CITIC SEC: Improve policy and set standards for direct connection fees for green electricity, optimistic about the advantages of operators and power informatization service providers.

CITIC SEC released a research report stating that green electricity direct connection projects with high load rates and strong regulation capabilities can improve their economic viability by reducing transmission and distribution costs under current policies. Therefore, green electricity direct connection projects built relying on high-quality load resources can simultaneously meet the demands of users for carbon reduction and cost reduction. For power generation companies, in the current market environment with increased marketization and integration pressures, stable electricity prices, good integration conditions, and attractive returns can attract investment from operators. It is recommended to focus on leading new energy and incineration power generation operators with strong capabilities in obtaining high-quality resources and outstanding operational capabilities, as well as information service providers benefiting from the entry of green electricity into the market and driving changes in the electricity market. Key points from CITIC SEC: Event: Recently, in order to promote the closer integration of new energy sources, the National Development and Reform Commission and the National Energy Administration jointly issued the "Notice on Improving Price Mechanisms to Promote the Closer Integration of New Energy Power Generation," further clarifying the charging standards for transmission and distribution fees, system operation fees, and other security fees that green electricity direct connection projects should bear. Green electricity direct connection projects need to pay transmission and distribution fees and system operation fees to reasonably bear the supply security costs. The "Notice" states that if a new energy power generation project integrated into the public grid, it will be considered as enjoying stable supply security services provided by the grid based on its connection capacity, meaning that green electricity direct connection projects need to pay for stable supply security costs. The stable supply security costs mainly include two parts: 1) Transmission and distribution fees: Green electricity direct connection projects need to pay capacity-based charges, calculated as the current capacity-based charges paid under existing policies + the current electricity price standards for the voltage level the average load rate of users above 110kV within the province hours of use capacity of connection to the public grid. The first part is consistent with the capacity-based charges that users need to pay directly to the grid for purchasing electricity, while the second part involves paying for electricity based on the load rate corresponding to the average user electricity consumption within the province; fees for system reserve and transmission and distribution electricity are no longer separately charged for electricity supplied back to the grid. 2) System operation fees: Initially, fees for system operation costs including auxiliary service costs, pumped storage & coal-fired & gas-fired capacity electricity charges are levied based on electricity supplied back to the grid, which will transition to fees based on capacity utilization in the future; self-consumed electricity does not need to pay the corresponding fees. The matching degree of the load rate and the power generation curve will affect the economic viability of green electricity direct connection projects. The bank simulated a green electricity direct connection project, calculated the differences in self-consumed electricity and the costs of purchasing electricity directly from the grid, and various expenses in the transmission and distribution process. The project parameters and calculation results are shown in the attached table. The results show that if this green electricity direct connection project connects to the public grid at 100% capacity and its load rate is the same as the average level of users above 110kV within the province, the transmission and distribution charges to be paid will be the same; the project can save 0.012/0.043 yuan/kWh by reducing line losses and exempting system operation fees, but needs to bear the construction and operation costs of the dedicated line of 0.040 yuan/kWh, ultimately saving costs of 0.015 yuan/kWh. According to the calculation method of transmission and distribution fees for green electricity direct connection projects, if the user's load rate is higher than the provincial average level, it can dilute the electricity transmission costs and achieve cost savings; in addition, if users can adjust their load curve to be well matched with the green electricity output curve, they can reduce the capacity of connection to the public grid to reduce transmission and distribution costs. The bank conducted sensitivity analysis on this issue, and the results are shown in the table. For simulated projects with user load rates exceeding the provincial average by 10 ppts, corresponding electricity costs can be saved by 0.06 yuan/kWh; if the capacity of connection to the public grid is reduced by 5 ppts, corresponding electricity costs can be saved by 0.10 yuan/kWh, which means that green electricity direct connection projects developed based on high load rates and strong regulation capabilities of high-quality user resources will have strong economic viability. Risk Factors: Policy progress slower than expected; slower growth in total electricity consumption in society than expected; substantial decline in market-based electricity prices; slow progress in the construction of new power systems; slow progress in the reform of the power system; emerging models like green electricity direct connection are immature.