Market mechanism is the key to the development of virtual power plant

Virtual power plant is a key business form mentioned in several recent national policy documents, which is of great value in the construction of new energy system and the safe and stable operation of electric power system. Based on the national strategic deployment and aiming at the research frontier, the State Grid Energy Research Institute set up the "Virtual Power Plant Research Team" to review the relevant situation at home and abroad. On the development prospect, core technology, business model and other key issues of consideration and summary, strive to achieve research results, promote all parties to form consensus, service virtual power plant into the overall situation of energy security and green and low carbon development, to achieve healthy and fast development.

Virtual power plant construction

"Thunder is loud, rain is small"

Under the background of new power system construction, new energy is booming, and the peak load on the load side continues to increase, making it increasingly difficult to match the power generation and demand. In this context, virtual power plant has attracted more and more attention, especially this year, the power supply in many parts of the country is tight, the concept of virtual power plant continues to be popular, the energy authorities believe that virtual power plant is an important way to explore the system adjustment capacity and ensure the safe supply of electricity, power grid enterprises believe that virtual power plant can smooth the load curve, conducive to the power grid operation. Energy service providers believe that virtual power plant is a new model, a new business form, need to be laid out in advance.

Reviewing the development history of virtual power plant, it is not difficult to find that virtual power plant is not a new concept. It can be traced back to 1997, and foreign virtual power plant is relatively mature and perfect in the aspects of policies and regulations, market mechanism and technical means. China's comprehensive policies, such as the Action Plan for Achieving the Carbon Peak before 2030, the 14th Five-Year Plan for Modern Energy System, and Opinions on Improving the System Mechanism, Policies and Measures for the Green and Low-carbon Energy Transition, have proposed to guide virtual power plants and other resources to participate in the system adjustment from different aspects. Guangdong, Shandong, Shanxi and other provinces have also issued special documents for virtual power plants or put forward requirements for virtual power plants in demand response policy documents.

Compared with the popularity of the concept of virtual power plant and the frequency of favorable policies, the construction of virtual power plant is slightly quiet. So far, only Hebei, Shanghai, Shandong, Zhejiang and Henan provinces have carried out pilot construction, with a total capacity of only 3 million kW. Most virtual power plants only participate in the policy demand response through invitation and bidding, and their profit sources depend on special cost subsidies from government departments. Only the virtual power plants in Northern Hebei, Hebei and Shandong intermittently participate in the local peak regulating auxiliary service market, and the market scale is relatively small. The reason is that there is great uncertainty in the profitability of the virtual power plant, and one of the keys to the profitability is that the virtual power plant participates in the power market mechanism.

Table 1 Scale of virtual power plant and market participation

(State Grid Operation Area)

Problems faced by virtual power plant participation in the market

Since the release of Zhongfa 9th article, China's electricity marketization reform has been further promoted. The whole market system structure has been initially formed, covering inter-provincial and intra-provincial spatial scope, multi-year, annual, monthly, and intra-month medium and long-term trading and spot trading before and after days, and covering electric energy, auxiliary services, contracts, renewable energy absorption weight and other trading types on the trading objects. Medium - and long-term market, including medium - and long-term bilateral transactions, monthly centralized transactions, inter-provincial delivery transactions, contract transfer transactions, etc. In the spot market, the first batch of eight provincial-level spot markets have launched trial operations, and the second batch of six spot markets have launched simulated trial operations. The inter-provincial spot market has been put into operation. In terms of auxiliary service market, a regional and provincial auxiliary service market system with peak regulating, frequency regulating and standby trading varieties as the core has been formed.

At the beginning of this year, the National Development and Reform Commission issued the Guiding Opinions on Accelerating the Construction of a National Unified Electricity Market System, proposing that "new market players such as user-side adjustable load resources, energy storage, distributed energy and new-energy vehicles should be guided to participate in market trading, and the flexible regulation capacity of the user-side should be fully stimulated and released". Recently, the National Energy Administration released the Basic Rules of the Electricity Spot Market (Draft for Comments), proposing to "promote the participation of emerging market players such as energy storage, distributed generation, load aggregators, virtual power plants and new energy micro-grids in the trading." With the deepening of electric power marketization construction, the market has become the main means of resource allocation, and whether the virtual power plant can "catch" the fast train of the market will become the key to the promotion of the virtual power plant. From the current point of view, the virtual power plant wants to enter the market and profit still faces the following difficulties.

First, the market positioning and market access standards of virtual power plants are not clear. In terms of market positioning, due to the diversity of aggregated resources of virtual power plants, there are usually multiple market positioning such as power generation enterprises, power selling companies and power users. Different market positioning determines the types and strategies of participating in the market, and they enjoy completely different rights and obligations. In terms of market access, the National Energy Administration has promulgated the new version of "Two Detailed Rules" at the end of 2021, which clearly regards virtual power plants as a type of grid connection entity and market participants of auxiliary services. However, the market rules for access auxiliary services of virtual power plants in various regions are still not perfect, and there is still a lack of unified standards for virtual power plants in terms of capacity scale and response time.

Second, the power market to all kinds of emerging players acceptance degree is not enough. Although we have carried out the spot market pilot, basically established the two-level market structure of inter-provincial + intra-provincial, and established the medium - and long-term + spot electricity energy market and auxiliary service market, the participation of emerging market players such as virtual power plants is relatively limited. At present, virtual power plants only participate in the auxiliary service market of peak management. Because the virtual power plant has the characteristics of power generation and load, the spot market in most provinces is a unilateral market on the power generation side, and the virtual power plant cannot participate in or can only participate in the price taker, which cannot reflect the flexible regulation value of the virtual power plant. In terms of participation in medium - and long-term, capacity compensation (market), there is no relevant mechanism.

Third, the auxiliary service market is small and the varieties are few, it is difficult to reflect the value of virtual power plant. In terms of market size, the total cost of the auxiliary service market in China accounts for about 1.5% of the total electricity cost of the whole society, and the international general proportion is 3%. Some countries, such as Britain, spend more than 10% on auxiliary services. In terms of product types, the main trading varieties of auxiliary service market in China are peak regulation. Frequency modulation and standby auxiliary services are carried out in some regions or provinces, and there is a lack of auxiliary service varieties such as voltage support, black start, slope climbing and peak regulation capacity. The FM market has not been further subdivided in terms of response speed.

On the participation of virtual power plants in the electricity market

Thinking about mechanism design

Differentiated and clear market access standards

If virtual power plants aggregate distributed resources, energy storage, adjustable load and other resources to participate in medium - and long-term, spot, auxiliary services and other transactions in the aggregate mode, the corresponding market access conditions should be established, and the access conditions should be set according to technical indicators, economic relations and capabilities, without considering the specific resource types. Market access standards shall be differentiated according to the classification of response characteristics, response time, response speed, response performance, capacity size and other indicators and technical characteristics.

(1) Participate in medium - and long-term markets

Market access requirements: As a "power producer", virtual power plants must meet the basic access conditions for power generation enterprises and power selling companies in local power market operation rules, including but not limited to independent legal person qualification, independent financial accounting, qualified credit evaluation, able to independently bear civil liabilities, registered capital, the number and proportion of professional and technical personnel requirements. At the same time, it also needs to sign power supply agreements with grid enterprises.

Technology access criteria: the virtual power plant shall have smart meters, and the various decentralized adjustable resource subjects aggregated by it shall have accurate power curve recording function, or the virtual power plant itself shall meet the above conditions; The virtual power plant also needs to have two-way communication function, which can submit declaration information to the trading platform, receive market trading information and dispatch order information issued by the trading platform or dispatch platform.

(2) Participate in the spot market

In addition to meeting the basic access conditions, specific requirements such as speed adjustment requirements, time-sharing metering and access conditions for technical support systems should also be met. Generally speaking, the total installed capacity/total load after virtual power plant aggregation is the sum of the effective capacity of all kinds of distributed power sources aggregated, which is generally no less than 1MW. Virtual power plants also need to participate in the spot market declaration of two-way communication conditions, with the corresponding technical support system.

(3) Participate in the ancillary service market

On the basis of meeting the basic access conditions, the technical conditions to be met by the virtual power plant are strictly determined according to the different technical requirements of different auxiliary service trading varieties such as frequency modulation, reserve, moment of inertia and climbing in terms of response speed, adjustment rate, response time and response time. Generally speaking, the effective capacity of virtual power plant after the aggregation of various distributed power sources is not less than 5MW, and the flexible adjustment ability is not less than 1MW, the response speed is not less than 15 minutes, and the response duration is not less than 1 hour.

(4) Participate in the capacity market

On the basis of meeting the basic access conditions, and in accordance with the unified capacity market access requirements, the effective capacity of the virtual power plant is verified by considering the output characteristics, natural resources, regulation capacity, maintenance and shutdown, accident and failure and other factors of the virtual power plant, so as to objectively reflect the actual contribution of the virtual power plant to the capacity of the power system.

Clear participation paths for sub-market types

(1) Medium - and long-term market

Recently, virtual power plants can choose whether to participate in the medium - and long-term market according to the market construction. On the one hand, the characteristics of the virtual power plant determine that it mainly participates in the regulatory market for profit. On the other hand, the relevant rules of the virtual power plant participating in the medium and long-term market are not perfect.

In the medium and long term, virtual power plants participate in the medium and long term electricity market in a manner similar to that of power generation enterprises, large users and power selling companies, etc. Virtual power plants as unified market players participate in the medium and long term electricity transactions, including annual, monthly, multi-day and other time scales, bilateral negotiations, centralized transactions and other medium and long term transactions. In medium - and long-term trading, basic information such as trading price, trading curve, unified settlement point and deviation treatment should be specified in accordance with national policy requirements and medium - and long-term market rules.

(2) Spot market

Recently, virtual power plants can choose whether to participate in the spot market according to the situation of market construction. The reason is that virtual power plants are both generators and power users. Recently, the mechanism of user-side participation in the spot market is not perfect, and only some power users in Gansu can participate in the spot market by quantity quotation.

In the medium and long term, with the improvement of the user-side participation in the spot market mechanism, virtual power plants, as a unified market entity, participate in the spot market of electricity, including the centralized bidding in the spot market of electricity in various time scales, such as day before, day after day and real time. According to the clearing results of the spot market, the time-share clearing price and the clearing quantity of the pre-day, intra-day and real-time market are formed. As the main body of the unified market, the virtual power plant shall bear the responsibility of deviation settlement and the apportionment of the relevant market operating costs according to the rules of the spot market and supporting rules.

(3) Auxiliary service market

Recently, on the premise of meeting the technical access requirements of the auxiliary service market, virtual power plants can participate in the market trading of the corresponding varieties of auxiliary services, mainly in the backup auxiliary services of peak regulation and frequency modulation.

In the medium and long term, with the improvement of flexible adjustment ability of virtual power plants, the trading varieties of auxiliary services involved in virtual power plants can be further expanded and innovated, including new varieties of auxiliary services such as moment of inertia and climbing.

(4) Capacity market (compensation)

Recently, because the power market mechanism is not perfect, the capacity compensation mechanism is mainly fixed price. Virtual power plants allocate or share capacity costs according to the effective capacity approved by the competent energy authority. If the effective capacity is greater than 0, the corresponding capacity compensation cost can be obtained according to the fixed capacity compensation price. If the effective capacity is less than 0, the virtual power plant should bear the transmission allocation of the corresponding proportional capacity compensation cost according to the absolute value of the effective capacity.

In the long run, with the establishment and improvement of capacity market mechanism, virtual power plants will participate in capacity market bidding based on verified effective capacity.

We will continue to improve the market for ancillary services

First, innovate the variety of auxiliary services to fully reflect the value of regulatory resources. With the continuous increase of the proportion of new energy, the power market of various countries is actively exploring the introduction of new auxiliary service trading varieties such as climbing products, system inertia, fast frequency modulation, etc., to meet the system's demand for power with fast climbing ability and good regulatory performance, and fully reflect the value of regulatory resources.

Second, we will expand the scope of participation of market entities in auxiliary services and lower the threshold for participation of emerging market entities. With the construction of new power systems, emerging market players such as virtual power plants continue to emerge. In order to further tap the flexible adjustment ability of power systems, the technical threshold of various auxiliary services should be further lowered and clarified, and emerging market players should be included in the scope of participation, so as to lay a solid foundation for emerging market players to extensively participate in the auxiliary service market.

Third, promote the construction of auxiliary service market according to local conditions and strengthen the coordination and connection with the spot market. With the construction of the electric power spot market, the mechanism of auxiliary service market is designed according to local conditions, and the connection with the electric power spot market is realized through clearing alone or joint clearing, which effectively stimulates the flexibility and regulation of the resources to participate in the auxiliary service market.

conclusion

With the deepening of electric power marketization reform, promoting the participation of virtual power plant in electric power market is not only an important way to improve the electric power market system, but also a key to the future development of virtual power plant. To promote the participation of virtual power plants in the market, it is necessary to clarify the market positioning, access and types of participating markets, optimize and improve the trading mechanism of various market segments based on the aggregation characteristics of virtual power plants, and promote the virtual power plants to participate in various market transactions in a flexible way, so as to fully stimulate the vitality of virtual power plants and innovate their business models, and promote the wide application and practice of virtual power plants.