The pace of reform in China’s electricity market is gathering speed after stalling for a decade, with a barrage of policy documents released in recent months that point to rising competition and further pressure on prices amid oversupply.
Large power users, particularly energy-intensive manufacturers such as iron-ore smelters will emerge as the biggest winners, while the least efficient and most pollution-prone power generators will be hit the hardest.
This time around, helped by the biggest industry surplus capacity in almost four decades, analysts say the reform will likely go further than the last round, when power shortages saw wholesales prices soar, forcing regulators to call an abrupt halt to the short-lived reform experiment.
“Due to the current severe overcapacity, power prices can only go down as more and more competition is introduced,” Hu Xinmin, a senior manager at electricity industry consultancy The Lantau Group said.
Beijing first experimented with regional-scale pilots 12 years ago for market-based power trading in northeast China, which was rolled out subsequently in eastern China, with 10 to 15 per cent of the power sold subjected to tariff bidding.
A key part of the 2002 reform was meant to see efficient producers taking market share from weaker ones on the basis of offering lower tariffs, so that the entire supply chain would become more efficient and consumers would benefit.
