China’s Electricity Sector
Energy in China Spotlight
- China’s Electricity Sector
- Current Policy Framework
- Energy Poverty in China
- Market Environment and Barriers to Entry
- Environmental Issues
- Key Recommendations for Social Enterprises
|The electricity sector in China is primarily a state-run venture, and the grid system provides access to electricity for over 99% of the country’s citizens. Universal electrification is on the horizon thanks to ongoing government efforts to expand the grid and build new power plants and wind and solar farms. State-owned enterprises dominate the market, and the gaps are filled in by private power providers, namely companies that deal in renewables. This section will provide a general overview of China’s electricity sector.|
Historical and Policy Context
China’s electricity sector has experienced major changes since its inception. It was tightly regulated during the Mao era, which lasted from 1949 to 1976. Under Chairman Mao’s leadership, industrial development was the top priority of the central government. Electricity generation and consumption grew steadily but slowly up until Mao’s successor, Deng Xiaopin, came into power. Reform began in 1985 under Deng’s leadership, with the passage of the Temperate Regulation on Encouraging Investment to Electricity Industry and Using Multiple Electricity Pricing Models. This legislation implemented liberalization measures to promote foreign investment and increase the growth of the sector. One of the most notable of these measures was the creation of government-owned corporate utilities in 1994 to manage electricity supply, which encouraged further growth. Reform was later strengthened with the implementation of the 1996 Electricity Law.
The twenty first century has been characterized by extremely rapid growth in electricity use and the continued expansion of electricity into rural areas. Since the turn of the century, the Chinese government has made a considerable effort to push the adoption of renewables. This was reinforced through the passage of the Renewable Energy Law in 2005, which aimed to shift China’s energy mix away from coal and further towards renewables. The Chinese government has also been aggressively pushing energy conservation, which is enforced by the Energy Conservation Law.
China’s Energy Mix
China’s vast coal resources have given it a big leg up in terms of economic and energy development. China’s current energy mix reflects this. Coal power is the largest source of electricity in China today, as it has been throughout modern times. China has aggressively exploited its abundant hydrological resources as well; consequently hydropower is the second largest piece of China’s energy pie. Within the next few decades, we can expect to see a considerable shift in China’s energy mix towards renewables and away from coal, as China continues to promote the rapid adoption of renewable technologies.
China holds considerable fossil fuel reserves, so it follows that they form the basis of China’s energy mix. The most important fuel for electricity generation is coal, which alone accounted for two thirds of China’s electricity capacity in 2012. Coal has traditionally been an important fuel for heating and cooking. China has been reliant on it for power generation due to its abundance, relatively low price, and accessibility. At the present moment, the use of oil and natural gas for thermal power generation is not very significant in China.
|China holds an estimated 126 billion short tons of coal reserves (about 13% of total known world reserves), 24.4 billion barrels of proven oil reserves, and 155 trillion cubic feet (tcf) of proven natural gas reserves. Despite an abundance in fossil fuel resources, China has recently become a net importer of all three of these fuels. China became a net coal importer in 2009, a net importer of oil in the 1990s, and a net importer of natural gas in 2007. Imports have become more economically attractive due to a variety of factors. In the case of coal, demand has exceeded production and distribution capacity due to inefficiencies in the country’s coal mining and transportation system. Heavy investment in foreign oil has driven oil imports, with imports standing at 5.4 million bbl/day in 2012. As for natural gas, China is a net importer, but growth in imports have slowed down thanks to the fracking boom, which has led to increases in domestic production. Most of China’s imported natural gas comes in the form of liquified natural gas (LNG) from areas such as the Middle East, Africa, and Australia.
In the coming decades, we can expect to see significant changes in fossil fuel use for electricity generation. Government policy is driving down coal’s share of the energy mix, in accordance with efforts to encourage sustainable development. Furthermore, under the new climate agreement, China has promised to reach peak coal usage by 2030. Meanwhile, government policy is encouraging the increased use of gas-fired power plants for electricity generation. Because natural gas is often perceived as cleaner burning than other forms of fossil fuel, the Chinese government sees it an important part of its plan to reduce the use of more polluting fuels. Increased supply is also driving up demand. Natural gas is projected to account for 8% of generating capacity in 2015 and 10% in 2020.
China is rich in solar energy resources, owing to its large size and varied climate and elevation. Government policy, the advent of cheap photovoltaics, and a rapidly growing and competitive industry has created a solar energy boom. In 2013 alone, China installed a record-shattering 11.3 GW of solar capacity, more than doubling its total installed capacity to 18.3 GW. This is ten times the Chinese government’s 2007 target for cumulative installations by 2020. China’s cumulative solar installations are expected to surpass those of Germany in 2014, the world’s current leader in solar energy. By 2017, China will have more PV capacity installed than the entire world had in 2011.
China has been the world’s largest manufacturer of PV since 2008, and has produced a majority of the world’s solar panels since 2011. The market is incredibly diverse; around 400 companies of all sizes have a share of the market. It is dominated by several large firms, namely CHINT Group Corporation, Jinniu Energy, Suntech Power, Jingly, China Sunergy, and Hanwha SolarOne. Most of these larger enterprises are privately owned, but receive large subsidies from the government.
|Much of China’s new PV installation is in the form of large solar farms, such as the 200 MW Haunghe Hydropower Golmand Solar Park. Aside from PV, large concentrated solar power plants similar to the ones in California’s Mojave Desert have been built. These power plants work by using an array of mirrors or lenses to focus sunlight from a large area into a relatively small area to generate power. A number of arrays ranging in power from 1 MW to 2,000 MW are currently being planned or built in China.It is important to note that China also exports a large number of the solar panels it produces all around the world. Social enterprises such as ToughStuff and d.light source their PV and PV-containing products from China. China also exports large amounts of solar panels to the United States; exports in 2012 to the US totaled over $2 billion, out of $12.3 billion in total exports. China’s solar boom shows no signs of stopping anytime soon, and both exports and domestic installation are expected to continue growing as China continues to push for the adoption of renewables. It would not be surprising if China continues to surpass its own goals for solar energy production, given current market trends, increases in the efficiency of solar panels, and decreasing manufacturing costs. But due to the market environment, PV would be a hard product for a social enterprise to sell. We expand upon this in a later section.
China is gifted with immense exploitable wind resources, both offshore and onshore. Onshore wind resources stand at an estimated 2380 GW of exploitable capacity and offshore resources total an estimated 200 GW of exploitable capacity. This is enough to theoretically meet all of China’s electricity demands by 2030. Inner Mongolia, northeastern China, and the Tibetan Plateau are the most abundant in exploitable wind resources. However, China had only 76 GW of installed capacity in 2012, and expects to only have 100 GW of on-grid generating capacity by 2015. Nevertheless, despite its underexploited capacity, China has led the world in wind energy; it has been the world’s largest producer since 2010.
The Chinese government considers wind power utilization an important part of its strategy to reduce dependence on fossil fuels while promoting economic growth. Currently, China is working on 6 large wind megafarms that would produce a total of 20 GW of electricity generating capacity. One of these is the Gansu wind farm, a group of large installations sponsored by the Chinese government, that would alone provide almost 8 GW of generation capacity. Installations are coming in the form of both large wind farms such as these and smaller-scale turbine arrays. Turbines are sourced from both domestic manufacturers such as Goldwind and Dongfang Electric as well as major foreign manufacturers.
Hydropower has been around in China for quite a while, and China has considerable hydropower resources owing to its large mountain ranges and extensive river systems. Naturally, China gets a large portion of its electricity from hydropower. Hydroelectricity accounted for about 22% of power generating capacity in 2012. As of now, only about 30% of China’s 400-600 GW of hydropower is exploited.
China is home to both half of the world’s 50,000 large dams and the largest dam in the world, the infamous Three Gorges Dam, which generates a whopping 22.5 GW of electricity. Hydropower is advantageous because it provides more than just emissions-free electricity. Dams can store water for drinking and irrigation, protect against floods, and make rivers more navigable. Hydropower is also an excellent way to offset carbon emissions from coal. The Three Gorges Dam alone reduces coal consumption by 31 million tonnes annually, keeping 100 million tonnes of greenhouse gases, one million tonnes of SO2 emissions, 300,000 tonnes of NOx emissions, 10,000 tonnes of carbon monoxide emissions, millions of tonnes of atmospheric dust, and a large amount of mercury emissions out of the atmosphere. However, hydropower does not come without its drawbacks. This will be discussed in a following section.
China’s Generation and Grid System
The current administrative structure of China’s electricity generation and distribution system is the product of reforms that were implemented in the 1990s and early 2000s. Before then, power bureaus controlled by regional governments were responsible for the generation and distribution of electric power. The system today consists of several large government-owned corporations and utilities that manage power generation and distribution on regional, subnational, and national levels. Generation and distribution have been controlled by a separate set of utilities since 2002, which saw the breakup of the State Power Corporation’s (SPC) monopoly on generation and distribution. This reflects the Chinese government’s efforts to shift towards a more market-based system. The next step Chinese policymakers are planning is to induce competition between the corporations in the coming years.
Electricity generation is carried out almost entirely by five large state-owned enterprises (SOEs). They are all managed by the State-Owned Assets Supervision and Administration Commission (SASAC) on behalf of the State Council of the People’s Republic of China (SCPRC). The table below provides a look at China’s state-owned electricity generating corporations.
|There are two major grid operators in China, the State Grid Corporation of China (SGC) and the China Southern Power Grid Company (CSG). They were both established in 2002 as part of the reforms implemented that year. China’s power grid is partitioned into two major geographic regions. The SGC is responsible for operating and maintaining the northern part of the grid, and the CSG is responsible for managing the southern grid. The southern grid covers the provinces of Guandong, Guangxi, Guixu, and Hainan. The rest of China’s grid is managed by the SGC. The SGC is involved in the current ultra high voltage (UHV) project, which seeks to connect China’s regional grids into a unified national power grid. This is discussed further in the next section.
Energy Access and Reliability
Vigorous efforts by the Chinese government has made electricity access near universal. According to the World Bank, electrification rates in China from 2010-2014 period have reached 99.7%, despite the fact that China as a nation is still undergoing industrialization. The Chinese government aims to reach 100% electrification by the end of 2015. Energy poverty in the form of lack of access to electricity can now be considered a non-issue.
However, that’s not to say there are no problems with electricity access whatsoever. Because the national grid is segmented and lacks long-distance transmission capabilities, regional power shortages and blackouts are fairly frequent. This is more of a problem during periods when electricity demand tends to increase. For example, in Southern China, the use of air conditioners in the summer causes regional shortages that often grow into large-scale blackouts. Increasing usage of household appliances such as televisions, refrigerators, and washing machines is putting additional stress on the grid system.
Chinese SOEs plan to address this problem by connecting the regional grids into a unified national grid with UHV transmission lines, which would allow electricity from areas with surplus power to be transmitted to electricity-deficient areas during regional shortages. For example, during the summer, electricity from northern and central China could be transmitted to the Southern Power Grid to make up for increased demand that air conditioning usage creates. This would also improve the overall efficiency of the system. The Chinese government seeks to have 8 of these lines completed by 2015 and 15 completed by 2020. In addition to reducing regional shortages, these UHV lines would pave the way for a series of large hydroelectric projects.
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