Developing China’s Electricity Financial Market: Strategic Design of Financial Derivatives for Risk Management and Market Stability

Hao Feng, Yidi Zhang, Zhou Lan, Kun Wang, Yizheng Wang, Sheng Chen and Changsen Feng ()
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Hao Feng: Economic Research Institute of State Grid Zhejiang Electric Power Company, Hangzhou 310000, China
Yidi Zhang: Economic Research Institute of State Grid Zhejiang Electric Power Company, Hangzhou 310000, China
Zhou Lan: Economic Research Institute of State Grid Zhejiang Electric Power Company, Hangzhou 310000, China
Kun Wang: Economic Research Institute of State Grid Zhejiang Electric Power Company, Hangzhou 310000, China
Yizheng Wang: Economic Research Institute of State Grid Zhejiang Electric Power Company, Hangzhou 310000, China
Sheng Chen: College of Information Engineering, Zhejiang University of Technology, Hangzhou 310000, China
Changsen Feng: College of Information Engineering, Zhejiang University of Technology, Hangzhou 310000, China

Energies, 2024, vol. 17, issue 23, 1-20

Abstract: As China progresses with its electricity market reforms in pursuit of “carbon peak and carbon neutrality” objectives, the increasing integration of renewable energy sources introduces new risks and uncertainties, necessitating the development of an efficient electricity financial market. This paper outlines the fundamental principles of electricity financial derivatives, assesses their applicability to the Chinese market through an analysis of international experiences from the United States, Nordic countries, and Australia, and highlights critical issues for the construction of a robust market framework. It offers strategic recommendations regarding the structural and developmental aspects of China’s electricity financial market and proposes derivative instruments tailored to China’s market to improve liquidity and risk management mechanisms, thereby facilitating the renewable energy transition. The study demonstrates that these derivatives are instrumental in mitigating price volatility, managing transmission congestion, and supporting the shift to renewable energy. This provides a pragmatic approach for the reform and advancement of China’s electricity financial market, aligning with global strategies and addressing the unique challenges of China’s energy transition.

Keywords: electricity financial markets; risk management; electricity financial derivatives (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2024
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