Work

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

Year: 2024

Type: article

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.

Source: Energies

DOI: 10.3390/en17235854