The timetable for the power sector reform is fully brought forward and intensive launch of new policies is forthcoming. It is learnt that after the approval of schemes for power sector reform in 13 provinces and cities, the long-waited core supporting documents like the Management Methods for the Entry and Exit of Power Selling Companies, the Management Methods for Decontrolling Power Distribution Business in an Orderly Manner, the Basic Rules for Medium and Long-term Power Trading and etc. will soon be implemented too.
As reported by the Economic Information Daily on Sept. 13, the piloting of allowing social capital to be involved in incremental power distribution and sales business will be advanced. 100 companies will be selected for the piloting across the state. In principal, the selection will be done through bidding in a fair, just and open manner; meanwhile, mixed ownership will also be taken into consideration and sole proprietorship is not allowed. At present, applications by various places are in full swing and the competition is fierce. Industrial parks become hot “test fields”.
The Central Committee of the Communist Party of China and the State Council had issued the Opinions Regarding the Deepening of the Power Sector's Reform on March 15, 2015, marking the beginning of “cracking a hard nut”. A great highlight is that it is proposed to steadily advance the power selling side reform and allow gradual infusion of social capital in the power sales business. Zeng Ming, a professor at the North China Electric Power University, once remarked that “it marks that China’s monopoly system in power sales and distribution business will be fully changed. Just as the practices in countries like France and the UK, private capital in China will also be allowed to invest in newly-added power distribution network and establish power selling companies”.
Guangdong province and Chongqing Municipality were first selected to pilot the special reform in power selling side at end 2015. As of August 2016, 127 power selling companies are on the list of the Economic and Information Commission of Guangdong Province. 12 billion kilowatt hours of power are traded through concentrated bidding in six months. Incomplete statistics show that around 600 power selling companies are set up by now across China.
“However, the decontrolling of power distribution network should be slowed down.” In the eyes of Shen Cheng, an analyst with Zhongtai Securities, power distribution network naturally sees monopoly. Blindly pursuing faster decontrolling might bring hidden troubles to the security of power grid and social stability. Meanwhile, due to the overall sufficient power supply, the benefits brought by the decontrolling of power selling side do not exercise much impact the profit model of power grid enterprises. But the decontrolling of incremental power distribution grid truly jeopardizes the core interest of power grid enterprises, meaning greater resistance ahead.
It is learnt that some areas once proposed that power producers invest in the construction of special power transmission and distribution lines for direct power supply to users, but the proposal was rejected by many power grid enterprises. Controversy about the legality of incremental power distribution, the classification standards of power and transmission and distribution, the impact on the security of power grid and etc. never stops.
However, everything has changed now. Recently, the electricity reform department held a meeting to speed up the pilots which allow social capital to participate in incremental distribution and sales of electricity and support liberation of incremental distribution and sales of electricity to social capital. As required by the above documents, various investors are allowed to make investment in electricity distribution network but they need endorsement of some state-owned enterprises in early stage. They can establish equity-diversified companies via mixed ownership to obtain operation right of incremental electricity distribution network and can provide the minimum electricity service and value-added service.
Under this circumstance, the National Development and Reform Commission issued urgent document, proposing 100 pilots of incremental electricity distribution across the country and requiring various regions to submit 3-5 projects. In the opinions of insiders with Shen included, the effort made to boost the electricity reform is more than expected, and it is not merely a pilot in general sense but is the beginning of revolution of electricity distribution network. According to a document released by the National Energy Administration last year, investment amount in construction of electricity distribution network will not be less than 2 trillion yuan during 2015 and 2020 and total investment amount will be no less than 1.7 trillion yuan during 2016 and 2020. Total investment amount of 100 pilot projects is expected to reach 50-100 billion yuan.
It is noteworthy that regional power grid is one the major focuses of current incremental electricity distribution business pilot. “Our branch in Hunan province has set up a power sales company and we will also establish our own sales companies within this year with personnel in place already. Meanwhile, Chenglingji Hunan new port area has reported increment electricity distribution pilot, and our company is one of the participators.” said the head of power plant under Hunan branch of a power generation group.
It is put forward in proposal on power system reform pilot of Gansu province, which has been approved, that it will arrange Lanzhou new area, Pingliang industrial park and Guazhou resource utilization industrial park in Jiuquan city to pilot the special reform of power sell-side, encourage developing incremental electricity distribution business via mixed ownership, and orderly liberate investment in incremental electricity distribution to qualified market entities. Shanxi province will first carry out pilot in self-supply area of large enterprises including coal mine group and national and provincial industrial
parks.
Zeng Duohong team thinks that there are nearly 200 national industrial parks and more than 1,300 provincial industrial parks, but ownership of power grid in these industrial parks is not divided in a unified way. The first kind is wholly owned by government, namely management committees under industrial parks. These management committees will generally hand over assets of electricity distribution network to power grid companies. This is a big piece of cake and government may split with power grid companies to find new partners. The second kind belongs to power grid companies. The third is owned by government and power grid companies together. Just like Guian new area in Guizhou province, the two parties become shareholders of the area with asset investment and capital investment by introducing social capital to establish a company integrated with electricity distribution and sales.
Translated by Jennifer Lu and Vanessa Chen
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