CEC Report: Poor Market Competition, Poor Control of Power Grid Costs

The electricity system is nearing the ten-year reform cycle. In this round of reforms, the separation of plant and network brought about market competition, and the project unit price of power generation projects declined significantly. In the same period, the cost of power grid projects increased year by year due to lack of competition.

Recently, the State Electricity Regulatory Commission issued the “Circular on the Supervision and Control of the Cost of Power Engineering Projects during the Eleventh Five-Year Plan”.

Judging from the situation of cost control, the total cost of power engineering units put into operation during the “Eleventh Five-Year Plan” period has been declining. The overall trend of hydropower projects has been on a rising trend. Wind power projects have started to show a downward trend since they continued to rise. AC transmission line engineering An upward trend.

During the “Eleventh Five-Year Plan” period, the final cost of the new thermal power project final account unit is 3855 yuan/kW, which is 54 yuan/kW lower than that during the “10th Five-Year Plan” period. During the "Eleventh Five-Year Plan" period, only the reduction in unit cost will reduce the investment by about 19.6 billion yuan.

Yan Hong, director of the State Electricity Regulatory Commission for Power Transmission, said that the market's full competition has stimulated the enthusiasm of thermal power companies to strengthen project cost control. The increase in the production ratio of large-capacity and high-parameter units has led to a continuous decline in the unit cost of thermal power projects.

According to the statistics from the China Electricity Regulatory Commission, during the "11th Five-Year Plan" period, the proportion of ultra-supercritical and supercritical machine assembly machines put into operation in thermal power projects increased from 37% in 2006 to 63% in 2010. The proportion of machine assembly machines with 600MW and above was accounted for. From 49% in 2006 to 64% in 2010.

For hydropower projects, due to the construction of compensation standards for land requisition and resettlement, the cost of construction will be greatly increased. According to the report of the China Electricity Regulatory Commission, the final cost of commissioning of hydropower projects during the “Eleventh Five-Year Plan” period was 6,870 yuan/kW, an increase of 19.08% over the period of the “10th Five-Year Plan” period.

Among the 6870 yuan/kW cost of hydropower projects, the top three are construction projects (2591 yuan/kW, accounting for 37.71%), construction land acquisition and resettlement compensation (1337 yuan/kW, accounting for 19.46%), and electromechanical Equipment and installation engineering (933 yuan/kW, accounting for 13.58%).

Wind power is due to technological progress, the improvement of the level of domestic fan manufacturing, market competition factors so that the engineering unit cost significantly reduced. From 2007 to 2009, the cost of wind power projects continued to rise. In 2009, it reached the highest peak of 9252 yuan/kW, which fell in 2010 to 8895 yuan/kW.

Compared to the power generation enterprises, the inherent power of grid companies as a natural monopoly is insufficient. According to the report of the China Electricity Regulatory Commission, "Compared with power generation companies, there is a certain gap between the internal power generation cost control of power grid companies and the formation mechanism of market-based power grid engineering costs needs further improvement."

According to the report of the China Electricity Regulatory Commission, the unit construction cost of AC transmission line projects put into operation during the “Eleventh Five-Year Plan” period generally showed an upward trend, which was 17.93% higher than during the “Tenth Five-Year Plan” period. In 2010, the construction cost of 110kV-500kV final account units rose by 37.12%, 26.37%, 25.79% and 31.08%, respectively, compared with 2006.

The Electricity Regulatory Commission will attribute the increase in the cost of transmission lines to the external environment and policy changes in the project construction.

First, with the economic development, the scale of the city has expanded dramatically, and various development zones have been set up in various places. The difficulty of selecting line corridors and routes is increasing, and the meandering coefficient of line routes is increasing, resulting in increase in tensile strength, corner towers, and material consumption. With the increase, the investment in the engineering body has increased, resulting in a rise in the unit cost of transmission line engineering. Second, the substantial increase in the compensation fees for demolition and relocation also led to an increase in the cost of transmission line engineering construction.

A person in charge of the local dispatch office of the State Electricity Regulatory Commission stated: "Because of lack of market competition, power grid engineering cost control lacks motivation. To solve this problem, we need to increase the supervision of cost control and continue to promote the reform of the power system."

The power system reform started in 2002, completed the separation and reform of plant and network, and the progress of power generation project construction and marketization continued to increase. At the end of 2011, the nation’s power generation capacity reached 1.056 billion kilowatts, and the new installed capacity reached 700 million kilowatts in nine years, which is equivalent to twice the installed capacity of 350 million kilowatts in 1949-2002.

One of the five major power groups used "competitive competition" to describe the environment for the power companies. He said: “In the past ten years since the electric power reform, fundamental changes have taken place in the operating environment of power generation companies. Under the prevailing policy of on-grid tariffs, electric power companies have experienced fierce competition and reduced cost to improve profitability.”

In the report, the SERC estimates that among the different investors, China Resources Power Holdings Co., Ltd. has the lowest unit cost, and State Grid Energy Development Co., Ltd. has the highest price, which is 3426 yuan/kW and 4,523 yuan/kW, respectively.

“State Grid Energy is a direct subsidiary of a wholly-owned subsidiary of the State Grid. Since the plant network is not separated and there is no market competition, project construction costs cannot be reduced. China Resources has the highest degree of marketization, and its engineering cost has advantages.” The above-mentioned five major power sources analyzed.