Full Text: Energy in China's New Era
VI. Deeper Reform of the Energy System in All Areas
China will fully leverage the decisive role of the market in allocating energy resources, and ensure the government better play its part in this regard. It will extend market-oriented reform in key areas and on vital issues to remove institutional barriers, solve the problem of an incomplete market system, provide strong institutional guarantees for China's energy security and boost the high-quality development of the energy sector.
1. Creating an Energy Market with Effective Competition
China is working hard to cultivate a variety of market entities, break up monopolies, ease market access, and encourage competition. It is building an energy market system that is unified, open, competitive and yet orderly, removing market barriers, and making the allocation of energy resources more efficient and fairer.
Diversifying market entities. China supports a variety of market entities to operate in segments of the energy sector that are not on the entry negative list, in accordance with the law and on equal footing. China has extended systemic reform of oil and gas exploration and exploitation and opened up the market in this regard. It has implemented competitive trading of oil and gas exploration blocks, and adopted a more rigorous exit mechanism for oil- and gas-bearing zones. China encourages qualified enterprises to import crude oil. It has reformed the oil and gas pipeline operation system to separate transport from sales. In an effort to reform electricity distribution, China is opening up electricity distribution and sales to non-government investment in an orderly manner, and is separating power grid enterprises' secondary business from their core business. New market entities are being cultivated in the fields of electricity distribution and sales, energy storage, and comprehensive energy services. Meanwhile China is extending reform of energy SOEs, supporting development of the non-public sector, and conducting active yet prudent mixed-ownership reform in the energy industry to boost the vitality and motivation of energy enterprises.
Building an energy market system that is unified, open, and competitive yet orderly. China has established trading platforms for coal, electricity, petroleum and natural gas to facilitate interaction between demand and supply. A modern coal market system is under construction. Futures trading of thermal coal, coking coal and crude oil and spot trading of natural gas are under way. Restrictions have been lifted on the generation and consumption of electricity by commercial consumers. An electricity market is under way to incorporate medium- and long-term trading, spot trading and other forms of trading of electricity. China is also working to build a unified electricity market across the country and a national carbon emissions trading market.
2. Improving the Market-Based Mechanism for Deciding Energy Prices
Following the principle of "allowing for more competition in electricity generation, sales and consumption while tightening government regulation of power grid, transmission and distribution", China has lifted price control over competitive areas and links. The goal is to allow prices to reflect market demand, and thereby guide the allocation of resources. It has also conducted strict government oversight of the determination of pricing to cover reasonable costs.
Lifting price control over competitive links in an orderly manner. China is steadily fostering a market-based pricing mechanism of commercial electricity generation and distribution, and allowing prices to be decided by electricity users, sellers and producers through market-based modalities. China has extended reform of the price-setting mechanism for on-grid electricity from coal-fired power plants, and introduced a market-based pricing mechanism in which electricity prices may fluctuate above or below the benchmark. Steady progress has been made in determining the price of on-grid electricity from new wind and solar PV power plants through competitive bidding. Relevant parties are encouraged to negotiate on the basis of sharing risks and benefits, and set through market-based modalities the price for trans-provincial or trans-regional transmission of electricity. The pricing mechanism for oil products is being improved. Reform is ongoing in having the market determine gas prices. China has enforced progressive pricing for household consumption of electricity and gas across the nation, ensuring basic living needs are met while encouraging conservation.
Appropriately deciding prices for natural monopoly operations. Allowing recovery of costs plus reasonable profits, China has set appropriate transmission and distribution prices for power grids and gas pipelines. It has analyzed costs and verified prices for electricity transmission and distribution over two regulatory periods. China has also stepped up the price regulation of gas transmission and distribution and analyzed gas costs in order to establish a price regulation system that covers the whole process of gas transmission and distribution.
3. Innovative Management of the Energy Sector and Improved Government Services
Working to become a service-oriented government, the Chinese government has further transformed its functions, streamlined administration, delegated powers, improved regulation and upgraded services. It employs strategic plans and macro-policies on energy, and mobilizes resources for major undertakings. Better oversight and regulation of the energy market will deliver better results and promote fair competition among all market entities. Putting people and lives above everything else, China has remained firm in its commitment to safe production in the energy industry.
Igniting the vitality of market entities. China has extended reform in the energy sector to delegate powers, improve regulation, and upgrade services. This includes reducing approval by the central government for energy projects and delegating the approval power to local authorities for some projects. The requirement for government review and approval has been rescinded for energy projects about which market entities can decide at their own discretion. The number of items of preliminary review has been slashed and the threshold for market access has been lowered, while supervision during and after production has been enhanced and standardized. "Access to electricity" services have been improved. As a result the time, procedures and cost needed for businesses to connect to the power grid have all been cut down. In addition, China has promoted the "internet plus government services" model, and expanded the practice of providing all energy-related government services at one simple window in localities where all relevant authorities have outlets, thereby improving one-stop services.
Guiding the allocation of resources. In addition to other plans, including special plans and action plans, China has drawn up and implemented the "Strategy for Energy Production and Consumption Revolution (2016-2030)" for developing the energy sector. These define the overall goals and key tasks, and guide investment in the sector. In order to encourage market entities to appropriately explore and utilize energy resources, China has refined its fiscal, taxation, industrial, financing, and investment policies, implemented a nationwide ad valorem tax on crude oil, natural gas and coal, and raised excise tax on oil products. It is building a green finance incentive system to promote new energy vehicles and develop clean energy. China also encourages Renminbi settlement for trading in bulk energy commodities.
Promoting fair competition. China has overhauled the government's regulatory power and responsibilities, and gradually transformed regulation of the electricity sector to comprehensive regulation of the entire energy sector. It has tightened regulation of electricity transaction, distribution and supply, the market order, equitable connection to the power grid, and grid investment, cost and efficiency. China has also reinforced oversight of the opening of oil and gas pipeline facilities to all eligible users, increased information transparency of pipeline operators, and increased the utilization rate of these facilities. Random inspection by randomly selected staff and prompt release of inspection results have been expanded to the whole energy sector. Efforts have been intensified to establish a credit system in the energy industry, created in accordance with law lists of entities that have committed serious acts of bad faith, and to take joint punitive action against such acts, hence increasing the effectiveness of credit regulation. China exercises prudential regulation of new business forms to develop new drivers of growth. It also keeps energy hotlines open to ensure oversight by the public.
Ensuring production safety. China has improved the accountability system for coal mine safety, raised the efficiency of coal mine supervision, regulation and law enforcement, created a standardized management system for coal mine safety, and built up its capacity for disaster prevention and control. As a result coal mine safety has much improved. Enterprises share the main responsibility for power safety, industry regulators share the regulatory responsibility, and local authorities have the overall responsibility for safety in their respective jurisdictions. Oversight and management have been improved to ensure cybersecurity of the electricity system, as well as the safety and quality of electricity construction projects. Safety risks in the supply of electricity are manageable in general, and there has been no instance of extensive blackout. Meanwhile, through stronger safety regulation of the entire oil and gas industrial chain, China has maintained safety in oil and gas production. Thanks to sustained efforts to improve its system and capacity for nuclear safety regulation, China's nuclear power plants and research reactors are generally safe and secure, and the quality of nuclear projects under construction is well controlled as a whole.
4. Improving the Rule of Law in the Energy Sector
Implementation of the rule of law is essential in the energy sector. It stabilizes expectations and creates long-term benefits. China aligns law making with reform and development in the energy industry, and has amended or abolished laws and regulations incompatible with the needs of reform and development in the sector. China adheres to the principle that administrative bodies must fulfill their statutory obligations and must not take any action that is not mandated by law, and sees that the government fully performs its functions in accordance with the law.
Improving the system of energy laws. More laws and administrative regulations concerning the energy sector have been formulated or amended. Supervision and inspection of the enforcement of energy laws and regulations has been intensified. The work to enact, amend or repeal regulations and normative documents in the fields of electricity, coal, oil, natural gas, nuclear power and new energy has been accelerated, in order to incorporate reform results into China's laws, regulations and major policies.
Improving law-based governance of the energy sector. China is working to ensure law-based governance and see that the rule of law materializes in the entire process of making, enforcing, overseeing and managing energy strategies, plans, policies and standards. To raise awareness of the law, it is developing a new paradigm that features interaction and mutual support between the government and enterprises, which will help create an enabling environment across the nation for respecting, studying and observing the law. China has adopted new practices in administrative law enforcement by introducing a nationwide system for disclosing information on administrative law enforcement, a system for recording the entire enforcement process, a system for reviewing the legality of major enforcement decisions, and an accountability system. China will ensure that the channels for applying administrative reconsideration and filing administrative lawsuits remain open, that cases are handled in accordance with laws and regulations, that the legitimate rights and interests of administrative counterparts are protected in accordance with the law, and that people can see in every case that justice has been served.
