Splitting power and distribution little more than window dressing

LAST WEDNESDAY Guangdong province formally separated power generation and distribution assets that previously had been grouped under the umbrella of the Guangdong Electric Power Group.

The reform is supposed to pave the way for the eventual introduction of a competitive bidding system, under which grid operators will be free to buy power from the most competitive producers and drive down prices for consumers.

There is only one problem. As the state of California has recently discovered, all the competition in the world will not keep prices down if the demand for power exceeds supply.

Ever since last summer, when Guangdong imposed limits on power use for the first time in six years, the province's power sector has been struggling to meet demand. So far it has succeeded, and Guangdong looks likely to survive this summer without any of the brown-outs that plagued it last year.

But demand is expected to test supply limits in Guangdong for the foreseeable future, dampening the prospects for a competitive bidding system.

It was no accident that at the same time provincial power officials hailed the formal separation of their generation and distribution assets, they also admitted that it was 'still not clear' when competitive bidding would be introduced. Like a beautiful belle stood up by her date just before the ball is about to begin, Guangdong's shiny new competitive power industry is all dressed up with nowhere to go.

Under the reforms implemented last week, Guangdong Electric Power transferred 11,000 employees and assets valued at 71 billion yuan (about HK$66.5 billion) to the newly formed Guangdong Power Asset Management Co (GPAMC). The assets inherited by GPAMC include 19 thermal and hydro-power plants with a total installed capacity of about 9,000 megawatts - or roughly one-third of Guangdong's total.