Linking carbon market and electricity market for promoting the grid parity of photovoltaic electricity in China

Abstract

In order to achieve the power supply change from traditional energy to clean energy in China, improving the grid parity rate of photovoltaic (PV) power is a key problem to be addressed. To establish a harmonious grid price between PV power and coal-fired power, this paper investigates the impact of carbon emission quota (CEQ) price on both PV power revenue and efficiency by constructing the carbon-electricity linkage mode with following innovative works. First, we set a trading mechanism that involves PV power plants and links carbon-electricity markets, and then propose market clearing rules for both CEQ and PV power prices. Second, we integrate market factors into the framework of power cost structure of different power sources based on the Life Cycle Cost (LCC) Theory. Third, we characterize the volatility of CEQ prices by offsetting the reduced fiscal subsidy of PV power and balancing grid price of different power sources. Our key findings show that the plan of improving current trading linkage of carbon-electricity market and grid parity scheme of PV power will be brought forward to 2023 that is 2 years ahead of schedule. What’s more, in the case of completely cancelling subsidy, CEQ price should be tripled by using this linkage to accelerate PV grid parity. By showing the possible trading benefit of carbon markets, this paper will help reduce the generation cost of PV power grid connection.