cut overcapacity, thereby transforming and
modernising the industry.
China has made major progress in shutting
down coal production facilities. With the help of
support policies, China has placed strict controls
on unsafe production, overcapacity and the illegal construction of mines, and has introduced
reward and subsidy measures. As a result, 290
Mt of cumulative coal capacity was cut in 2016,
which is almost 60% of the overcapacity scheduled for removal during the 13th Five-Year Plan
(2016–20). As stated in the Report on the Work
of the Government published in March 2017,
China will also shut down at least 150 Mt of coal
production facilities and reduce steel production
capacity by around 50 Mt. At the same time,
China will suspend or cancel 50 GW of coal-fired
power generation capacity.
China made limited progress in 2016 in
restructuring the coal industry and reducing
production capacity. The main reasons for this
are: (i) the companies to be merged had great
difficulty guaranteeing re-employment for workers; and (ii) companies to be restructured lacked
funds in the first half of 2016; when those funds
were made available in the second half of the
year they were considerably lower than expected,
which slowed down the restructuring process.
Reducing overproduction is an important part
of the goal of “cutting overcapacity, reducing
excess inventory, deleveraging, lowering costs
and strengthening areas of weakness” in order to
structurally reform the coal industry. In accordance with the decisions of the Central Committee of the Communist Party of China and the
State Council, China’s coal sector made further
efforts to reform the industry and cut overcapacity. Various measures were taken, including
restricting new capacity, shutting down outdated
production facilities and excess capacity in an
orderly manner, controlling illegal mine construction and expansion, and reducing production. As a result, coal production declined,
reducing oversupply to some extent.
From July 2016, as the excess coal inventory
lessened and coal demand grew, the coal price
rose rapidly and some regions faced shortages.
The reasons for the shortages were several. They
include rising thermal power output, increased
storage of coal for winter, better control of
over-the-limit road transport and adjustments to
the railway network, reduced overcapacity, production controls and curtailing illegal production.
However, it should be noted that coal demand
did not increase sharply: coal consumption in the
first 11 months of the year declined by 1.6%
against the previous year. There are still many
coal mines that are a safety risk or close to
resource depletion, use outdated technologies
and equipment, do not conform with safe production conditions and coal industry policies, or
have a production capacity of less than 300,000
tonnes per year, all of which make cutting coal
overcapacity a challenge.
2.9.2 Electricity System Reform
Measures Are in Place
and Making Significant
Progress
A multi-level pilot project was rolled out across
China in 2016 (excluding Xizang). Twenty-one
provinces implemented a pilot scheme for comprehensive electricity system reform, nine provinces and the Xinjiang Production and
Construction Corps launched a pilot system to
reform power retailing, and three provinces
piloted grid connections for renewable energy.
The power transmission and distribution price
reforms covered provincial power grids. In 2016,
China introduced the Measures on Supervision
and Review of Power Transmission and Distribution Prices with the aim of identifying and
reducing unneeded assets and unreasonable costs
in grid companies and establishing an incentive
and restraint mechanism. In addition, China disclosed the power transmission and distribution
prices of 12 provincial grids; the average historical grid cost reduction ratio stood at 16.3%.
Power generation and power consumption
underwent orderly deregulation. The formation
of electricity trading institutions was basically
completed in 2016. It involved creating a
medium-to-long-term electricity trading mechanism in 28 provinces to pilot cross-provincial
Special Report 4: China’s Energy System Revolution
421
modernising the industry.
China has made major progress in shutting
down coal production facilities. With the help of
support policies, China has placed strict controls
on unsafe production, overcapacity and the illegal construction of mines, and has introduced
reward and subsidy measures. As a result, 290
Mt of cumulative coal capacity was cut in 2016,
which is almost 60% of the overcapacity scheduled for removal during the 13th Five-Year Plan
(2016–20). As stated in the Report on the Work
of the Government published in March 2017,
China will also shut down at least 150 Mt of coal
production facilities and reduce steel production
capacity by around 50 Mt. At the same time,
China will suspend or cancel 50 GW of coal-fired
power generation capacity.
China made limited progress in 2016 in
restructuring the coal industry and reducing
production capacity. The main reasons for this
are: (i) the companies to be merged had great
difficulty guaranteeing re-employment for workers; and (ii) companies to be restructured lacked
funds in the first half of 2016; when those funds
were made available in the second half of the
year they were considerably lower than expected,
which slowed down the restructuring process.
Reducing overproduction is an important part
of the goal of “cutting overcapacity, reducing
excess inventory, deleveraging, lowering costs
and strengthening areas of weakness” in order to
structurally reform the coal industry. In accordance with the decisions of the Central Committee of the Communist Party of China and the
State Council, China’s coal sector made further
efforts to reform the industry and cut overcapacity. Various measures were taken, including
restricting new capacity, shutting down outdated
production facilities and excess capacity in an
orderly manner, controlling illegal mine construction and expansion, and reducing production. As a result, coal production declined,
reducing oversupply to some extent.
From July 2016, as the excess coal inventory
lessened and coal demand grew, the coal price
rose rapidly and some regions faced shortages.
The reasons for the shortages were several. They
include rising thermal power output, increased
storage of coal for winter, better control of
over-the-limit road transport and adjustments to
the railway network, reduced overcapacity, production controls and curtailing illegal production.
However, it should be noted that coal demand
did not increase sharply: coal consumption in the
first 11 months of the year declined by 1.6%
against the previous year. There are still many
coal mines that are a safety risk or close to
resource depletion, use outdated technologies
and equipment, do not conform with safe production conditions and coal industry policies, or
have a production capacity of less than 300,000
tonnes per year, all of which make cutting coal
overcapacity a challenge.
2.9.2 Electricity System Reform
Measures Are in Place
and Making Significant
Progress
A multi-level pilot project was rolled out across
China in 2016 (excluding Xizang). Twenty-one
provinces implemented a pilot scheme for comprehensive electricity system reform, nine provinces and the Xinjiang Production and
Construction Corps launched a pilot system to
reform power retailing, and three provinces
piloted grid connections for renewable energy.
The power transmission and distribution price
reforms covered provincial power grids. In 2016,
China introduced the Measures on Supervision
and Review of Power Transmission and Distribution Prices with the aim of identifying and
reducing unneeded assets and unreasonable costs
in grid companies and establishing an incentive
and restraint mechanism. In addition, China disclosed the power transmission and distribution
prices of 12 provincial grids; the average historical grid cost reduction ratio stood at 16.3%.
Power generation and power consumption
underwent orderly deregulation. The formation
of electricity trading institutions was basically
completed in 2016. It involved creating a
medium-to-long-term electricity trading mechanism in 28 provinces to pilot cross-provincial
Special Report 4: China’s Energy System Revolution
421