July 1, 2010

China: A World Powerhouse

By Sonal Patel

Change and China’s Electricity Sector

China hasn’t always been a powerhouse. The structure, governance, and institutional framework of China’s power sector has been significantly transformed in a long, drawn-out process that began in the 1980s, within the context of wider economic reforms to promote growth and economic development.

The first set of reforms in the mid-1980s opened up generation to investment by third parties outside the central government (mainly provincial and local governments, but also some domestic and foreign companies). Power plants built and purchased by these investors—sometimes called independent power producers (a term that is misleading in the Chinese context because most are government-linked private companies)—now account for over half of China’s total capacity. By the end of 2002, China had dismantled its single, vertically integrated utility—the State Power Corp. (SPC), which by then had 46% of the country’s generating capacity and 90% of transmission capacity—into 11 separate generation, transmission, and service units.

Today, the sector is dominated by five state-owned holding companies, namely China Huaneng Group, China Datang Group, China Huandian, Guodian Power, and China Power Investment. These companies generate the remaining half of China’s electricity. The transmission and distribution sectors continue to be heavily state-controlled, however. During the 2002 reforms, the SPC divested all of its electricity transmission and distribution assets into two new companies, the Southern Power Co. and the State Power Grid Co. The government plans to merge SPC’s 12 regional grids into three large power grid networks by 2020: a northern and northwestern grid operated by State Power Grid Co. and a southern grid operated by the Southern Power Co. The sector is regulated by the State Electricity Regulatory Commission, a body also established in 2002.

China continues to reform the sector, seeking to separate power plants from power-supply networks, privatize a significant amount of state-owned property, encourage competition, and revamp pricing mechanisms. At the same time, it is looking to better coordinate and formulate strategic energy policy. This May, for example, the government established the National Energy Commission (NEC), an overarching “super-ministry” that will be headed by Premier Wen Jiabao and be responsible for drafting national energy development plans, reviewing energy security, and coordinating international cooperation.

The agency will comprise 21 members, including ministers from various organizations such as the National Development and Reform Commission (NDRC) and the Ministry of Finance as well as a representative from the central bank. Among that agency’s foremost priorities is to reach the hefty goal set last year of reducing the intensity of carbon dioxide emissions per unit of GDP by 2020 by 40% to 45% from 2005 levels, a feat that officials say requires coordination with different ministries.

A Power Generation

Besides the accelerating economy, a major factor that drives booming energy consumption (Figure 3) is China’s immense population growth rate of around 7 million a year. The country’s population of 1.34 billion could peak at 1.5 billion—an increase of nearly 200 million—before growth trends show a decline. At the same time, China is in a stage of rapid urbanization.

3. Chinese generation vs. consumption. Demand for power has soared in recent decades, particularly in the past five years, driven by an accelerating economy and tremendous population growth. Sources: China Electricity Council, State Grid Corp. of China

So how does the country plan to provide power for this growth?

Heightening Hydropower

China, a country traversed by several massive rivers, especially in the southwest, is the world’s largest producer of hydroelectric power. The nation currently has 197 GW of hydropower generating capacity—a jump from 170 GW installed in 2008. In 2009, China inaugurated several units of the 22.5-GW Three Gorges project along the Yangtze River. When fully complete in 2011, that project, comprising 32 separate 700-MW generators, will be the largest power project in the world (Figure 4). Even larger projects could be in the pipeline: The UK’s Guardian newspaper reported this May that blueprints were being drawn up for a gigantic 38-GW dam in the Yarlung Tsangpo River in Tibet—despite concerns that the project could pose water conflicts and environmental issues for nations downstream, like India and Bangladesh.

4. A great wall of China. The 22.5-GW Three Gorges Dam, which is under construction along the great Yangtze River in China’s Hubei Province, is the world’s largest power project—and its most controversial. Costing some ¥180 billion to build, the dam is said to have displaced 1.2 million people and has been plagued by corruption, spiraling costs, and technological problems. Yet similar—possibly even more massive—projects are in the works: The China Three Gorges Corp. announced this May that China had acquired the ability to independently design and manufacture 1,000-MW hydroelectric turbine generating units. Courtesy: Alstom

According to the NEA’s Zhang, new hydropower will be critical if China is to meet its clean energy development goals by 2020. “Considering current hydropower capacity, projects under construction, and building cycles, China needs to start building around 120 [GW] of hydropower projects in the six years through 2015,” said Zhang in published comments this May, as he called for faster project approval. The official, who is also deputy head of the NDRC, refuted allegations that hydropower construction in drought-hit regions had worsened water shortages, or that it had caused environmental damage. “Every energy source has positive and negative effects and cannot be viewed only from the negative side... and should be weighed in an overall way,” he said.