The issues of market monitoring and market power have long been important topics in market policy, regulation and design in the United States, European Union and other countries.
As China continues its power sector reform effort, which includes an emphasis on “market-oriented reform,” market monitoring will be especially important. It can help 1) ensure new markets are producing fair, cost-effective and rational operational results, including least-cost economic dispatch; 2) fine-tune market rules as experience with markets accumulates; 3) address the challenge of integrating variable renewable generation, storage and distributed resources; and 4) improve price signals to rationalize both investment in new resources and the retirement of unneeded and inefficient resources.
Authorities overseeing several of China’s new wholesale spot markets have called for further development of market monitoring and market power mitigation policies. This policy brief summarizes U.S. experience and suggests several steps for China to consider as it continues its market reforms.