By Yu Huapeng
News, Special Report, Issue 567 to 571
Translated by Tang Xiangyang
Original articles: [Part i, Part ii, Part iii, Part iv]

In 1999, the State Council announced that the country wouldn't start any more big electricity projects for three years, which caused major power shortages in 2002. In 2004, these shortages were raised to the level of serious national problems.

That was just the beginning. In 2008 and 2010, national power shortages hit again. While the 2008 shortages were due to inadequate capacity, the shortages in 2010 were attributed to the combination of inflated coal costs and stagnant electricity prices.

According to official data, 74 percent of China's electricity is produced by coal-fired power plants, so increasing coal prices in recent years have put more pressure on power generators - which aren't allowed to set energy prices themselves.

In order to help keep a lid on inflation, the National Development and Reform Commission (NDRC), the central government body charged with broadly overseeing China's economy, has kept electricity prices almost unchanged for the past decade.

According to the China Electricity Council, 236 of the 436 thermal power companies that operate under the control of the five big state-owned power groups, suffered losses in 2010 and 85 of them are on the edge of bankruptcy due to the disconnect between the price of coal and energy prices.

Wholesale energy for commercial use was raised in 2011 and in July this year, the NDRC initiated a new policy of charging different prices for residential power usage depending on the amount of energy consumed.

In 2003, SERC was established with the hope it would independently supervise the energy industry. However, the NDRC remained the most powerful policy-maker in the industry, leaving SERC as little more than a rubber-stamp agency that issues licenses to new power generators.

Also in 2003, the State Council announced that it would press ahead with the second step of the reform plan, which involved separating out the multiple minor lines of business from the core business of the country's power distrubutors.

However this was suspended because of severe power shortages in 2004 and also the severe snow storms that hit the country in the winter of 2008, causing a lot of damage to power generating equipment.

In 2010, the State-owned Asset Supervision and Administration Commission (SASAC) finally resumed this reform. The secondary lines of business include everything from survey and design to repair and construction services. The integration and reorganization carried out as part of the reforms will create several dominant companies that will focus on the design and construction of power plant and equipment.

However, in 2009, State Grid had already purchased the Xuji Group and Pinggao Group - two leading electricity equipment manufacturers. These two companies, along with 16 other manufacturers, have combined into one giant manufacturer under State Grid.

After years of shuffling and separating major industry players in the name of breaking up the monopoly and reducing conflicts of interest, some industry leaders, like State Grid President Liu Zhenya (劉振亞), still favor keeping the distribution network (the wires running to businesses and households) and the backbone network (the high-voltage cables that run across the country) united.

Many of the central questions that prompted calls to reform the power industry ten years ago still remain unresolved.

Looking ahead, other major reforms on the government's agenda include reform of the system whereby power stations sell their electricity to the grid at a set price that varies according to how the energy was generated.

The second major reform is to split the grid into a distribution network (the wires running to businesses and households) and the backbone network (the high-voltage cables that run across the country).