Shanxi Encourages the Development of Park-Specific Distribution Networks; Pricing to Be Determined by the Market

On September 30, the Shanxi Provincial Party Committee and the Shanxi Provincial Government jointly issued a new document on power-sector reform, replete with numerous noteworthy highlights. The following points, in particular, have drawn significant attention: 
First, the issuing authority. Unlike typical documents on power-sector reform, this document—titled “Notice of the CPC Shanxi Provincial Committee and the People’s Government of Shanxi Province on Issuing the ‘Implementation Opinions on Supply-Side Structural Reform in the Power Sector’” (Document No. 35 [2016] of the CPC Shanxi Provincial Committee)—was issued by the CPC Shanxi Provincial Committee itself, with both the CPC Shanxi Provincial Committee and the People’s Government of Shanxi Province serving as the issuing authorities. The fact that a document was issued in the name of the Party committee and specifically addresses the power sector from the perspective of supply-side structural reform is, to our knowledge, a first in China. This alone is sufficient to demonstrate that Shanxi Province has elevated the importance it attaches to power-sector reform to a new level. This is undoubtedly excellent news for the ongoing power-sector reform. 
Second, the reform objective. The Opinions focus on advancing supply-side structural reform in Shanxi’s power sector, with a clearly defined goal: “reducing electricity costs.” This objective is highly representative, reflecting the stance of local governments that are vigorously promoting power-sector reform, and it also aligns with the fundamental requirement of “cost reduction.” It appears that lowering electricity prices will remain the primary objective for a long period to come. 
Third, the content of the document. Compared with previously issued documents, the contents of these “Opinions” are also highly noteworthy. For example, optimizing the spatial distribution of coal-fired power generation, stepping up transmission and distribution infrastructure development within provinces, carrying out energy-saving upgrades at coal-fired power plants, and allowing directly traded power plants to achieve their designed utilization hours—all contain aspects that deserve close attention. However, in comparison, the following points may inspire even greater imagination: 
With regard to the park’s distribution network, the “Opinions” explicitly state: “Taking the aluminum recycling industrial park as a pilot, we will attract social capital and adopt market-oriented approaches to build a park-based distribution network that is primarily an incremental distribution network. We will establish an operation model in which self-owned power plants assume social responsibility and market forces determine regional distribution-network prices, thereby ensuring low-cost, convenient, and reliable power supply for the park and promoting the stable and healthy development of Shanxi’s aluminum industry.” Note the key terms here—“social capital,” “incremental distribution network,” “self-owned power plants,” and “generation–supply–consumption model”—which, taken together, suggest the following vision: the park-based distribution network could be financed by social capital, with self-owned power plants supplying electricity to electrolytic aluminum and other enterprises within the park, while enjoying autonomous control over electricity pricing. 
On the joint operation of coal-fired power plants and high-energy-consuming enterprises: The “Opinions” on the one hand encourage deepening the integration of coal mining and power generation, stipulating that “for integrated coal–power enterprises in which the coal mine and the power plant are under the same controlling entity, the electricity consumed by the coal mine and the coal preparation plant may be included within the scope of the auxiliary power consumption of the supporting power plant”; on the other hand, they encourage collaboration between coal–power enterprises and high-energy-consuming firms, providing policies such as “where a coal–power joint venture and a high-energy-consuming enterprise are under the same investment entity, the electricity used by the high-energy-consuming project shall be counted as part of the auxiliary power consumption of the supporting power plant, and any surplus generation capacity after meeting the plant’s own load may participate in market-based competition.” In short, self-owned power plants are permitted to use as much of their output as possible for internal consumption, with any remaining capacity eligible for grid sales—effectively addressing the primary concern of self-owned power plants.