We describe China’s state institutions, the electric power control system, and past reform efforts, including the challenges of implementation within the existing governance structure. This context is key for designing future reforms and carbon pricing.
- During a period of electric power shortages in China in the 1980s, the state monopoly was ended and independent generators were permitted to come online.
- A “fair dispatch” principle was implemented—generators in a given class were given equal utilization hours, regardless of energy efficiency or pollution control effectiveness.
- Efforts to reform the dispatch system to improve efficiency and reduce pollution—among them, generation rights trading and direct contracting between generators and large consumers—did not fully succeed due the governance structure.
- Provincial governments have primary authority over the electrical system, and state companies have monopoly ownership of the grid.
- The power system is considered a key component of the provincial economy; efforts to reduce output from less-efficient generators were strongly resisted by provincial governments.
- In 2015 and 2016, a new major reform process was proposed, including the introduction of spot markets and curtailing the power of the state grid companies. Separately, the government hopes to introduce a national carbon emissions trading system in 2017.