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A satellite view of the Baihetan Dam, under construction on the Jinsha River in Yunnan provence, February 4, 2020.

CNES/Airbus, used with permission


China Trading Power: Improving Environmental and Economic Efficiency of Yunnan’s Electricity Market

| March 2021

In this report, we propose a market reform pathway for Yunnan that is both feasible and applicable to address some of these challenges immediately, while aiming for a standard design based on well-documented international experience. Our proposal includes at its heart a pay-for-performance monthly capacity auction that can help cover revenue deficiencies in the energy market. Building on international experience with capacity markets, this approach provides incentives for availability when generation is needed most and is compatible with the adoption of a single energy market for all electricity resources. Out-of-market payments to cover stranded costs of certain firms can thus be minimized. Finally, engaging consumers in both these energy and capacity markets can create high-powered incentives to shift consumption to low-cost months and hours, benefitting the entire province.