China will expand its pilot power trading reforms to more regions, a senior NDRC official said Wednesday, a move that in the longer term is expected to help make carbon trading a more efficient tool to cut emissions in the electricity sector.

As part of the reform, power trading platforms are being set up that allow buyers to purchase power directly from generators at prices they set themselves.

The work to set up the platforms has started and they will be rolled out to new regions in the future, Lian Weiliang, vice chairman of the NDRC, told reporters in Beijing, although he did not specify which ones.

After the State Council in March issued a policy statement on the planned power market reforms, Shenzhen, Inner Mongolia, Zhejiang and Yunnan were mentioned in local media as early pilot regions.

The plan is to move away from the current inefficient system, where the government sets the price and merit orders are decided by local mandates and often negotiated annually.

Observers have warned that China’s national carbon market, which will be the country’s primary tool to cut CO2 emissions from 2020, will have a limited impact on power sector emissions unless the electricity market is reformed.

Generators will not have the opportunity to pass the carbon cost on to their customers if the government sets the retail price, and a price signal aimed at boosting clean energy sources would be ineffective in a system where merit orders are set up to a year in advance.

“If these reforms lead to a system where dispatching takes place on the basis of costs, rather than annually predetermined running hours, it would allow the carbon price to work as intended by altering the dispatching order towards cleaner plants,” one analyst told Carbon Pulse in March.

By Stian Reklev – stian@carbon-pulse.com

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