China Energy Industry

China ‘faces imminent power-overproduction crisis’

21st Century Economic Report
August 9, 2005

Lin Boqiang, a leading Chinese energy economist with the Asian Development Bank, warns of the impending overproduction of power in China, a long-term problem that he says will be more serious than the short-term shortages the country has experienced.

Interview by 21st Century Economic Report with Dr. Lin Boqiang, energy economist at the Asian Development Bank in charge of a joint project with China’s State Electricity Regulatory Commission on electricity-pricing reform in China. Translated by Three Gorges Probe. 21st Century: Could you give a brief introduction to this joint research project? Lin Boqiang: The project is funded by the Asian Development Bank, and foreign electricity-regulation experts will be invited to participate. These experts will be asked to contribute their personal views, based on China’s current situation and on international experience as well. We’d like to see the research results be as objective and independent as possible. 21st Century: Why is the creation of regional power markets going so slowly in China? Lin: I don’t think “slow” is be a bad thing as long as the reform of the power sector is going forward. As far as power producers facing competition when it comes time to sell their electricity to the grid, this is easy to outline in theory but in practice it is very tough to balance the interests of the various vested interests. For example, the State Electricity Regulatory Commission has been working hard on power-sector reform in northeast China but has typically been blocked at every critical juncture. The problem is not a technical one, but rather, some unanticipated factors: the presence of vested interests and the lack of theoretical research on the issue. As we know, China’s economy is highly dependent on power, and the consequences would be too ghastly to contemplate were anything to go wrong with that power supply. 21st Century: Some people view China’s power-sector reform as simply tinkering with the organizational structure without touching the underlying system. What do you say to that? Lin: China certainly has difficulty copying indiscriminately the experience of foreign countries. What we have achieved so far is the easiest part of the job. Even the first stage of the reform was not a total success because much work remains to be done before we can say we have created a truly competitive system. Reform of the power market involves more than just breaking up the power sector [that is, separating electricity producers from distributors], though that does create a good platform for further reform. As I said, we’ve just done the easiest part and the hardest work lies ahead. We are still far from achieving a completely competitive power market. However, we don’t need to panic or to be unduly pessimistic or overanxious about seeing quick results. 21st Century: What do you think about the current power-supply situation in China? Lin: I am particularly concerned about the overproduction that is imminent. The latest statistics show that China is increasing its generating capacity by as much as 380 million kilowatts [in the next few years], 50 million kw of which came on stream last year and 330 million kw of which are in the pipeline. This means China will double its power-generating capacity in the next few years, and so no wonder it faces the prospect of overproduction. It’s true that China has experienced a shortage of power in the past few years, but I believe that overproduction is much more serious than underproduction. In my opinion, a power shortage has a limited impact, over a few years, whereas overproduction could have a long-term impact over several decades. When developing electricity supplies, it’s normal to experience either a slight shortage or small overproduction, but China has overdone the matter, and I believe that overproduction will become a serious problem in the future.

21st Century: Why has this happened? Lin: The government is responsible for this. It concerned itself with short-term issues, but failed to consider the matter from a broader and more comprehensive perspective. This wasn’t a big issue 25 years ago when China had a much smaller economy. At that time, remedial measures could be ta

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Categories: China Energy Industry

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