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China - Energy Profile (Report)
China - Energy Profile (Report)
Energy Profile
China possesses abundant energy resources. However, the per capita
share of these resources and the volume of high quality supplies are on the
low side. Due to Chinas economic reform and market liberalization, the
development of its energy industry has been rapid, with its energy
production and consumption substantially growing.
I.
Energy Endowment
Chinas resources of traditional fossil fuels comprise mainly of coal.
High quality fossil fuels like oil and natural gas are low and insufficient in
comparison to coal. The total amount of oil and gas resources is at great
variance to the economic and social development of the Chinese.
In comparison to other countries rich in resources, Chinas main fossil
fuels can be characterized as abundant. However, its reserve-production
ratio (RPR) is quite low; and supply sustainability of resources is insufficient.
Although China has the worlds third most abundant remaining reserves of
coal, the huge quantities being extracted means that the RPR is only 35
years, equivalent to 29.7% of the world average. The RPR of oil is 21.4% of
the world average and natural gas 49.5%. In addition, given Chinas large
population, its per capita share of fossil fuel resources is lower than the
world average.
Energy Production
The energy production and supply framework has been based on coal
and centered in electricity, accompanied by the development of oil, natural
gas, new energy and renewable energy.
a. Coal Production
Coal, which accounts for 76.6% of Chinas total production in 2010 is
the basic energy resource. The country is in fact with high concentrations of
production areas, such as the provinces of Shanxi, Inner Mongolia, Shaanxi
and Henan. China has been the worlds top coal-producing country.
b. Oil Production
Also, 9.8% of Chinas energy production is sourced from crude oil. In
fact, China is the worlds fifth largest oil-producing country, after Russia,
Saudi Arabia, the USA and Iran. Given resource constraints, Chinas annual
oil production is almost at peak levels, with limited future growth. To this
day, Chinas oil production is shifting to the western regions and offshore.
Years of exploration and extraction have aged and limited the yield of the
major oilfields such as Daqing and Liaohe in the east. The western regions
and offshore oilfields are now the focus of Chinas oil exploration and
development believed to be the key in ensuring the stability of Chinas oil
production.
c. Natural Gas Production
Natural gas, meanwhile, comprise 4.2% of the total energy production
and production of such is entering a very rapid development stage with a
high production growth rate! In 2010, the total natural gas production of
China accounted for around 3% of the worlds natural gas production.
increase
the
countrys
energy
supply
and
reduce
the
Energy Consumption
At the same time, given the high growth of the transport sector and the
rise in the living standards of Chinese citizens, the shares of oil and natural
gas in end-use energy consumption saw a considerable increase. End-use
electricity continued its rapid growth, accounting for almost 20%.
In 2010 Chinas end-use energy consumption totalled 2.28 billion
tonnes of standard coal. The ratios of coal, oil, natural gas, electricity and
thermal power were 44.0%, 25.5%, 4.8%, 21.3% and 4.4% respectively.
IV.
China has the cheapest electricity in the entire world. While Germany
and Denmark have been leading the rank of countries with the most
expensive electricity rates in the world, China is found at the very bottom,
with electricity costing only 8 cents per kwH. In comparison to Germanys
35 cents per kwH and Denmarks 41 cents per kwH in 2011. The driving
force behind the changes in Chinas electricity rates is their government,
because of the high level of intervention and subsidy they have had since the
Peoples Republic opened its doors to the rest of the world.
V.
Investment
(Catalogue)
as
"encouraged",
"restricted"
or
target
electric
power
enterprise/project,
corresponding
variation
problem of reforming Chinas power sector lies in the structure of the sector
itself, which is a relic of Chinas planned economy. Thus, rising coal prices in
the 2000s strained power suppliers and promised a large gap between the
likely market rate of electricity and the rates fixed by the government,
making reform unacceptably risky for the Chinese government. But low coal
prices over the past year have expanded the profit margins of power
suppliers and shrunk the gap between currently fixed power prices and a
market rate of electricity pegged to coal. In essence, a window has opened
for the government to attempt market reforms in the power sector.
Liberalizing electricity prices essentially, letting them climb to
market rates means the removal of an implicit industrial subsidy as old as
the People's Republic of China itself. Because the price of electricity has
historically been fixed below market rates, costs to electricity consumers are
likely to go up over the long run. Liberalization will provoke resistance from
state-owned enterprises and entrenched interests that do not want to lose
what had been a longstanding power subsidy. Thus China has been trying to
go by its reform program slowly but surely.
In the opening and reform period, which started in 1978, China began
to transition away from a planned economy. In its place was a temporary
hybrid structure: the dual-track pricing system, in which a certain quantity
of goods were sold to the state at planned rates to continue supplying stateowned firms with cheap raw materials, while the excess could be sold at
market prices. Reflecting the government's continued desire to keep power
cheap, coal remained on the dual-track pricing system long after the prices
for most key industrial inputs had been liberalized.
Although the dual-track prices did not amount to full marketization,
dual-track coal rates increasingly exposed the power supply to the market
and led to higher input prices. Starting in the 1990s, the price and quantity
of "planned coal" became subject to contract negotiations between coal
producers and power producers at annual conferences hosted by the NDRC.
The commission capped contract prices below market rates, but the
negotiations gave producers more of a say in the price. Between the 1990s
and the mid-2000s, the NDRC gradually reduced its role in determining
rates.
In order to even out load peaks and valleys in the supply of electricity,
the highly fragmented grid system had to be developed, and as a result, two
of the worlds five longest HVDC transmission lines were located in China.
Since 2005, China found the need to operate the system more costeffectively and to attract clean technologies for power generation. This
necessity grew largely from international criticism regarding Chinas energy
mix, with its heavy reliance on coal as main source for electricity generation,
was joined by rising concerns of the populace over heavy CO2 and particle
pollution measures. It was further necessitated by the advancements in
science in finding alternative sources of energy that would be more
sustainable in the long run, which was particularly helpful for China as a
country that heavily relies on its industry. Thus, since 2005, the Chinese
government has intensified its efforts to privatize parts of the sector.
Whereas the transmission and distribution of electricity remained under
state control, the power generation market was partly opened to private and
foreign investors. This was considered as the partial liberalization of coal
prices, the first time this was ever done in China, which is 80% reliant on its
coal industry.
In April 1996, an Electric Power Law was implemented, a major event
in China's electric power industry. The law set out to promote the
development of the electric power industry, to protect legal rights of
investors, managers and consumers, and to regulate generation, distribution
and consumption. Sustainable development became a key phrase. The
Renewable Energy Law was enacted in order to adjust Chinas coal centered
energy structure and promote the utilization of renewable energy to realize
sustainable development from the supply side.
In 2012, China implemented a new electricity pricing system, multitiered with different price brackets depending on the users of the electricity.
This resulted from the falling demand and oversupply brought both Chinese
and international coal prices down, a trend that has continued to this day
(with the exception of a brief rally at the end of 2013). The price drop has
reduced a major obstacle on Chinese government action both upstream and
downstream along the power supply chain. The sharp fall in coal prices
diminished the gap between the prices of market coal and planned coal and
led the State Council to finally abolish the dual-track pricing system for the
commodity and fully liberalize its market. The low price of coal reversed the
longtime trend of high input prices that had strained the power supply chain
and stymied reform attempts. Even as end-user prices remained fixed in
2013, China's five state-owned power generation companies collectively
reported profits of $12 billion, primarily as a result of falling coal prices. In
Shenzhen, the cushion provided by expanded profit margins has given the
NDRC the leeway to experiment with the transmission tariffs charged by
China Southern Power Grid without worrying about sending the company
into the red. This pilot initiative will take pressure off Shenzhen power
consumers in the short term and harvest usage data that will be valuable in
planning further reform.
Over the decade up to 2013, renewable energy sources such as wind,
biomass and solar power capacities have been developed at an incredible
pace. Consumption of renewables in China ranged at about 43 million TOE
by the end of 2013. Also, with a newly installed wind capacity of about 16
GW in 2013, Chinas wind park displayed the largest growth pattern
worldwide.
Apart from renewable energy sources, China has put a focus on the
development of nuclear power over the past years. The investment structure
of the electricity sector in China suggests a shift of investments from
thermal and wind power towards nuclear and hydropower projects by the
end of 2013. Overall investments in the sector had reached around 760
billion yuan in 2013, with around 390 billion being directed into grid
development projects. As of 2015, Chinas wind power capacity is now
bigger than the United Kingdoms total electricity supply. Wind energy is
China's third-largest power source behind coal and hydropower, and ahead
of nuclear, while its top five turbine manufacturers - Goldwind, Guodian
United Power, Envision, Ming Yang and Sewind - led the market with a
combined 12.4GW, or 60 per cent of total installed capacity.