Electricity

Electricity consumption in China has grown massively in recent years, and continues to grow fast. This is mainly due to a rapid and enormous urbanization process, and to increasing industrial and manufacturing output, especially in certain electricity intensive sectors, such as iron and steel, cement, buildings, and manufactured goods such as textiles, electronics and computers. The bulk of the country’s electricity supply is currently met from coal. However, the government is strongly committed to reducing the overall percentage that is supplied by coal due to the different social and environmental problems it causes. A somewhat contradictory situation now exists, in which the overall volume of coal being consumed continues to increase, while its percentage in the total energy mix is gradually decreasing.

Despite this, the efforts to reduce coal consumption are also driving the expansion of other sources of power, including large hydropower, nuclear energy, wind and solar energy.  Provision of electricity to rural areas has always been a political commitment of the government, and there has been a high level of provision. In recent years, solar PV and small wind technology has been particularly important in terms of ensuring access in the most remote rural areas. Although market reforms have meant that electricity prices are subjected to less political control than they were previously, there is nonetheless a high level of political control. This is important in order to maintain affordable electricity, both for domestic consumption and also for industrial consumption.

Increasingly, the geographical areas which are high consumers of electricity are located at a great distance from the areas which are the main consumers of electricity. This means there is a need to transport electricity from where it is generated to where it is consumed, and the power grid is becoming increasingly important. The electrical grid, which is essentially still a monopoly, is interested to maximize profits, making the relative bargaining power of each branch of the power sector more important. This means that, despite the fact that government has an overall policy in which the targets for different energy technologies and sources is determined, economic competition between the different energy sectors nonetheless becomes important in determining the country’s energy mix. This is especially so as ownership within the different branches becomes more concentrated.

In particular, the central role of coal in the energy mix also means that the coal companies have considerable political power and influence in terms of shaping the country’s energy mix and also electricity prices. Coal constitutes an important inertia factor in relation to moving towards other energy sources and industrial sectors associated with these sources. China’s coal industry is incredibly economically and politically powerful compared to these other branches of the energy sector. As coal mining consolidates into larger companies due to restructuring, this gives the sector greater corporate weight with which to compete with other sectors.  Another factor is that many industrial companies use coal directly, rather than using electricity. This benefits coal with respect to other sources of power. Another important concern is the inability to sell renewable energy due to companies’ reluctance to purchase it, due to the (real and perceived) lack of stability of supply as compared to coal.

Electricity generation in China is mainly dominated by 5 state-owned companies, the so-called “Big 5”. These are:  Datang, Huaneng, Huadian, Guodian, and China Power Investment Company. There are two major power grid companies: the National Grid, and Southern Grid. Increasingly, these companies are starting to expand overseas, especially in the context of the world economic crisis which has forced a rapid liberalization process on the power sector in many countries. Recently, Chinese power companies have made important infrastructure purchases in Portugal, and discussions are underway about buying Greek assets too. The international projection of these companies is likely to increase in the years ahead.