Estimation and allocation of the benefits from electricity market integration in China

• The benefits from regional market integration are estimated. • Three benefits allocation mechanisms are designed. • Market integration can reduce the total operation cost by 16%. • Hydro generation has the biggest impact on the benefits. • The allocations under different mechanisms vary substantially. Market integration is a good choice during the electricity market reform, but its successful implementation depends on both the amount of benefits and the fairness of allocation mechanism. To provide guidance for a regional market design in China, this study develops an optimization model to simulate the power system operation results of an integrated regional market, and compares the actual operating costs with the optimized costs to obtain economic benefits from market integration. Three allocation mechanisms are designed to allocate the benefits. The market integration of China Southern Grid region in 2017 is employed as a case study and the major conclusions achieved are that: (1) The total economic gains from electricity market integration are US$ 5.34 billion, representing 16% of the actual operational cost in the China Southern Grid region. (2) Hydropower generation has the greatest impact on the integration benefits, while the capacity of cross-border transmission lines has the least impact. (3) The results of benefits allocation under the mechanisms of Equal share, Shapley value and Raiffa value vary substantially, and a good balance of the equity and feasibility is needed in designing the benefits allocation mechanisms. These obtained results confirm the fact that market integration will contribute to larger benefits with a fair allocation mechanism, thus deserving to be implemented during the current round of electricity market reform in China.