What is fixed peak-valley electricity pricing?
The purpose of peak-valley electricity pricing is to guide people to use electricity during off-peak hours, reduce the power grid’s supply pressure during peak periods, maintain grid stability, and define fixed peak and off-peak periods based on the electricity consumption habits of each province.
Ten years ago, when photovoltaic (PV) installations accounted for less than 1%, peak electricity periods in some provinces were 9:00 AM to 12:00 PM, 1:00 PM to 5:00 PM, and 7:00 PM to 9:00 PM. Off-peak electricity was from midnight to 8:00 AM, and the rest of the time was considered normal electricity.
Currently, PV installations have reached 30%, and the off-peak electricity periods for PV power generation now overlap with peak periods. In most provinces, the off-peak electricity periods for PV power generation are between 11:00 AM and 2:00 PM.
The shortcomings of fixed peak and valley periods
The established peak-valley electricity pricing periods for photovoltaic (PV) power seem reasonable, but they also have shortcomings. On sunny days, peak PV power generation coincides with off-peak pricing. However, weather is unpredictable, with sunny days, rainy days, and cloudy days, resulting in varying PV output.
Furthermore, the lack of a flexible adjustment mechanism for such a large installed capacity of PV power can lead to a misalignment between peak electricity demand and encouraged power generation periods, resulting in a supply-demand mismatch and further grid overload.
Currently, energy storage systems are rapidly developing. If it rains, PV power generation is low, coinciding with peak electricity demand during off-peak pricing periods. This can cause businesses to increase their load during these times, triggering charging of energy storage systems, further increasing grid load. Without timely dispatching, this could lead to grid disconnection and major blackouts.
Fixed peak-valley electricity prices lack flexibility in adjustment, so it is necessary to abolish them. From this perspective, the current fixed peak-valley electricity prices in many provinces are a transitional electricity pricing policy, and they will inevitably be abolished in the future.
Market-based electricity pricing will replace fixed peak-valley pricing
China’s photovoltaic power pricing mechanism was only abolished on June 1st of this year. The operation of market-based pricing has not yet been fully refined and requires a transition period. Therefore, fixed peak-valley pricing is a relatively good transitional pricing policy.
You might ask if there is a reference point for fully market-based electricity pricing. Personally, I think Australia is a reference point, as shown in the following figure.
As shown in the graph above, the spot market electricity price in Australia is a fluctuating price. Peak and off-peak prices are generated through market transactions, but these prices are not fixed; however, they follow certain patterns.
Without fixed peak-valley electricity prices, how can energy storage operate profitably?
Fixed peak-valley electricity prices are the most important reference for the charging and discharging strategies of energy storage systems. Without fixed peak-valley prices, how can energy storage operators operate their assets to achieve profitability?
Personally, I believe that energy storage operators need to fully understand the power operation conditions in their region. Even without fixed peak-valley prices, there are certain patterns in peak-valley pricing, and operators can operate their energy storage systems according to these market patterns.
Actively participate in power grid dispatch
The more market-driven the power grid, the more unpredictable the fluctuations in electricity prices and demand. To maintain grid stability, market electricity prices are reported higher during peak consumption periods and off-peak periods, allowing power generation companies to sell electricity at higher prices during these times.
Signing Long-Term Power Supply Agreements with Major Electricity Consumers
Greater electricity price fluctuations are detrimental to both power generation and consumption companies.
For energy storage operators, it’s impossible to predict when the peak market price will be reached during periods of high electricity prices. Whether the energy storage system can fully utilize its capacity during these periods, and insufficient discharge, will impact profitability.
For electricity consumers, stable electricity supply allows for the consistent execution of planned production schedules. Excessive price fluctuations disrupt these plans, affecting production and business operations.
In the future, with the power grid managing the power pipelines, power generation companies will collect electricity management fees, power passage fees, and transmission congestion fees. Power generation companies and consumption companies can then sign power purchase agreements, thereby achieving stable revenue and electricity supply.
Becoming a Power Virtual Operator
While single-unit energy storage can achieve stable returns in a market with fluctuating electricity prices and demand, becoming a power virtual operator (MVNO) is a good approach. This involves aggregating solar power, energy storage, charging stations, and industrial loads to create a “virtual power plant” that participates in grid dispatch or the electricity market, thereby achieving higher returns.