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.

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.

Solar

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.

Wind

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

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 NO_x 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.

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.