China's power grid operators need to invest more in distribution networks to improve supply capacity as part of measures to address power shortage, the State Electricity Regulatory Commission (SERC) said.
Industry analysts and power executives have attributed the recurrent power shortages in world's second-largest electricity market largely to conflicts between a mostly free coal market and stiff government controls over the power sector.
Power generators have cut power generation when cornered into losses by rising coal prices as they are not able to pass rising costs on to grid operators, who purchase the majority of their output then resell to end-users at government-set prices.
Investments by State Grid Corp of China (SGCC) , the country's dominant distributor, on networks below 220 kilovolts (kV) trailed expenditure on 220-kV and above networks from 2006 to 2010, and the gap would widen from 2011 to 2015, the power industry watchdog said in an annual report.
SGCC favours a plan to build an ultra-high voltage (UHV) power transmission network -- at 800 kV for direct current power flows and 1,000 kV for alternating current -- that would greatly boost its long-distance transmission capacity and consolidate its control over regional grids.
The plan would require investment of more than 500 billion yuan ($78.4 billion) in the five years through 2015 alone.
Electricity networks below 220 kV are mostly distribution systems and those at 220 kV and above are transmission systems in China, although the division is not strict.
Spending on networks below 220 kV by smaller China Southern Power Grid Co Ltd had topped its investment in 220 kV and above networks since 2009, and the edge would be maintained until at least 2015, the report showed.
China is not short of overall power generating capacity as a breakup of the state power monopoly in 2002 introduced competition in power generation and construction, leading to rapid capacity expansion. But the buildup of power distribution and transmission infrastructure was comparatively slow as investments by the two grid companies who inherited most assets beyond generation on the power value chain have been insufficient.
Beijing had aimed to spin off auxiliary and non-core assets from grid operators by 2008 to clarify power transmission and distribution costs before finally allowing power generators and users to directly negotiate prices.
Only late last month did the government announce the spinoff, although the scope and scale fell short of earlier plans, with grid operators still holding a variety of assets including transmission and substation construction, as well as power equipment manufacturing, finance, insurance and media.
"(China should) speed up separating power suppliers from their affiliated companies and ending the monopolies of their affiliates in the power engineering market," the SERC said. "Steadily pushing forward the separation of power transmission and distribution and clarifying transmission and distribution costs will help form a fair and open power supply market."
Shi Lishan, deputy head of the renewable energy department under the National Energy Administration, told a conference last week that power grid reforms were needed to promote wind power development. ($1 = 6.375 yuan)
