China’s power sector is in the process of transitioning from a vertically integrated, state-owned monopoly to an unbundled, market-oriented industry with many of the characteristics of reformed power sectors in other parts of the world. The process has been a prolonged one, having begun in the late 1980s when the government began permitting investment in electricity generation from sources outside the central government.
Since 2002, when a more recent wave of reforms further dismantled state-owned assets into a handful of smaller entities, the restructuring process has slowed considerably. Today the industry is suspended in a state between markets and planning. Generation markets are not yet functioning, and the needed improvements in its planning process have been neglected on the mistaken assumption that the competitive generation and regulated grid model will obviate the need for planning.
To achieve the original objectives of power sector reform—that is, to increase the overall efficiency of the sector; achieve a more rational allocation of risk and return among private investors, consumers and the government; spur technological innovation; and improve the industry’s environmental and carbon profile—China needs better planning and better markets. RAP has long been active in this area, working with the three chief decision-making bodies on power sector reform, the National Energy Administration, the National Development and Reform Commission, and the State Electricity Regulatory Commission. Today, as China turns to the next steps of power sector reform, it faces the question of separating transmission and distribution assets. RAP seeks to shine a spotlight on the implications of this decision for the national priorities of carbon intensity reduction and pollution control.