Sunshine Power’s Cao Renxian: Advocating for the Development of Futures Contracts Tailored to Renewable Energy Generation Characteristics
During this year’s National People’s Congress, Cao Renxian, the Chairman of Sunshine Power Co., Ltd., made significant suggestions regarding the improvement of the national unified electricity market and the promotion of the internationalization of the carbon market. Since the latest round of electricity system reforms, departments such as the National Development and Reform Commission and the National Energy Administration have achieved remarkable results in building a nationwide electricity market system through policy guidance and market optimization.
Recently, a notice on deepening the market-oriented reform of renewable energy feed-in tariffs was released, indicating that China’s renewable energy generation is transitioning from guaranteed purchases and orderly market entry to a comprehensive market entry phase. This marks a significant step forward in the construction of the national unified electricity market.
Cao Renxian highlighted that the rapid development of renewable energy generation is bringing new challenges to the construction of the national unified electricity market, especially as the new power system is being developed swiftly. By the end of 2024, the installed capacity of renewable energy generation, primarily from wind and solar, is expected to reach 1.45 billion kilowatts, surpassing that of thermal power for the first time. The large-scale integration and market trading of renewable energy impose higher demands on the electricity system’s regulatory capacity and exacerbate fluctuations in spot electricity prices, posing substantial challenges for risk management, particularly for renewable energy companies.
Moreover, current market mechanisms face issues such as insufficient cost transmission, barriers to inter-regional trading, and inadequate reflection of green value. “These problems not only hinder the marketization of renewable energy but also restrict the overall efficiency of the electricity market,” Cao stated.
To effectively mitigate the investment risks associated with fluctuations in spot electricity prices and to facilitate the smooth flow of electricity factors, Cao Renxian proposed three key recommendations. He suggested advancing the development of the electricity futures market in line with China’s national conditions, leveraging the futures market’s capabilities in price discovery, risk management, and resource allocation optimization.
Cao proposed the establishment of electricity futures exchanges in renewable energy-rich regions such as Northwest China or economically developed areas like the Yangtze River Delta and the Pearl River Delta. Additionally, he recommended exploring the addition of electricity futures varieties in existing exchanges and conducting pilot trading to accumulate experience before expanding the trading scope.
He emphasized the importance of creating a diverse range of futures contracts that cover different regions, load characteristics, and delivery cycles, gradually broadening the participant base to enhance market activity. Furthermore, he called for strengthening the coordination between the electricity futures market and the spot and medium-to-long-term markets.
Considering the current state and trends of renewable energy development in China, Cao proposed developing contracts specifically suited to the characteristics of renewable energy generation once the electricity futures market is established. These contracts would help hedge against spot market price risks while providing clear long-term price expectations for the renewable energy industry, guiding companies to adjust their capacity investment rationally and avoid issues related to blind investments leading to project concentration and supply-demand imbalances, thereby enhancing the green value of the futures market.
Specifically, he recommended developing hourly (e.g., peak solar generation periods) and seasonal (e.g., high winter wind generation periods) futures contracts tailored to the characteristics of wind and solar generation. For regions with existing similar contracts in the medium-to-long-term market, matching renewable energy futures contracts should be developed.
Additionally, he suggested continuing to research green certificates/green electricity futures that are directly linked to identifiable power sources (e.g., wind, solar, hydro) and are backed by guarantees from relevant institutions. By using the futures market as a bridge, this would accelerate the mutual recognition of domestic and international green certificates, enhance the green premium for China’s renewable energy generation, and establish a robust risk prevention mechanism for the electricity futures market to promote stable market operations.
