Modeling the coupling of China's multi-timescale electricity markets during the transition towards decarbonization and marketization

Peng Wang, Wentao Wang, Kai Jiang, Yixin Cheng, Tengxi Zhang and Xuesong Li

Energy, 2025, vol. 319, issue C

Abstract: During the transition of the power system towards marketization, the delivery method of medium- and long-term (MLT) contracts in the spot electricity market fluctuates between physical delivery and financial delivery. It is challenging to optimize the coupling form for MLT contracts and the spot electricity market based on China's development stage. To tackle this issue, a bi-level model for the electricity-carbon market is proposed. The upper-level model captures the strategic decisions of multiple generation companies (GenCos), while the lower-level model focuses on market clearing. The delivery method of MLT contracts is categorized as physical, transitional, and financial and is incorporated into the model. To evaluate the model simulation, an indicator system that includes market volatility, MLT market correlation, and price conductivity is proposed. Moreover, the Markov chain Monte Carlo-Diagonalization Method algorithm is proposed to solve the simulation model. The efficacy of the proposed model is validated through a case study of Guangdong electricity market in China. The results demonstrate that the model framework can optimize the most suitable delivery method and MLT percentages based on the development stage. Transitional delivery is most suitable for China's current stage, with composite indicator outperforming physical delivery by 8 % and financial delivery by 5.4 %.

Keywords: Transition; Delivery method; Bi-level model; Electricity market; Carbon market (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:energy:v:319:y:2025:i:c:s0360544225005808

DOI: 10.1016/j.energy.2025.134938

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