The Beidouxing Power Network has learned that recently, the Shandong Provincial Energy Administration issued the "Notice on Doing a Good Job Regarding Relevant Work for the 2021 Provincial Electricity Market Trading." The notice emphasizes that, starting from 2021, centralized new-energy power generation enterprises meeting the necessary conditions are encouraged to enter the electricity market and participate in trading. Additionally, new-energy enterprises that sign market trading contracts will be given priority for consumption during periods when grid frequency regulation faces challenges.

The Arctic Star Power Network has learned that recently, the Shandong Provincial Energy Administration issued the "Notice on Doing a Good Job Regarding Electricity Market Trading in 2021 Across the Province," which encourages centralized new energy generation enterprises that meet certain conditions to enter the electricity market and participate in trading starting from 2021. New energy enterprises that sign market trading contracts will be given priority for consumption during periods when grid frequency regulation faces challenges.

Notice on Doing a Good Job Regarding 2021 Provincial Electricity Market Trading Activities

To the Development and Reform Commissions (Energy Bureaus) of all cities, the Provincial Social Credit Center, State Grid Shandong Electric Power Company, China Huaneng Shandong Power Generation Co., Ltd., Huadian Group Shandong Company, China Energy Investment Corporation Shandong Company, Datang Shandong Power Generation Co., Ltd., State Power Investment Corporation Shandong Branch, China Resources Power East China Region, and Shandong Nuclear Power Co., Ltd., as well as the Shandong Electricity Trading Center:

To implement the series of guiding principles from the state on deepening pilot programs for building a spot electricity market, and to carry out the provincial Party Committee and provincial government’s decisions and arrangements regarding power market-oriented reform, in accordance with the recent requirements issued by the National Development and Reform Commission on effectively completing the signing of 2021 medium- and long-term electricity contracts, and taking into account our province’s specific circumstances, we hereby announce the following work arrangements for 2021 electricity market transactions:

1. Market Entity Access

(1) Further standardize the access criteria for electricity users

In accordance with the "generation-based consumption" principle clearly outlined by the National Development and Reform Commission for the liberalization of power generation and consumption plans, our province will maintain the 2020 standards for electricity user market access in 2021. Throughout the year, depending on the progress of prioritizing cross-provincial and inter-regional plan liberalization, we will适时 (timely) open up electricity consumption plans for commercial users, provided that the overall balance between power supply and demand in the market is maintained. As per national guidelines aimed at strengthening and regulating self-owned power plants, enterprises equipped with such facilities may participate in market transactions—including both intra-provincial and cross-provincial trading—only after fulfilling their statutory obligations to pay government-mandated funds established in compliance with laws and regulations, as well as any policy-related cross-subsidies aligned with industrial policies. Electricity users whose products or processes fall under the "elimination" or "restriction" categories listed in the *Industrial Structure Adjustment Guidance Catalogue* will continue to be subject to the existing differentiated electricity pricing policies without exception. In 2021, the total scale of electricity consumed by market-oriented users across the province is expected to reach approximately 190 billion kilowatt-hours.

(II) Actively promote the entry of locally-owned, publicly-used coal-fired cogeneration units into the market.

In 2021, local public coal-fired combined heat and power (CHP) units were allocated only the "heat-based electricity generation" priority plan specifically for the heating season, encouraging eligible local public CHP units to voluntarily register as market participants. Any electricity generated beyond the "heat-based electricity" priority plan would directly enter market transactions, operating in accordance with relevant rules of the Shandong electricity market. Before these units joined the electricity market, any excess electricity generated outside the "heat-based electricity" priority plan was treated as a government-authorized contract. In principle, the settlement volume under this government-authorized contract would not exceed the unit's actual off-season grid-connected output in 2020. Prior to the continuous settlement trial operation of the electricity spot market, the electricity volume covered by the government-authorized contracts would be settled based on the average mid-to-long-term trading price within the province for that quarter. During the trial period of continuous settlement in the electricity spot market, such volume would instead be settled at the average mid-to-long-term trading price (including capacity pricing) observed over the first seven days of the current month—provided this price did not surpass the benchmark grid-connected tariff for coal-fired units within the province; if it exceeded the benchmark, settlement would be made at the benchmark tariff level. Any resulting price differences would then be redistributed monthly among the provincial market units, proportional to their respective market-generated electricity volumes.

(III) Orderly allow centralized new energy generating units to enter the market

Starting from 2021, centrally located new-energy power generation enterprises that meet the necessary conditions are encouraged to enter the electricity market and participate in trading. New-energy enterprises that sign market transaction contracts will be given priority for consumption during periods when grid frequency regulation is particularly challenging. The electricity price subsidy policy for centrally located new-energy power generation enterprises participating in market transactions will be implemented according to the "Supplementary Notice on Relevant Matters Concerning the 'Several Opinions on Promoting the Healthy Development of Non-Hydro Renewable Energy Power Generation'" (Cai Jian [2020] No. 426). Prior to the continuous settlement trial operation of the electricity spot market, new-energy power generation enterprises may voluntarily sign medium- to long-term trading contracts with power sales companies or wholesale customers. During the trial operation phase of continuous settlement in the electricity spot market, these enterprises will participate in electricity spot market transactions in accordance with our province's electricity spot market trading rules.

II. Mid- to Long-Term Trading Arrangements

To align with the pilot work on building the spot market, in 2021, our province conducted its longest-ever medium- and long-term electricity trading sessions on a quarterly basis—every three months. Prior to the trial run of continuous settlement in the electricity spot market, medium- and long-term transactions continued under the existing rules governing such trades. In principle, power sales companies (wholesale customers) were required to sign medium- and long-term contracts covering at least 80% of their total electricity consumption (including agency-supplied power). During the trial period of continuous settlement in the spot market, all medium- and long-term transactions were structured around agreed-upon trade curves where generation and consumption power levels remained consistent throughout the contract period. The daily trading volumes from quarterly, monthly, and weekly transactions—when aggregated according to time-of-use curves—would then form the respective medium- and long-term electricity trading contracts for each market participant, serving as the basis for settlement purposes.

According to the relevant requirements of our province’s renewable energy power consumption guarantee policy, power sales companies and wholesale customers are required to assume a non-hydro renewable energy power consumption responsibility weight of no less than 14%. Based on the 2020 provincial market electricity volume, the minimum amount of non-hydro renewable energy power that power sales companies and wholesale customers must consume in 2021 is approximately 27 billion kilowatt-hours (referred to as “consumption responsibility power”). Wholesale customers will bear their consumption responsibility based on the proportion of their actual electricity usage from January to November 2020 relative to the province’s total market electricity volume. Meanwhile, power sales companies will fulfill their responsibility by accounting for the combined actual electricity consumption of their agency-traded users during the same period, measured against the overall provincial market volume. The consumption responsibility power is treated as already-transacted power and will be settled at the provincial-level grid-connected electricity price for non-hydro renewable energy sources. As for retail customers, the specific amount of consumption responsibility power they are expected to shoulder will be determined through direct negotiation between power sales companies and individual users, with clear stipulations outlined in the retail contracts. During the trial run of continuous settlement in the spot market, transactions related to the non-hydro renewable energy consumption responsibility weight will be seamlessly integrated with spot market trading activities. Detailed arrangements will be governed by the official notice or plan issued specifically for this trial phase of continuous spot market settlement.

Strictly implement the national requirements for the "Six Signings" initiative regarding medium- and long-term contract agreements. In 2021, medium- and long-term transactions were conducted under a joint signing model, with an emphasis on encouraging the use of electronic contracts and involving credit regulatory agencies to witness the signing process. Medium- and long-term transaction contracts were executed in accordance with the draft "Model Text for Medium- and Long-Term Electricity Trading Contracts" and the draft "Agreement on Information Registration for Medium- and Long-Term Electricity Trading."

3. Direct Electricity Trading Across Provinces and Regions

Users participating in the Yindong DC inter-provincial trading scheme—those with annual electricity consumption of 500 million kilowatt-hours or more—are allowed to trade no more than 200 million kilowatt-hours across provinces. For users consuming less than 500 million kilowatt-hours annually, the monthly volume of inter-provincial transactions cannot exceed 40% of their total monthly electricity transactions. Inter-provincial transaction volumes serve as a boundary condition for users’ intra-provincial trading activities, while any remaining electricity is eligible to participate in the provincial market. Users are required to accurately report their inter-provincial transaction volumes. Any user found to have exceeded 40% of their total annual consumption through inter-provincial trading for two consecutive months in 2021 will lose their eligibility for Yindong DC trading in the following year. Similarly, power sales companies acting as agents for users in inter-provincial transactions will be disqualified from having their agent users participate in such trades if their combined inter-provincial transaction volume exceeds 40% of the actual electricity consumption of all their agent users over two consecutive months in 2021. During the continuous settlement trial run of the spot market, the volume of direct inter-provincial transactions will be allocated according to the typical power delivery curve of the Yindong DC transmission line.

IV. Government-Authorized Contracted Electricity Allocation

A portion of the annual transaction volume for 2021, agreed upon through inter-provincial AC and DC transmission channels, has been bundled together as government-authorized contract power. This allocated power is first purchased on behalf of provincial market users by State Grid Shandong Electric Power Company, and then subscribed to by retail power companies and wholesale customers. The subscription price is set at the weighted average landing price of the aforementioned electricity in our province. Any un-subscribed government-authorized contract power will be distributed among retail power companies and wholesale customers based on their respective shares of market-based electricity consumption. During the trial operation phase of continuous settlement in the spot market, the government-authorized contract power will be allocated according to the typical power delivery curves associated with the corresponding inter-provincial transmission lines.

V. Other Matters

(1) Ensure effective organization and seamless coordination of transactions. State Grid Shandong Electric Power Company and the Shandong Electricity Trading Center shall promptly release relevant information, including inter-provincial electricity trading volumes, prices, and the volume of non-hydro renewable energy power subject to consumption responsibility obligations. These details will guide the orderly execution of transactions in the following sequence: first, conducting government-authorized contract-based electricity procurement for cross-provincial power transmission; then organizing medium- and long-term intra-provincial electricity trading according to schedule. This approach will ensure smooth integration across all transaction phases. Additionally, coordinate the linkage between the volume of non-hydro renewable energy power covered by consumption responsibility obligations and green certificate trading, and issue corresponding certificates verifying the consumption of non-hydro renewable energy generation as requested by power sales companies and wholesale customers. Finally, proactively determine and clarify key milestones for market registration, transaction organization, result publication, and other critical tasks, ensuring that the first-quarter 2021 intra-provincial medium- and long-term electricity trading is fully organized and completed by December 15.

(2) Continuously enhance market service levels. Shandong Electric Power Trading Center should strengthen its professional team and technical support platform development, constantly improving its market organization capabilities. It should also refine the information disclosure mechanism, enrich the content of disclosed information, and ensure seamless sharing of information resources. Furthermore, the center must reinforce transaction risk management by proactively alerting users about potential risks associated with power suppliers that have high complaint rates or exhibit irregular contract compliance behaviors. Ultimately, it will provide market participants with transparent, standardized, efficient, and reliable electricity trading services.

(3) Enhance operational capabilities in the spot market. State Grid Shandong Electric Power Company should accelerate the optimization of its organizational structure, strengthen the development and training of specialized teams for the spot market, further bolster professional expertise, clearly define job responsibilities, and ensure dedicated personnel are assigned to specific roles. Additionally, the company should diligently carry out the development, construction, operation, and maintenance of the technical support system, providing robust talent assurance and technical backing for the stable functioning of the spot market.

(Four) Strengthen retail market management. Users who have signed and submitted agency agreements with two or more power sales companies will have their 2021 market trading eligibility revoked and will be recorded in our province’s electricity market credit system. Enterprises that meet the eligibility criteria but fail to register within the specified timeframe may independently register at any time during the year. Once approved by State Grid Shandong Electric Power Company and the Shandong Electricity Trading Center, they can enter the market and participate in monthly trading activities.

In market trading operations, please report any significant issues promptly.