China

Major achievements

China is the third largest energy producer in the world, behind the United States and the Russian Federation, accounting for around 9.5 per cent of the world’s annual total energy production. It is also the world’s second largest energy consumer, behind the United States, and accounts for around 10 per cent of total global annual energy consumption. China’s electricity production is expected to climb at a rate of 4.4 per cent per year up to 2030.

The expanding economy has not only raised the population’s standard of living but has also created the need for a better overall infrastructure capable of supporting continued economic growth.

China has been very successful in developing its power infrastructure owing to structural reforms that have opened up new capital sources to supplement government funding and made possible a high rate of domestic savings.

In 2002, the Government took a major step in restructuring the country’s electricity sector by dissolving the State Power Corporation, which formerly owned 50 per cent of the power generation infrastructure and managed almost the entire power grid. The purpose of the restructuring was to separate power generation from the transmission system so that generators could compete against each other to sell their electricity.

China began opening its electricity generating infrastructure to outside investment during the 1980s and initiated reforms that encouraged the formation of power generation companies.

Major challenges

It remains an important challenge for China to introduce effective competition among power generators, all of which are State-owned, with fast-growing demand, a limited surplus generating capacity, a poorly interconnected power transmission grid system and lack of experience in power sector regulation.

Owing to the large increase in economic growth and the subsequent consumption, China has suffered more recently from power supply shortages in some provinces.

A number of environmental problems have also arisen due to this increase in consumption and the reliance on coal for electric power generation.

Energy sector targets and goals

The Government plans to continue increasing the total installed power generating capacity, which could reach around 500,000 MW by 2010. Fossil fuels are the primary fuel supply for electricity generation. However, the tenth Five-year Plan aims to increase the share of renewable energy sources to 31 per cent from the current 26 per cent.

One of China’s targets is to create a unified national power grid by 2020 and have a modern power market in which plants sell power to the grid at market-determined rates. As part of this goal, the Government has embarked on a project designed to bring electricity from hydroelectric plants and coal-rich provinces in the west to power-starved provinces in the east.

One of the main priorities for the future includes developing and utilizing technologies to solve the major environmental challenges currently faced. A number of policies are also being considered, such as adopting the “polluter pays” principle, allowing for accumulation of funds for pollution abatement, ensuring that fees charged for pollution are higher than the abatement costs and strengthening environmental laws. Future initiatives may also include restructuring the tax system to benefit environmental protection, and granting preferential loans and subsidies to enterprises that construct and operate pollution treatment facilities or produce environmentally friendly products.

Renewable Energy

China has possibly the largest hydroelectric resource in the world, a large portion of which is located in the remote southwestern part of the country. Slightly less than 20 per cent of China’s electricity is currently generated from hydroelectric power. However, under the tenth Five-year Plan, the Government aims to increase hydroelectric production.

There are large wind energy resources in the northern and eastern parts of the country and the Government plans to increase the use of this resource by 2010.

China is also gifted with significant potential for geothermal energy, though it is not greatly utilized at the moment. Currently, most geothermal energy in China has been used for space heating, agriculture, aquaculture, bathing and clothes dyeing.

Incentives such as tax breaks and subsidies have been created to encourage solar power development in China. This has resulted in the installation of more than 25,000 photovoltaic power systems, almost all of which are small off-grid systems.

In addition, China utilizes some refuse-fuel and wave power, though these are not likely to play a significant role in meeting the future energy needs of the country. The Government believes that there is considerable potential for utilizing coal-bed methane reserves.

Efficiency measures

In June 2002 the Cleaner Production Promotion Law was passed, establishing demonstration programmes for pollution remediation in 10 major Chinese cities, and designating several river valleys as priority areas.

Efforts by the Government to conserve energy and the adoption of more modern industrial equipment have resulted in an overall reduction in the energy intensity of the country. Further efforts have included a reduction in coal and petroleum subsidies and a move towards less energy-intensive services and higher value-added products.

However, the overall consumption of energy and resulting carbon emissions are substantial because of the country’s large population and heavy coal use.

Environment impact

The historical dependence upon coal for power generation has contributed to a number of pollution problems, including the deterioration of air and water quality and damaging human health. For example, the power sector contributes approximately 44 per cent of total sulphur dioxide emissions of the country, and 44 per cent of total carbon dioxide emissions, which are likely to increase to around 55 per cent by 2030.

In an effort to reduce the amount of pollution, the country is proposing to increase the amount of cleaner and renewable technologies for power generation, as well as reducing emissions from industrial boilers and motors.

China is currently responsible for slightly more than one-eighth of the world’s fossil fuel-based carbon emissions, ranking it second, behind the United States. Though the country has ratified the Kyoto Protocol, it is one of the Non-Annex I Parties, which means that it is not obliged to commit to reductions in greenhouse gas emissions.

In addition to the Cleaner Production Promotion Law and related programmes, efforts to offset coal consumption have also included the development of natural gas and coal-bed methane infrastructure, increasing the number of combined heat and power plants, adding approximately 3,000 MW of hydropower annually and developing renewable energy resources such as wind and photovoltaics for electricity generation.

Financial aspects

China’s investment requirements in electricity infrastructure over the next three decades will amount to nearly US$ 2 trillion, of which more than US$ 1 trillion will be for transmission and distribution.

The contribution from new investors has meant that the central Government’s share of financing declined from 100 per cent to 45 per cent in the second half of the 1990s. However, private investment still amounts to less than a fifth of the total, with government funding sources contributing 64 per cent to the total.

Coupled with the reforms were abundant domestic savings, amounting to around 40 per cent of GDP. These savings were also instrumental in enabling the power sector reforms.

Stakeholders

The responsibilities of the Chinese energy sector are primarily managed by the Energy Bureau within the National Development and Reform Commission (NDRC). The NDRC was established on the basis of the former State Development Planning Commission (SDPC), which absorbed part of the abolished State Economic and Trade Commission and State Council’s Office for Restructuring the Economic System.

Other important stakeholders include the following:

• State General Bureau for Environmental Protection, which enforces environmental standards;

• Ministry of Foreign Trade and Economic Cooperation, which evaluates projects involving foreign investment;

• State Electricity Regulatory Commission (SERC), which is responsible for regulating and managing market competition in the electricity industry and issues licences to power operators.