China shows SA the way ahead: Ends State monopoly over electricity sales

By Aibing Guo

(Bloomberg) — China said it will end the monopoly of state-owned power distributors over electricity sales by allowing end users to negotiate prices directly with generators.

Generators will be able to sell power to customers through regional power trading platforms, the country's top economic planning agency said in a statement on its website Monday. As part of the plan State Grid Corp. of China, China Southern Power Grid Co. and the Inner Mongolia Power Group Co. will operate networks and carry electricity for a government-set fee.

"Direct power purchase will help restore electricity's commodity character and is an important step toward fully opening-up China's electricity market," the National Development and Reform Commission said in the statement on its website. "Direct trading will bring end users benefits" as low coal prices and power oversupply push down rates.

Power is among the industries in President Xi Jinping's drive to overhaul the nation's bloated state-owned businesses and allow market forces to play a bigger role in the allocation of resources.

The recent revamp has been in the works for a while. In September, China expanded direct power sales to seven cities with plans to add more cities to the pilot program, an NDRC official said that month. The government is also setting up power-trading platforms to facilitate those direct sales.

Currently, State Grid, China Southern Power Grid and the Inner Mongolia Power Group manage transmission, distribution and the sale of power. State Grid accounts for 80 percent of all power-sector transactions in the country, according to Bloomberg New Energy Finance.

"If properly executed, power users in most regions can get lower prices as they'll have a couple of suppliers lining up to sign them as a customer, " said Shi Yan, a Shanghai-based analyst at UOB-Kay Hian Ltd.