Reform of the national power sector is a key component of the Communist Party of China's 12th Five Year Plan (2011-2015). In the plan, Beijing designated 5.3 trillion yuan ($840 billion) in funds for improving China's power generation and transmission systems, with the overall goal of significantly improving energy efficiency over the next three years. As Chinese Premier Wen Jiabao acknowledged in 2011, doing so will require a much more efficient, comprehensive and regionally integrated power grid.
Beijing aims to better connect the country's main domestic energy resources — coal and hydropower — to southeastern coastal provinces and emerging inland urban centers, where demand is highest. But China's geography makes this difficult. While industry and manufacturing are concentrated on the coast, the energy necessary to fuel them is locked in the country's northern and western provinces.
Inland Energy Resources
Coal, which currently provides roughly 80 percent of China's power generation, is mined primarily in landlocked northern provinces like Shanxi, Shaanxi, Inner Mongolia and Xinjiang. The coal is then transported by a combination of rail, road and inland waterways either directly south or, more commonly, to coastal ports such as Qinhuangdao and Dalian, where it is then loaded on southbound bulk freighters. In normal conditions, this long-distance transport system is severely strained by shipment volume alone. But it is also highly vulnerable to extreme weather, which causes delays that often trigger local blackouts and contribute to demand for overseas energy sources.
Similarly, Beijing's plan to further develop hydropower, which provides around 12 percent of the country's power generation, is hampered by the remoteness and ruggedness of southwestern China's geography. Most of China's hydropower comes from the Tibetan plateau and surrounding provinces, the size and mountainous terrain of which make building power infrastructure both difficult and expensive. Nonetheless, these provinces rely on hydropower for roughly half of their power generation, while their rivers supply between a fifth and a third of southern coastal China's energy.
Small-scale hydropower projects are common throughout south central China, but rapidly increasing demand in both central and southeast provinces combined with weak transmission has overwhelmed the system. Reaching Beijing's goal of producing 284 gigawatts of hydropower annually — much of this production will come from new projects along major Tibetan rivers like the Yarlung Tsangpo, Lancang and Nu — will require maintaining existing power lines while greatly expanding grid connectivity between Tibet, Sichuan and the southeastern provinces.
Until nuclear and natural gas resources become viable alternatives to coal (which could take at least a decade), connecting traditional energy resources like coal and hydropower more efficiently to the areas that demand it will necessitate improved transmission networks. While increased connectivity carries greater risk of more widespread blackouts, the alternative is worse in the long term: waste, inefficiency and a deepening energy imbalance, with coastal and urban demand outstripping China's domestic energy capabilities. Moreover, the disunity of the power network will be problematic for Beijing's larger goal of shifting industry and manufacturing to central provinces.
Obstacles to Connectivity
Beijing reformed the power sector in 2002, breaking up the State Power Company's monopoly and dividing control over generation and transmission among a handful of state-owned enterprises (SOEs). These reforms significantly improved power transmission by creating relatively consolidated regional power blocks, though even with that upgrade the transmission networks are still insufficient. Today, five companies manage around 80 percent of China's power generation, while grid transmission falls under the auspices of two companies: the State Grid Corporation of China (SGCC) and the Southern Power Grid Company (SPGC).
Structural problems persist, in part because the five major power companies rely heavily on burning coal but are unable to set electricity prices as coal prices rise. Despite Beijing's efforts in 2002 to increase efficiency by laying the foundation for competition in China's power sector, the SOEs lack an incentive to compete since the central government controls essential mechanisms such as pricing. This inability to create a thriving energy market exacerbates the SOEs' typical resistance to reform and compounds existing disparities in electricity connectivity between poorer inland areas and the wealthy coast.
This in turn poses a problem for the Party's effort to rebalance the economy by developing the vast and populous interior. Inertia, inefficiency and lack of coordination between regions mean that in the last decade the power grid system has not improved as quickly or as comprehensively as needed to accommodate the growing energy production and demand. Power is being produced, but without more effective transmission networks, it often has nowhere to go.
The major problem with China's current power grid is weak and inefficient inter-regional coordination. Although the SGCC controls five regional blocks (North, Northeast, Northwest, Central and East), these blocks are not well connected. This means that energy produced in Tibet does not flow easily to Sichuan, much less Hunan, Shanghai or Beijing. Likewise, different management systems for the SPGC and SGCC grids prevent direct power transmission to the coastal manufacturing hubs that need it most.
China's problem, then, is not a lack of energy, but rather the inability to fully utilize the power it generates. As the Party moves to develop central China, a more comprehensive and efficient power grid will be necessary and will require investment and further reform of the relationship between the state and the power sector. In China, that will take time.
