State Council backs blueprint in sector reform
The State Council has approved a much-awaited reform for China's near-monopoly State Power to spur competition in the sector.
The State Development and Planning Commission said yesterday the council would soon implement major tasks, splitting electricity generation from distribution, restructuring power generation and distribution assets. It will set up bidding systems for electricity prices and introduce competitive regional power markets.
It said the tasks were expected to be completed this year.
In addition, the commission for the first time singled out the role of Huaneng Group, the parent of Hong Kong and United States-listed Huaneng Power International.
'Recently, the State Council has approved the blueprint of the power reform and notified local governments to implement it seriously,' said the commission announcement. 'The purposes of the reform are: breaking the monopoly; introducing competition; improving efficiency; lowering costs . . . and liberalising a neat and healthy electricity market.'
As a result, it hopes more affordable tariffs will be achieved.
According to the blueprint, State Power, which owns about half the country's 300,000 megawatts of installed capacity, will reorganise its assets into two arms - power generation and power distribution.
After this, the power generation assets will be restructured and held through three or four national independent power producers (IPPs). Huaneng Group will be one of them.
With about 29,000 megawatts of installed capacity, Huaneng is the mainland's largest state-owned IPP and will not undergo any major restructuring.
However, the commission did not specify who the other national IPPs were. It has been reported they would include H share Beijing Datang Power Generation, Guohua Group, SP Power and possibly H share Shandong International Power Development.
An insider at State Power said: 'Huaneng Group has already achieved the national scale. It is five to six times bigger than Beijing Datang, for example. Therefore, it will take some years to grow a company the size of Beijing Datang into a Huaneng Group.'
The formation of national IPPs will facilitate the proposed setting up of a power pooling system, a mechanism that works by letting different power generators supply electricity to a grid in competition with each other.
The pooling mechanism will see electricity prices determined by supply and demand, with expectations it will lower prices.
Power pooling trials have been conducted in six provinces, including Shandong and Shanghai, during the past couple of years. The commission plans to test the feasibility of supplying electricity to large-scale consumers by IPPs to break the monopoly of power distributors.
To regulate the industry, a State Power regulatory committee will be set up.
Another key aspect of the reform is the restructuring of State Power's electricity distribution assets into two vehicles - National Power Distribution and Southern Power Distribution.
National will own five regional power networks - covering Shandong, Inner Mongolia, Fujian, Chongqing and Sichuan and supervise Tibet's electricity market.
Southern Power will be responsible for networks in Hainan, Guangxi, Yunnan, Guizhou and Guangdong.
Analysts welcomed the State Council's approval, but urged more disclosure on details of the reforms, such as the number of State Power generation assets involved in the changes.