The CCP Central Committee and State Council Opinions on Accelerating the Construction of a National Unified Market were released on April 10 [2022]. This has, from an overarching and strategic perspective, clarified the overall requirements, main goals, and key tasks for accelerating the construction of a large unified national market. The Opinions emphasize that we must accelerate the establishment of the systems and rules for a unified national market, break down local protection and market segmentation, break through the key obstruction points that restrict economic circulation, promote the smooth flow of commodities, factors, and resources over a broader scope, and accelerate the construction of a large unified national market that features efficiency, standardization, fair competition, and full openness.

In an exclusive interview with Xinhua News Agency, the person in charge from the National Development and Reform Commission said that, in recent years, important progress has been made in the construction of a unified national market. The scale effect of a large unified market has been continuously emerging, the basic system has been continuously improved, market facilities have been linking at a greater pace, important steps have been made in the construction of the factor market, the consensus on building a large unified market has been continuously consolidated, and the concept of fair competition has been deeply rooted in the hearts of the people. However, it must also be noted that, in practice, there are still some problems that hinder the construction of a large unified national market. Market segmentation and local protections are relatively prominent, the construction of the factor and resource market is not perfect, the quality systems of the commodity and service market are not yet robust, the market supervision rules, standards, and procedures are not unified, the role of the super-large-scale market has yet to play its full role in technological innovation and industrial upgrading, and so on. Implementing the strategic deployment of building a new development pattern inevitably requires accelerating the construction of a large unified national market and smoothing the path of nationwide domestic circulation.

The Opinions call for “building a unified market for factors and resources,” and one of their key tasks includes building a unified national energy market. On the condition that we are effectively guaranteeing a secure energy supply, combined with the tasks and goals of achieving carbon peaking and carbon neutrality, we should make orderly efforts to promote the construction of the national energy market. On the basis of overall planning and optimizing the layout, we should improve the oil and gas futures product system, standardize the construction of oil and gas trading centers, and optimize the layout of key infrastructures such as trading venues and delivery warehouses. We should promote the interconnection of oil and gas pipeline network facilities and open them to all types of market players fairly. We should steadily promote the marketized reform of natural gas and accelerate the establishment of a unified natural gas energy measurement and pricing system. We should improve the multi-level unified electricity market system, and examine how to promote the establishment of a national electricity trading center at the appropriate time. We should further give play to the role of the national coal trading center and promote the improvement of a unified national coal trading market.

Effectively Resolving the Structural Difficulties of Sufficient Supply and Cost Control

Li Lei, head of the strategic research department of the Shanghai Petroleum and Natural Gas Trading Center, a national energy trading platform, provided The Paper with the following analysis: in the construction of a “large unified market” for energy, the oil and gas field is different from the electricity and coal fields. For the latter two, China can basically achieve self-sufficiency and the level of autonomy over market development and government supervision is relatively high. In contrast, Chinese dependence on external oil and gas exceeds 72% and 44% respectively, and it is necessary to take both the international and domestic markets into account. A “high external and low internal” price inversion will swallow up the profits of the import link and produce a situation wherein supply is tight. On the other hand, a “low external and high internal” price situation would lead to a large volume of imports, which would dampen the enthusiasm of China’s upstream oil and gas industry and would not be good for the healthy development of the domestic oil and gas industry.

Li Lei believes that the establishment of a unified national energy market can effectively resolve the structural difficulties of sufficient supply and cost control. “After a deviation between domestic and international prices, economics will drive the transition or substitution of energy demand among oil and gas, electricity, coal, and other energy sources thereby regulating oil and gas demand and dynamically achieving a balance between oil and gas import volumes and cost and domestic demand.”

How to find oil and gas prices in this large market is an important issue. Li Lei said that a large unified national market would include unified market transaction or trading rules, unified market infrastructure operating rules, and unified price formation mechanisms. Specific to the oil and gas market, the futures and spot markets system will be unified, combining the futures and spot markets. The regional markets will be unified with each other, but there is no clear requirement for a single market operating entity. In view of the current domestic situation, it is very much necessary to standardize the construction of oil and gas trading centers and establish a unified national oil and gas futures and spot market system. Resolutely putting an end to the “popping up everywhere” style of construction of local oil and gas trading centers will help to reduce homogeneous and vicious competition, break down local barriers, improve allocation efficiency for the cross-regional flow of resources, and form international price influence as quickly as possible.

Among these tasks, the establishment of a unified national spot market system is not as simple as setting the “same price” nationwide, but requires a comprehensive system that combines the whole and parts by adjusting measures to suit local conditions of different regions and achieving the unification of factor market rules and supervision. “The regional price reflects the real-time supply and demand situation in the region, while the national price index functions more to monitor, track, and forecast, reflecting changes in domestic and international supply and demand and providing a tool for the government and market entities to make advance deployments and responses and avoid extreme situations such as drastic market price fluctuations.”

Construction of the Unified National Electricity Market System is Accelerating

Previously, in the field of electricity, the construction of the unified national electricity market system had already begun, and it will be comprehensively accelerated during the 14th Five-Year Plan period.

The 22nd meeting of the Central Commission for Comprehensively Deepening Reform held in November last year pointed out that it is necessary to follow the laws of electricity market operation and the laws of the market economy, optimize the overall design of the electricity market, realize the sharing, mutual benefit, and optimized allocation of electricity resources over a greater scope around the country, and accelerate the formation of a unified and open electricity market system featuring orderly competition, security and efficiency, and sound governance. We must improve the multi-level unified electricity market system, accelerate the construction of the national electricity market, guide all levels of electricity markets at national, provincial (autonomous region, municipal), and regional levels to coordinate operations and develop in an integrated way, standardize and unify trading rules and technical standards, and promote the formation of a diversified and competitive electricity market setup.

In January this year, the National Development and Reform Commission and the National Energy Administration announced the Guiding Opinions on Accelerating the Construction of a National Unified Electricity Market System (hereinafter Guiding Opinions), which clarified that, by 2025, a unified national electricity market system will be initially formed and the coordinated operation of the national market and provincial (autonomous region, municipal)/regional markets will be realized. [It also made clear that] by 2030, the unified national electricity market system will be basically established, adapting to the requirements of the new type of electricity system and realizing the joint operation of the national market and provincial (autonomous region, municipal)/regional markets.

The National Development and Reform Commission expressed that, since the new round of electricity system reform, the construction of China’s electricity market has been progressing in a steady and orderly manner, the pattern of diversified and competitive entities has been initially formed, the role of the market in the optimized allocation of resources has been significantly enhanced, and the share of electricity represented by marketized transactions has increased significantly. At the same time, the electricity market still has problems such as incomplete systems, imperfect functions, inconsistent transaction rules, and market barriers in cross-province and cross-region transactions. The aforementioned Guiding Opinions were issued in order to accelerate the construction of a unified national electricity market system, realize the sharing, mutual benefit, and optimized allocation of electricity resources across a larger scope, improve the stability and flexible regulation capabilities of the electricity system, and promote the formation of a new type of electricity system that is suitable for China’s national conditions and has stronger new energy consumption capacity.

Feng Yongsheng, an associate researcher at the National Academy of Economic Strategy of the Chinese Academy of Social Sciences, wrote an article at the time, saying that, as the new round of electricity system reform has been ongoing for seven years, some experiences need to be summarized and some lessons need to be learned. Especially with the emergence of deep system and mechanism problems, the need of electricity system reform for policies featuring top-level design and systemic thinking is undoubtedly increasing. On the one hand, the inherent requirement for electricity market borders to go beyond administrative borders is becoming increasingly intense. On the other hand, we urgently need to form complete reform ideas for the allocation of electricity resources over large areas. The release of the Guiding Opinions indicates that the new round of electricity system reform will begin to adopt the overall idea of controlling the future reform direction of local pilots and promote the in-depth expansion of China’s electricity reform.

Chen Qixin, deputy dean of the Energy Internet Research Institute of Tsinghua University, believes that the unified national electricity market will form a complete electricity market system on a nationwide scale with full market coverage, fully compatible transaction timing, flexible transaction varieties, diverse market players, consistent basic rules, and unified transaction standards.

He says that China’s clean energy is mainly concentrated in the “Three North” [northeast, north central, northwest] areas. Due to the low load intensity of the surrounding areas and the limited overall consumption, we urgently need to allow the market to play a decisive role in optimizing the allocation of resources, use market price signals to guide the unified planning, scientific layout, and efficient utilization of clean energy, unify transaction rules and technical standards, break down market barriers, and achieve optimized allocation, sharing, and mutual benefit of electricity resources on a nationwide scale. At the same time, China is in a critical period of building a new type of electricity system. The increase in the penetration rate of clean energy has posed higher requirements for the comprehensive regulation capabilities of the electricity system and posed a challenge to the secure and stable operation of the electricity system. There is a need to further improve the composition of the electricity market system, unify the types and standards for the inclusion of diversified market entities, realize the integrated operation of sources, networks, loads, and storage using marketized means, fully incentivize the enthusiasm of market players to participate, release flexible regulation capabilities, and promote the linkage of balanced electricity system supply and demand and electricity market operational order. Judging from international experience, with the continuous deepening of marketized reforms and the continuous increase in the demand for optimized allocation of resources, on the basis of a steady expansion in the scale of market transactions, the scope of market transactions will gradually expand, and transaction behaviors will gradually become standardized.