The Chinese government responded to the short-term oversupply in part by implementing a drive to close down small thermal power plants and by imposing a freeze (with a few exceptions) on the construction of new power plants. This was put into effect last January.

Until recently, the backlog of projects approved in the mid-1990s had kept pace with demand increases. With a power shortage looming, the Chinese government in the first half of last year approved 30 new major electric power projects, with a total of about 22 gigawatts (GW) of capacity. Construction has begun on 17 of these projects. A total of 18.5 GW of new capacity is scheduled to be completed this year.

According to an independent report by the Energy Information Administration (EIA) of the United States government, the largest project under construction, by far, is the Three Gorges Dam. When fully completed in 2009, it will include 26 separate 700 megawatt (MW) generators, for a total of 18.2 GW.

On the upper portion of the Yellow River sits another large hydropower project involving a series of dams. Shaanxi , Qinghai , and Gansu provinces have joined to create the Yellow River Hydroelectric Development Corp, with plans for the eventual construction of 25 generating stations with a combined installed capacity of 15.8 GW.

A major issue for China's electric power industry is the distribution of generation among power plants, says the EIA report. China's stated intention is to build a unified national power grid, and to have a modern power market in which plants sell power to the grid at market-determined rates.

This September saw the successful connection of the power grids of north and central China, being the first of its kind and forming the world's biggest grid - and making mutual electricity transmission between the two grids possible.

Consultants, requesting anonymity, say this national connection is similar to 'holding hands'. When there is a shortage, other grids connect under 'state unified direction' to supply electricity to under-supplied areas as soon as possible, they say. Through further connections, future electricity generated in the Three Gorges in central China will be directly transmitted to the Beijing area.

However, all these projects failed to avert the power shortages experienced in many parts of the country this year.

Since the end of June, blackouts were imposed in 19 provinces and municipalities, including the prosperous Yangtze River Delta, to lighten the pressure on the overloaded power grids.

According to reports from People's Daily, a local newspaper based in China, east China, Shanghai, Jiangsu and Zhejiang successively hit the record in using the electricity and recently Shanghai temporarily switched off the electric supply in about 1,000 enterprises for power-restricting.

Experts forecast that Shanghai's largest power load will exceed 13.5 million KW this summer and have a shortage of 10 million KW in the power-using peak-hours. For many years, Guangdong Province has also been confronted with power-supply problems.

So why the sudden surge power outages?

An analysis done jointly by the newly-formed State Electricity Regulatory Commission (SERC) and the China Electricity Council (CEC) gives four reasons.

Firstly, in some regions in the past few years growth in installed capacity was lower than the demand. Secondly, economic growth in some regions was greater than originally forecast, particularly in Jiangsu, Shanghai, Zhejiang, Fujian and Guangdong.

The third reason for the blackouts was a 'sharp increase in electricity usage by heavy industrial users whose growth had previously been stable'.

Lastly, the linkage between power generation and the grids has been weak.

'One of the problems has been a poor balance between hydro and thermal generation,' the report says. Therefore, the shortage was 'exacerbated' when there were fewer water supplies.

Joseph Jacobelli, vice-president and AsiaPac Utilities analyst at Merrill Lynch says: 'The weakness of the interconnection among the various grids should be found to be the major reason out of the four reasons for the shortage in the summer.'

It is not something the planners did not know about, says Mr Jacobelli. 'In our opinion, the planners were already keenly aware of the aforementioned problem even before the summer shortages.'

The real reason could have been because the planners were not 'too cautious', resulting in 'distribution inequality', he says.

Nevertheless, periodic blackouts are set to continue in the coming months, according to a China Power Enterprise Association report in April.

However, Mr Jacobelli says the situation 'is not as bad as in other countries like the US. In China it was done as a control situation rather than a situation that was out of control'.

China's answer to the energy problem may lie in reformation and in the opening up of its energy market.

The country has already broken up the state-owned State Power Corp of China (SPCC) late last year, resulting in the establishment of five independent electricity generating and two transmission companies: State Grid (SG) and the State Southern Grid (SSG).

To oversee this growing sector, a ministerial-level industry watchdog the SERC, was also founded in what analysts called a major breakthrough for the sector. As the first ever supervisory body for public utilities, the commission will supervise and put in place industry rules.

The State Council has also mandated that the 1996 Electricity Law, which took 10 years to draft, will be amended by the end of this year.

Although many critics say these reforms are being implemented too slowly, Mr Jacobelli feels the current pace 'is the right pace - slow'. He adds that the reforms have major implementation hurdles including ownership complexities.

Although bullish about the prospects of reform, he points out that the power of tariff determination may be the telling factor.

'That power currently resides with the National Development and Reform Commission (NDRC), formerly the State Development and Planning Commission (SDPC), not with the regulator SERC. The problem for the SERC as the power regulator is that is has no power,' he says.