China Breaks Electricity Monopoly with Regional Markets

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Last updated at: (Beijing Time) Wednesday, August 13, 2003

China Breaks Electricity Monopoly with Regional Markets

China is breaking its traditional province-based electricity monopolies in a move to create six regional competitive power markets in three years.

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China is breaking its traditional province-based electricity monopolies in a move to create six regional competitive power markets in three years.

The Chinese government piloted the scheme with the establishment of the Northeast China regional power market last June, one of the planned six new markets. The other five will be North China, East China, Central China, Northwest China and South China power markets.

In each regional market, an electricity distribution and trading center will be established as a platform of fair competition among electricity enterprises, along with futures and options market for electricity trading, said Jia Yinghua, deputy director of the power supply supervision department of the State Electric Power Regulatory Commission.

The scheme is widely seen as a major step to deepen reform in the electric power sector after the splitting of the State Power Corporation at the end of last year.

The previous power distribution system and provincial barriers prohibited a free power market between provinces. Formerly, a province could only consume power generated within its territory.

Heilongjiang Province in northeast China, for example, boasts rich coal sources for power generating, but under the planned economy system, it had to import of 1.4 billion kwh of electricityannually, while on the other hand it could not sell the excess power it generated to other provinces.

As a result, power generating units in the province had to be operating under capacity.

In the first stage to reform the power sector, the State Power Corporation was established in 1997 to take up business managementof the sector. To end its monopoly, the corporation was dismantledon Dec. 29 last year and 11 smaller companies were created nationwide.

At the same time, the State Electric Power Regulatory Commission was set up to take over the supervision of China's power industry, responsible for proposing power price adjustments and issuing and managing power service licenses.

Transaction barriers have long prevented power exchanges between different regions. Under the new reform scheme, power generating companies and distribution companies will gradually be allowed to conduct direct transactions with large electricity users from other provinces, according to an official with the commission.

In the regional market, contract-based transactions will prevail, said Song Mi, vice chairman of the commission.

The commission selected the northeast China region as the pilotfor the establishment of regional power market because the three provinces there share a relatively developed cross-provincial power grid and power prices between the provinces are relatively close.

Statistics show that in June, the eastern electricity networks witnessed the highest demand of 43.9 million kw, a year-on-year increase of 3.4 million kw, while the southern networks supplied 36.05 million kw, an increase of 6 million kw.

A commission official attributed the skyrocketing demand to rapid economic expansion and booming fixed asset investment, whichboosted the chemical, construction materials and metallurgical industries.

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