking the monopoly by the market-oriented reforms". In Section5, the inevitability of establishing a financial market for electricity is shown to be the requirement of the market-oriented reform of the electric power industry. Two main aspects are of concern:First, establishing electricity markets has been the trend in the development of international power industries and is becoming the goal of the socialist market reform in China; Second, in the context of the market-oriented reform of the electric power industry, a financial market for electricity has to be established so that the function of financial derivatives can be effective, promoting the continuous improvement of the electricity market in China.Section6analyzes the characteristics of the electricity products and electricity market. To establish and improve the financial derivatives market for electricity, thorough understanding and recognition of the characteristics of the electricity products and electricity spot market must be achieved. Only on the basis of such analysis, the solution about how to further improve the financial market for electricity can be given. In this section it will be demonstrated that the electricity products have the characteristics of financial derivatives. This conclusion will help establish the financial market for the trading of electricity products.In Section7, the prerequisites for the construction of the financial market for electricity are presented. Firstly an electricity spot market should be established and then the auxiliary electricity market needs perfecting. Thirdly there should be a strict regulating system in effect for the environmental protection in the electric power industry. After the issues worth noting in the establishment of the financial market for electricity are raised, the principles for the trading mode design of the electricity financial derivatives in China are suggested by combining the experiences of the financial market for electricity in foreign nations and the actual situation of the development of electricity market in China.In Section8, based on the analysis in the previous sections, important conclusions are drawn in the this section along with a few policy recommendationsDue to the limited knowledge of the author, there may be errors and deficiencies in this thesis. Sincere thanks go to the evaluation committee and any correction is welcome!...