World Energy Outlook 2007

Most of the new generating capacity will be coal-fired, even though the adverse
impact of coal-fired generation on the environment is driving China to
accelerate the use of nuclear and renewables (mainly hydropower, wind and
biomass). The projected increase in coal-fired capacity is equal to about
1.5 times the current installed coal-fired capacity in all OECD countries. The
new coal-fired plants are expected to be concentrated in Shanxi, Shaanxi, Inner
Mongolia, Guizhou, Yunnan, Henan, Ningxia and Anhui, areas with
convenient and economical access to the coal resources. Hydro capacity is
projected to reach 300 GW by 2030. Wind power capacity will reach 18 GW
by 2015 and 49 GW by 2030, mostly onshore.
With China’s generation assets largely under the control of the state, generation
investments have been made primarily by state-owned or provincially-owned
entities, backed by government funding. Since the structural reforms initiated
in the mid-1980s, private investments have played an increasing role.
China is investing in the transmission networks and interconnections, as well
as regional power grids. Lack of adequate transmission in some areas has
prevented low-cost generation in one province or region from reaching a
neighbouring area. In recent years, China has developed interconnections
linking the six major regional grids in order to increase capacity to transfer
power from the country’s resource-rich west to the energy-hungry east,
optimising the distribution and use of its existing power resources. Pilot
projects are being undertaken for 1 000 MW high-voltage transmission lines.
Transmission investments accounted for about 40% of total investment in the
power sector in 2006. State Grid reports that, by the end of 2006, the
transmission network of 220 kV and above extended over 282 000 km and
that 40 000 km of transmission line of 220 kV and above is to be constructed.
Some key power transmission projects, such as the West-East Power
Transmission Project, are progressing smoothly. China’s 2006-2010 plan for
grid expansion focuses mainly on the construction of ultra-high-voltage
(UHV) lines of 750 kV or higher. Last year, State Grid started construction of
China’s first UHV transmission line. The 1000 kV alternating current pilot
project will link the south-eastern part of Shanxi province with Jingmen city in
Hubei province. State Grid also plans to develop an UHV grid connecting the
northern, central and eastern regions by 2020.
Electricity Pricing
Historically, until at least 2002, coal was sold to generators at prices below
market values. Prices were determined annually at an Annual Coal
Procurement Conference run by central government authorities. In 2004, the
NDRC adopted a new scheme linking coal prices for electricity generation to
on-grid wholesale power prices. The scheme allows generators to pass through
350 World Energy Outlook 2007 - CHINA’S ENERGY PROSPECTS