Regulator Sets Target for China's Power Sector Reform

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Last updated at: (Beijing Time) Wednesday, March 26, 2003

Regulator Sets Target for China's Power Sector Reform

The State Electricity Regulatory Commission (SERC) is to set up two or three regional electricity trade centers on trial basis in some areas of China later this year.

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The State Electricity Regulatory Commission (SERC) is to set up two or three regional electricity trade centers on trial basis in some areas of China later this year.

SERC chairman Chai Songyue said the SERC would accelerate the establishment of its regional branches to supervise competition in local electricity markets.

The Chinese government broke up the State Power Corporation, the former monopoly in the country's electricity market, into 11 smaller generating, distribution and logistics companies last December.

The SERC was set up to supervise market competition in the power industry and issue licenses to environmentally qualified operators.

Chai said the SERC was to complete a survey of the assets and liabilities of the 11 state-run operators this year and help them adopt modern corporate governance.

He said China was also accelerating the process of amending the electric power law and drafting regulations on competition in the electricity market.

He said the SERC would experiment with recouping the costs of reducing power plant emissions in the electricity pricing.

Pilot power scheme promised

China expects to launch a "power pooling system" in two pilot regions this year, forcing electricity generators to compete when selling their supplies to grid operators.

The State Electricity Regulatory Commission hopes the pioneer scheme in Northeast China and East China could pave the way towards a competitive national market by forcing energy companies to reduce production costs.

In the past, power prices were distorted because a State monopoly, which controlled half of the nation's power plants and almost all its grids, tended to buy power off its own plants rather than cheaper alternatives.

Chai Songyue, chairman of the commission, Tuesday also hinted that the government is considering slowing down the building boom in power plants.

"It is understandable that generating companies will fight to build new power plants (to expand their presence)," said Chai at a news briefing. "But the government should have an overall plan (on the issue), which is very important."

Chai's comments follow a recent investment spree by the biggest five power firms to set up generating plants across the nation.

In Southwest China's Chongqing Municipality alone, three of the big five - China Power Investment, Huaneng Group and Datang Power Group - vowed to spend a total of 24 billion yuan (US$2.9 billion) in establishing new plants or expanding generating capacity.

The rivalry was expected when the government broke up the State Power Corp of China's monopoly last December. It set up five generating firms - Huaneng Group, Huadian Power, Guodian Power, Datang Power Group and China Power Investment Company - in its place. The government hopes the newly created big five firms will boost competition in the sector.

But Chai indicated that the push to develop new plants should be controlled.

The government should optimize the location of power plants to make full use of resources and of existing power grids, he said.

Chai's commission, which was officially established last Friday, is the first regulatory commission in the public utilities sector. Analysts believe the commission will eventually grow into an umbrella body regulating oil, gas and water as well as power.

Song Mi, one of the three vice-chairmen of the commission, admitted it would be difficult to extend the pilot bidding system nationwide at present, given that China has enough power, despite shortages in economic booming coastal areas.

Song said even in the two pilot areas, not all the electricity will be available for bidding, because of the need to keep power prices stable.

"The implementation of the bidding system will be a step-by-step and long-term process," Song told China Daily on the sidelines of the news briefing.

As a result, the price is unlikely to drop soon, although it will drop in the long-run, Song said.

Another commission vice-chairman, Shao Bingren, also said China overall had a balanced supply of power.

Sixteen provinces and autonomous regions have reported sporadic blackouts since late last year, partly due to strong economic growth and rising coal prices.

But "the electricity shortage is local, instead of national," Shao said.

To solve the local shortages, the commission will distribute electricity from energy-rich to energy-poor regions.

The government has also adjusted its investment plan to build more generating plants to ease the shortage. It plans to add generating capacity of 25 million kilowatts a year.

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