Chapter Six

The Power Distribution System

Building a national power grid is certainly the most ambitious—and probably the most important—feature of the Tenth 5-Year Energy Plan. Under the Ninth (1996–2000) Plan, China intended to add approximately 16 GW of generating capacity annually (including about 3.5 GW per year of hydropower). The goal was to achieve 290 to 300 GW of installed capacity by 2000. China also planned to expand its electric power transmission system, link existing grids, and implement a unified national power grid by 2020. Reportedly, over $18 billion was invested in 1999–2001 upgrading rural power grids.¹⁵⁴
Beijing now has stated that it will commit over $43 billion to grid construction over the span of the Tenth 5-Year Energy Plan (2001–2005), while the National Electric Power Corporation (NEPC) is planning to spend $72.5 billion on power distribution projects during that same period.¹⁵⁵ Improving the supply of electricity to rural areas is particularly important to the national government as part of the plan to improve economic conditions in economically disadvantaged regions.¹⁵⁶
The national energy investment figures for the first half of 2002 indicate that the government is serious about modernizing the power grid system, since that sector received the largest share of new investment funds.¹⁵⁷ This emphasis recognizes the current reality in China’s energy sector: the nation suffers not from a shortage of electric power generating capacity, but from an inadequate distribution grid for that power.
The issue facing the state is how to distribute the available supply of electricity more efficiently, either by improving distribution or by increasing the overall supply of power. The first solution may be the most efficient in economic terms, but the second course of action may more quickly achieve the desired result. Beijing is compromising, pursuing both grid improvement and supply increase.
This is truly a national scheme, with power plant construction planned for the cities of Beijing, Tianjin, Tangshan, and Shanghai; for Jiangsu, Zhejiang, Hebei, Hunan, Guizhou, Guangdong, Guangxi, Yunnan, and Gansu Provinces; and for the Tibet, Qinghai, and Inner Mongolia Autonomous Regions. Plans for Guangxi include an 8.6 billion yuan investment in four power plants, Gansu has received central government approval for four power projects, while the four hydropower plants planned for Yunnan may eventually exceed the generating capacity of the Three Gorges system. This would be yet another massive project in China’s southwest, with the coming on line of the second of eight hydropower plants planned for the Lancang (Mekong) River.¹⁵⁸
One expert has concluded that China will need to spend about $100 billion to turn its “very fragmented” power distribution system into a linked, well-regulated system capable of providing even regional distribution of power throughout the country.¹⁵⁹ As is the case with expansion of petroleum sources, China is intent on attracting foreign investment to finance this cost. The government aims to “improve the investment environment for the power industry” as part of the effort to attract large-scale foreign investment, with a goal of attracting 20 percent of the funding for the electric power sector from foreign investment. This goal was formalized in China’s first law governing electric power generation, which was enacted in 1996. In its first project open to international bidding, China awarded a build-operate-transfer project (the 720-MW coal-fired plant in Laibin, Guangxi Province) to a consortium headed by France’s EDF. Bidding on a second project (a 600-MW plant in Hunan province) is under way.
The Tenth 5-Year Plan continues to pursue this objective, with the State Development Planning Commission submitting a plan in October 2002 for approval by the State Council. This proposal includes creation of a National Power Regulatory Committee, two power grid corporations, and five independent power generation groups, each with responsibility for a specific region. These regional bodies will implement state power policy and oversee the trans-power market.
The State Power Corporation, which owns half of China’s installed electricity capacity and its entire transmission network, has been broken up into five generating companies: the China Huaneng Group, China Datang Group, China Huadian Group, China Guodian Group, and China Power Investment Group. Two grid operators, the State Power Grid and the China South Power Grid, will oversee the groups in north and south China, respectively. The State Power Regulatory Commission will oversee the new organizations.¹⁶⁰ Beijing has also announced it will devote $45 billion, 40 percent of the Tenth 5-Year Plan’s investment in power projects, to expanding the nation’s power grid.¹⁶¹ Zhang Guobao, vice minister in charge of the State Development Planning Commission, officially announced this new break-up strategy in Beijing’s Great Hall of the People in December 2002.¹⁶²
Production and distribution of energy will remain one of China’s greatest challenges in coming years. Too many energy reserves are far from consumption centers, and bottlenecks exist in transportation and electricity distribution. Additionally, industrial concerns produce significant amounts of electricity for which only limited statistics are available. In energy-intensive process industries such as chemical and steel production, refineries, and mining/minerals, plants typically generate their entire internal electric requirements and export excess electricity to the local community.
To meet its enormous appetite for electricity, China will need to access some 20 GW of additional generating capacity each year for the foreseeable future. China’s insufficient power availability is exacerbated by underinvestment in transmission facilities. Inefficiencies and power losses have also resulted from a mismatch of generating capacity and transmission capacity, with the latter insufficient to service China’s burgeoning industrial and residential demands.

Endnotes

¹⁵⁴“State Power Corporation of China Invested $18 Billion in Upgrade of Power Grids,” China Daily, April 8, 2002, in Alexander’s 7, no. 9 (May 3, 2002). [BACK]

¹⁵⁵“Guangxi Region to Invest in New Power Stations,” Xinhua, August 27, 2002, in Alexander’s7, no. 18 (September 19, 2002). The Yunnan plan is in Miccarelli, “China’s Energy Future,” 16. Also see “Shanghai to Upgrade Power Grid,” Xinhua,February 25, 2003, in FBIS-CPP20030225000229, for that municipality’s plan to invest $445 million to upgrade its power grid in 2003; and “South China Province to Regulate Large-Scale Electricity Users,” Xinhua, in Alexander’s8, no. 5 (March 6, 2003), for Guandong Province’s plan to improve power grid management. “Shenzen to Invest $325.3 Million in Electricity Grids,” Xinhua,January 23, 2003, in FBIS-CPP20030122000232, provides details of Shenzhen’s plan. [BACK]

¹⁵⁶See Fu Jing, “State Funds Ready to Light Up Rural Towns,” China Daily, February 11, 2003, in FBIS-CPP20030211000035. [BACK]

¹⁵⁷“China Reports on Receipt of New Funds in Energy Sector,” The PMA Online Power Report, August 6, 2002, in Alexander’s 7, no. 16 (August 23, 2002), reported that the power industry received $11.9 billion and also noted that the coal sector received the smallest amount ($8.3 million) of new investment funds. [BACK]

¹⁵⁸“Tibet to Exploit Hydro, Solar Energy,” China Daily, May 23, 2001, in FBIS-CPP20010523000041, and “Tibet Sets Development Strategy for Power Sector,” Alexander’s 6, no. 24 (December 19, 2001); other projects are discussed in “Most Power Projects in Operation in China’s Guangxi Region,” “Inner Mongolia and Beijing to Jointly Develop Power Plant Project,” and “China Lists Planned Power Projects,” all in Asia Pulse (October 24, 2001). The claim about generating power for this hydropower system is in “China to Build Four Major Hydropower Plants in Southwest,” Xinhua, December 7, 2001, in FBIS-CPP20011207000080; these plants are not scheduled for construction until 2005 and 2006. “Hydropower Plant Operational in Yunnan,” Xinhua,December 14, 2001, in FBIS-CPP20011214000121. Also see “Eight Power Stations to be Built on Lancang River,” People’s Daily, January 20, 2002, accessed at <www.english.peopledaily.com.cn>, and “PRC Touts Lancang River as Energy Base,” Xinhua, January 31, 2002, in FBIS-CPP20020131000071, which also notes that Thailand and Laos will buy some of this hydropower. [BACK]

¹⁵⁹“China Set to Improve Investment Environment for Power Industry,” Xinhua, June 28, 2001; Noah Smith, “Focus on China’s Energy Restructuring Plan,” Kyodo News, August 7, 2001, in FBIS-JPP20010807000143. The Gansu plan includes an upgrade to the Lanzhou gas-fuelled power plant and three power grid improvements (“Gansu Power Receives Approval for Four Power Projects,” Interfax Information Services, July 15, 2002, in Alexander’s 7, no. 16 (August 23, 2002). [BACK]

¹⁶⁰The most concise description of the new distribution infrastructure is in “Profile of China’s Electric Power Industry,” Asia Pulse, January 6, 2003, in Alexander’s8, no. 2 (January 24, 2003). Also see Li Heng, “China Unveils Plan for Power Sector Regrouping,” People’s Daily, October 23, 2002, in FBIS-CPP20021023000080; “China to Split State Power Corp,” Reuters, in Alexander’s 7, no. 5 (March 6, 2002); Pamela Pun, “Beijing to Set Up Regulatory Body to Draft Policies, Regulate Power Industry,” Hong Kong iMail, April 19, 2002, in FBIS-CPP20020419000063. Wang Xiangwei, “Top Mainland Official Flees to Avoid Arrest,” South China Morning Post, October 16, 2002, reported that Gao Yan, “the former president and chief executive” of China’s State Power Corporation, fled China to avoid prosecution for corruption. [BACK]

¹⁶¹“China to Invest 360 Billion Yuan in Construction of Power Grids,” Xinhua, in Alexander’s7, no. 6 (March 21, 2002). “China’s Shandong Province to Invest in Power Projects,” Asia Pulse, in Alexander’s 7, no. 3 (February 6, 2002) notes that $1.72 billion will be invested in power projects in this province in 2002. [BACK]

¹⁶²“China Puts End to Monopoly on Power Industry,” Xinhua, December 30, 2002, in Alexander’s 8, no. 2 (January 24, 2003). [BACK]