Pricing of grid electricity of reservoir power plants based on quantification of the values of positive externality factors

Abstract

Hydropower is a clean, low-carbon renewable energy source with the merits of mature technology and flexible operation. Moreover, hydropower plants provide comprehensive utilization functions in many areas, including flood control, shipping, and emission reduction. In the current contradictive situation between power supply and demand, China's hydropower grid pricing mechanism does not reflect the positive externality of hydropower, which is not conducive to fair competition between hydropower and other power sources. This study proposed the concept of the positive external electricity price (PEEP) and a pricing mechanism that considered, for the first time, the values of hydropower positive externality factors by using the positive externality theory. A representative quasi-public welfare power plant of the Sichuan power grid was used to empirically evaluate the model. The pricing mechanism of reservoir power plants proposed in this paper considered the power grid benefits, flood control benefits, shipping benefits, and emission reduction benefits of hydropower, and allowed for the internalization of the positive externality. The hydropower grid prices based on our recommendations did not cause a dramatic impact on the local power grid; furthermore, the model helped promote the social responsibility of power companies through the pricing guidance for improving economic benefits by increasing positive externalities.