Energy and Power Engineering, 2013, 5, 811-815
doi:10.4236/epe.2013.54B156 Published Online July 2013 (http://www.scirp.org/journal/epe)
Pricing Mechanism of China’s Trans-regional and
Trans-provincial Electricity Trading
Tian Xia1,2, ZhiYan Liu1 , Wei Xiong1, YongXiu He1
1School of Economics and Management, North China Electric Power University, Beijing, China
2Gansu Electric Power Corporation, Lanzhou, China
Received March, 2013
ABSTRACT
With the large-scale development of Chinese electric power, the contradiction of China’s energy supply and demand
that reverse distributed is very prominent, therefore, promoting electricity trading is one of the important measures to
get optimized configuration of energy resources in nationwide. For the two kinds of trading method, the “power point to
the grid” trading and the “grid to grid” trading, this paper designed pricing mechanism model, and took one area as an
example, we analyzed the impact of the participants by using differen t pricing mechanism, and put forward reasonable
policy proposals for China’s pricing mechanism of trans-regional and tran s-provincial electricity trading.
Keywords: Trans-regional and Trans-provincial; Electricity Trading; Pricing Mechanism
1. Introduction
China’s trans-regional and trans-provincial electricity
trading has increased year by year. While with the scale
enlargement of the trading, some problems happened: the
low level of marketization, the imperfect price mecha-
nism, and the unified pricing mechanism which is diffi-
cult to meet the interests and the needs of different trad-
ing regions and different trading participants, etc. The
formation of scientific price mechanism has important
significance to promote the development of power trad-
ing.
Literature [1] researches the pricing problems of Con-
tract for Diff erences (CFDs) in th e No rdi c po w er tr ad ing .
Through integrating the power market in South Asia Re-
gional, examining the opportunities, benefits, and chal-
lenges, Literature [2] promoted a trans-regional power
trading scenario model of South Asia, in this model, the
trans-regional power trading price is determined by b id ing .
The studies in Literature [3] show that the convergence
of power price can be induced by cross-border and
trans-regional electricity trading, and the re-allocation of
resources in various countries can be promoted by the
optimization of exchange volume and exchange price.
Based on the Markal model, Literature [4] assess the
effectiveness of the trans-re gional power trading between
Thailand and Laos, and pointed out that Thailand is ex-
pected to gain benefit from the increased level of power
imported from Laos in terms of the lower energy system
cost, better environmental quality and, greater diversify-
cation of energy sources. On the basis of an analysis on
the price mechanism and methods for power trading be-
tween trans-region or trans-provincial grids in China,
Literature [5] puts forward some policy recommenda-
tions for innovation of power trading price systems and
mechanisms in China from different aspects. The char-
acteristics of Chinese cross regional transmission trading
price framework are summarized in Literature [6], based
on that, the targets of Chinese cross regional trading
pricing are proposed, and suggestions on related price
framework and mechanism are put forward. Based on the
different power supply and demand situation, and the
power purchase cost, the price model in trans-regional
power consensual dealings, as well as price compliance
mechanism are established in Literature [7]. The feed-in
tariff, the transmission price, the line loss as well as the
sales price are discussed in Literature [8] on the basis of
different costs: long-term, medium-term, short-term,
accident support as well as spare power to each other.
Literature [9] considers that, ration al transmission pr icing
mechanism is a key issue for the development of cross
regional electricity trading. The application of the Nash
bargaining principle in trans-regional and trans-provin-
cial power trading is studied in Literature [10], aim for
maximize the overall effectiveness of the trade subject,
the Nash negotiation price model in trans-regional and
trans-provincial power trading have been established
perceptively.

T. XIA ET AL.
812
2. Design of Pricing Mechanism for
Trans-regional and Trans-provincial
Trading
2.1. Design of Pricing Mechanism for the “Power
Point to Grid” Trading
2.1.1. Pr i cing Mech an ism Based on the Operat ion
period Price
The operation period price, namely inspecting the annual
cash flow in project life cycle so as to meet certain finan-
cial internal rate of return, that is:
0
()(1)
nt
tt
t
NPVCI COiB



0
j
(1)
where is the net present value, t is the t-th
year inflow; t is the t-th year outflow; n is the de-
preciation life, i is internal rate of return, B is the total
investm e nt for uni t kW.
NPV CI
CO
The transmission pricing mechanism based on the op-
eration period price, namely taking the operation period
price as trading price, that is,
a
PP (2)
where a and P
j
P is the trading price for transmission
side and operation period price for generation companies
respectively.
2.1.2. P ricing Mechanism Base d on the Benc hm ark
Price of Coal-fired units of Power Accepted
Side
Currently, in China, benchmark price of coal-fired units
of power accepted side in each province (autonomous
regions and municipalities directly under the Central
Government) based on the operation period price, deter-
mined by the average cost of advanced generating sets in
the same period.
,aa
PPB
ag
(3)
where ,aB is the benchmark price of coal-fired units at
transmission side.
P
2.1.3. Pricing Mechanism Based on Consultation of
Incremental Power Proportion
The trading price of generator set can maintain the same
in utilization time, above that, the price can be set
through consultation, and the determination methods
include marginal cost pricing, etc. While, the ratio con-
sists of two parts: one is the charge proportion, and the
other one is the price ratio of negotiation. The pricing
model based on consultation of incremental power pro-
portion is as follows:

,,
1
aag
PKP KP    (4)
g
Q
KQ 
..
g
s
tQ Q (6)
where is the current tariff at the transmission side,
Kproportionality
,ag
P
is the power coefficient,

is the
1
consultation coef
(5)
ficient, and

,
g
Q is the
transmi quantity in the governments’ plan, Q is
the total transmission power.
ssion

is determined by negotiation en the two sides.
From Game theory and Pareto optimal theory we know,
betwe


, the optimal value of

, represent the equal
dem
incremental profit under negotiations, which being
adjusted according to national policies, power supply and
and. The incremental profit distribution is shown as
following formulas.
ab



 (7)
..st
  



,
()
()
aaj
bbBa
PP Q
PP

PPQ





(8)
where, and b


a


are the incremental p
transmde apted side respectively
the trading volume
rofit at
, Q is ission sind acce
, P

is the transmission price, P

is
ani of
rice Difference
Definition 1, “price pushed forward by market”: the price
Defy market”: the price
two minimum, genera-
tio
the line-rice.
2.1.4. Pri c ing Mechsm Based on C onsulta tion
Interests of P
loss p
is determined by the transmission side.
inition 2, “price pushed down b
is determined by benchmark price of coal-fired units mi-
nus the cost in transmission link.
In this mechanism, by locking the “price pushed for-
ward by market” and the “price pushed down by market”
at transmission side, based on the
n enterprise’s final trading price can be determined
through consultation of interests of price difference.
min ,
()
abBj
PPP PPP




 (9)


min ,
min ,()
jbB
PPPPP

 (10)
where is the minimum of “price pushed
market” aprice pushed down by market”,
benchmprice of coal-fired units at accepte
ion the
jointly consultation of both sides with considering the
k fac-
rket
In this mechanism, the trading price is determined by
ing
patter
min
P
nd “
ark
forward by
,bB
P is the
d side.
2.1.5. Pricing Mechanism Based on Negoti a t
In this mechanism, the trading price is determined by
market situation, the supply cost and the market ris
rs, etc.
2.1.6. Pr icing Mechanism Base d on Comp et itive
Ma
part or full market competition, which is, bid trad
ns.

T. XIA ET AL. 813
2.2. Design of the Pricing Mechanism for the
“Grid to Grid” Trading
For the “grid to grid” trading, it can also adopt the men-
ism
cing
princHowever, it is differ in
oned pricing mechanism except “Pricing mechan
based on the operation period price”, and the pri
iples are described as above.
incremental distribution, pricing mechanism at accepted
side based on consultation of interests of price difference
as well.
Incremental profit distribution of “grid to grid” trading
is shown in the following formula.
ab

  (11)
,
,
()
.. (
aaaB
bbBa
PP Q
st PPP


 


 

 (12)
)
Pricing mechanism at accepted side based on consulta-
tion of interests of price difference is shown in t
lowing formula.
PQ

 
he fol-
min, ,
()
abBaB
PPP PPP



  (13)

 
min, ,
min ,
aB bB
PPPPP

 (14)
3. Case Study
3.1. Basic Data
The “power point to the grid” trading took an energy
owns 2 × 600 MW coal-fired units,
y to A province as an example. For
consumption rate of power supply is
57 yu-
an
ing Mecha nism Based on the Operat ion
the en/kWh, according to formula
298
377
on
is
an
local b
-
n
base plant, which
transmits electricit
this plant, the coal
345 g/kWh, unit annual utilization hours is 5000 h, coal
price is 140 yuan/ton, and ROI is 8%. We assume that
transmission price is 0.0623 yuan/kWh and line-loss
price is 0.0167 yuan/kWh. Then analyzing the effect on
main participants by using energy base plant electricity
substitute for local one, the replacement ratio between
1%-3% and 0.5% alternative electricity each increase, on
the basis of the total electricity purchase in 2011.
The “grid to grid” trading took provinces like B and C
transmit electricity to A province as an example. The
benchmark price of coal-fired units in these areas are: A
province is 0.4142 yuan/kWh, B province is 0.40
/kWh, c province is 0.3179 yu an/kWh. We assume that
transmission price in province “B to A” “C to A” is 0.03
yuan/kWh and 0.02 yuan /kWh, respectiv ely. We also use
alternative methods to analysis the effect on main par-
ticipants.
3.2. Measurement Results on the “Power Point to
the Grid” Trading
3.2.1. Pr i c
Period price
By formula (1), the operation period price of this plant in
nergy base is 0.298 yua
(2), price at the power transmission side is 0.
yuan/kWh, and the power accepted side is 0.
yuan/kWh which is 0.0372 yuan/kWh lower than local
benchmark price of coal-fired units.
For the power transmission side, that its trading price
is 0.0963 yuan/kWh lower than local benchmark price of
coal-fired units by using this pricing mechanism, not
only does it guarantee a reasonable return of investment,
but also helps to improve the level of electricity trading,
so as to gain more profit. For the power accepted side
under this pricing mechanism, when the replacement
ratio is between 1% and 3%, the average electricity pur-
chase price could drop 0.07 - 0.21 percent, that the de-
cline in the cost of power purchase is very significant.
3.2.2. P ricing Mechanism Base d on the Benc hm ark
Price of Coal-fired units of Power Accepted
Side
According to formula (3), price at the power transmissi
side is 0.3179 yuan/kWh, at the power accepted side
0.3969 yuan/kWh which is 0.0173 yuan/kWh lower th
enchmark price of coal-fired units.
For the power transmission side, if it uses this price as
its trading price, the plant would probably reduce its
trading size, so as to influence its profit. For the power
accepted side under this pricing mechanism, when the
replacement ratio is between 1% and 3%, the average
electricity purchase price could dro p 0.03 -0 . 10 pe rce nt.
3.2.3. Pricing Mechanism Based on Consultation of
Incremental Power Proportion
It can be seen from formula (4) - (6) that this mechanism
is related with consultation coefficient as well as re
placement ratio of electricity. Thus, according to formula
(7) - (8), we measured the price in different consultatio
coefficient as well as replacement ratio at the power
transmission side under this pricing mechanism, and the
result is shown in Table 1.
For the power transmission side, the essence of this
mechanism is to reduce its trading price to get more elec-
tricity deal, and certain conditions such as improving unit
annual utilization hours could th e plant gain a lot of prof-
it. For the power accepted side under this pricing mecha-
nism, when the consultation coefficient is between 0.7 -
0.9 and the replacement ratio is between 1% and 3%, the
average electricity purchase price could drop 0.04 - 0.08
percent. The smaller the consultation coefficient is, the
greater the average electricity purchase price would fall.
3.2.4. Pricing Mechanism Based on Consultation of
Interests of Price Difference
By formula (10) we get the result: Pmin=Pj , that is 0.298
yuan/kWh. As described above, the optimal value


of

T. XIA ET AL.
814
side and accepted side is shown in Table 3.

is 0.5, according to formula (9), price at the pow
ission side is 0.3166 yuan/kWer transmh, at the power ac-
ricing Mechanism B ase d o n the Bench mark
das transmit electricity to A province, ac-
n
Price at the power accepted side, when electricity is
provided by B province, is 0.0215 yuan /kWh higher than
local benchmark price of coal-fired units; while when
electricity is provided by C province is 0.0763 yuan/
kWh lower than local benchmark price of coal-fired units.
By contrast, this mechanism makes C province more
competitive in the power trading.
cepted side is 0.3956 yuan/kWh. Taking the changes in
market supply and demand into account, the result of
nsultation may be fluctuated by optimal consultation
coefficient. Therefore, we measured the price in different
consultation coefficient and the result is shown in Table 2.
For the power transmission side, the trading price is
0.0043 - 0.0149 yuan/kWh higher than local benchmark
price of coal-fired units, this part is excess profit of en-
ergy base plant. For the power accepted side, when the
co
co
As
For the power accepted side, when electricity is pro-
vided by C province and the replacement ratio is between
1% and 3%, the average electricity purchase price could
drop 0.2 - 0.6 percent.
nsultation coefficient is 0.5 and the replacement ratio
is between 1% and 3%, the average electricity purchase
price could drop 0.04 - 0.11 percent. The higher the re-
placement ratio, the greater the profit gained by both
sides.
3.3. Measurement Results on the “Grid to Grid”
Trading
3.3.1. P
3.3.2. Pricing Mechanism Based on Consultation of
Incremental Power Proportion
According to formula (9 ), when electricity is provided by
B province, the measured consultation coefficient is
greater than 1, that is conflict with the constraint of
1


due to B’s benchmark price is higher than A’s
after deducing transmission costs.
According to formulas (4) - (8) we measured the price
in different consultation coefficient as well as replace-
ment ratio at the power transmission side under this
pricing mechanism when electricity is provided by C
province, and the result is shown in Table 4.
Price of Coal-fired units of Power Accepted
Side
ifferent are
cording to formula (3), price at the power transmissio
Table 1. The price based on the consultation of incremental power proportion Unit: yuan/ kWh.
0.8 0.9 Consultation Coefficient 0.7
Replacement Ratio transmission side accepted side transmission sideaccepted side transmission side accepted side
1.0% 0.3076 0.3866 0.3110 0.3900 0.3145 0.3935
1.50.3921
0.2992 0.3782 0.3055 0.3845 0.3177 0.3907
% 0.3032 0.3822 0.3081 0.3871 0.3131
2.0%
2.5% 0.2956 0.3746 0.3031 0.3821 0.3105 0.3895
3.0% 0.2923 0.3713 0.3099 0.3799 0.3094 0.3884
le 2. The calce results based on the fference cions UnitkWh.
Consultation Ct 0.5 0.
Tabulated pricprice dionsultat: yuan/
oefficien0.4 6
Price at transme 0.3166 0.3ission sid0.3129 023
Price at accepted side 0.3919 0.3956 0.3993
Taon the benchmark price at power transmission sidit: yuan/ kWh.
ided by B province Provided by e
ble 3. The price based e Un
Measured Price ProvC provinc
Price at transmission side 0.4057 0.3179
Piece at accepted side 0.4357 0.3379
Table 4. T on the consultation of incremion Unit:
Consultation Coefficient 0.
he price basedental power proportyuan/ kWh
0.7 8 0.9
Replacement Ratio accepted side transmission sidetransmission side transmission side accepted side accepted side
1.0% 0.3363 0.3131 0.3331 0.3147 0.3347 0.3163
1.5%0.3356
0.3088 0.3288 0.3118 0.3318 0.3149 0.3349
0.3109 0.3309 0.3132 0.3332 0.3156
2.0%
2.5% 0.3068 0.3268 0.3105 0.3305 0.3142 0.3342
3.0% 0.3048 0.3248 0.3092 0.3292 0.3135 0.3335

T. XIA ET AL. 815
For ther accepted sr this pricing mecha-
nism, whnsultatiocient is between 0.7 -
0.9 and thlacement ratio is between 1%, the
ge e purchasecould dro0.17
e
u-
ed
l and trans-provincial
electricity trading. For the “power point to the grid”
id to grid” trading, in this paper
anism can be used as a useful transition.
cknowlents
ork descin this papeppor the
(Grant No.
71273089) and Beijing Natural Science Foundation of
olicy, Vol. 32, No. 9, 2004, pp.
1075-1085. doi:10.1016/S0301-4215(03)00065-X
poweide unde
en the con coeffi
e rep and 3%
avera
plectricity price p 0.15 - rcent. The smaller the consultation coefficient is, the
greater the average electricity purchase price would fall.
3.3.3. Pricing Mechanism Based on Consultation of
Interests of Price Difference
As the price difference between C province and A prov-
ince is larger, we measured that price at the power trans-
mission side is 0.3560 yuan/kWh which is 0.0382 y
an/kWh lower than local benchmark price of coal-fir
units, at the power accepted side is 0.3760 yuan/kWh
which is 0.0382 yuan/kWh lower than local benchmark
price of coal-fired units.
For the power accepted side, when the consultation
coefficient is 0.5 and the replacement ratio is between
1% and 3%, the average electricity purchase price could
drop 0.10 - 0.30 percent. The higher the replacement
ratio is the greater profit it gained.
4. Conclusions
Establish a reasonable pricing mechanism is one of the
core issues in China’s trans-regiona
trading and the “grwe
draw the conclusions as follows:
1) The pricing mechanism based on operation period
price ensures the power generation companies’ recovery
of the cost, is the most competitive trading price com-
pared to other pricing mechanism of “power point to the
grid” trading, thus, it is suitable for energy base power
trading.
2) The pricing mechanism based on consultation of
incremental power proportion considers the fairness of
the planned trading and the flexibility of the unplanned
trading benefit both sides at the same time. It is suitable
for the “grid to grid” trading.
3) As for the pricing mechanism based on consultation
of interests of price difference, its essence is the reason-
able distribution of the price difference and suitable for
the “grid to grid” trading.
4) The pricing mechanism based on negotiation as
well as the pricing mechanism based on competitive
market could reflect the actual market situation better,
thus they apply to the electricity trading at the mature
stage of the market. Before that, the above pricing
National Natural Science Foundation of China
mech
5. Aedgem
The wribed r was suted by
China (Grant No.9122022)
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