Comprehensive Q&A on China's power supply, electricity rationing, etc.

China's economic planner NDRC speaks

The ongoing power cuts and related energy supply issues are all over the news at the moment, both internationally and domestically.

On Wednesday, Sept. 29 evening, the National Development and Reform Commission, commonly known in English as China’s economic planner, published a comprehensive document explaining in detail the measures that China is taking to address the supply of energy (coal and natural gas), the rationing of electricity, the upcoming heating to numerous households in northern China, and many other related issues.

Some highlights:

We shall ensure that the capacity of coal- and gas-fired power plants be fully utilized.

We will 适度 appropriately/moderately increase coal imports. We shall support enterprises to make good use of international resources, maintain an appropriate import scale to effectively supplement domestic supply. 

We will instruct (have instructed?) enterprises to make early arrangements to purchase spot LNG resources.

There will be a list of end-users that when necessary their use of electricity will be limited, but they will be informed well in advance.

We shall guide all regions to effectively organize electricity market transactions, strictly implement the market-based price mechanism for coal-fired power generation in which electricity prices may fluctuate above or below the benchmark, enable more electricity to enter the market for transactions, and do not improperly interfere with the normal floating of market prices within a reasonable range so that prices can reasonably reflect changes in electricity supply and demand and costs.

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This newsletter represents neither the writers’ day-job employer nor the Chinese government. This translation is done in after-work hours without state aid. So the translation shall be seen as neither official nor authoritative, though it was done to the best of the writers’ abilities.

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国家发展改革委经济运行调节局负责同志就今冬明春能源保供工作答记者问

Q&A from the Comrade in Charge of the Bureau of Economic Operations Adjustment of the National Development and Reform Commission on Energy Supply Work for This Winter and Next Spring

Question 1: Recently, some regions limited electricity to end-users and triggered concerns in the society about the energy supply in winter. What measures are the National Development and Reform Commission prepared to take to safeguard energy supply in winter?

Answer: The Communist Party of China Central Committee and the State Council attach great importance to energy supply during the heating season and have made systematic deployment and arrangements.

In view of the recent tightening of energy supply vis-a-vis demand, the National Development and Reform Commission is working with relevant parties……and focusing on six aspects of measures to ensure a stable supply of energy this winter and next spring, to ensure the energy security of residents.

First, multi-channel increase in energy resources to ensure supply. In accordance with the law and regulations, we shall release advanced coal production capacity, increase coal imports in an orderly fashion, strive to increase domestic natural gas production, maintain stable imports of gas via the pipeline from Central Asia, and ensure that the capacity of coal- and gas power-generation be fully utilized.

Second, we will give full play to medium and long-term contracts, which shall play the role of an anchor. We shall promote the direct guarantee and full coverage of medium and long-term contracts of coal supply for power generation and heating, sign annual and heating season gas supply contracts in an all-round way, and lock in resources as soon as possible. 

Third, we will further improve rationing of energy in an orderly manner, guide local governments to scientifically and rationally formulate energy rationing schemes, improve the dynamic adjustment mechanism, and make sure that users are informed and related terms are agreed upon in contracts, so as to ensure that the schemes are actionable and scientifically implemented. 

We shall adhere to the baseline of ensuring energy supply for people's livelihood and resolutely avoid limiting residents’ energy consumption. 

Fourth, we will give full play to the important role of energy reserve and emergency support capability. We shall supervise power plants to raise coal storage to a safe level before the heating season, accelerate the capacity building of emergency standby and peak shaving power supply, strictly implement the gas fulfillment/injection plan in gas storage facilities, and ensure full-filling before winter. 

Fifth, we will rationally distribute energy costs. Under the condition of ensuring the stability of energy prices on people's livelihood, agriculture, and public welfare, the production and operation costs of energy enterprises should be reasonably distributed in strict accordance with the pricing policy. 

Sixth, we will effectively control unreasonable energy demand. We shall resolutely curb the unreasonable energy demand of projects with 两高 “two highs” - high-pollution and high-emission, and promote major coal-consuming industries to save coal and limit the use of coal.

In recent years, we have implemented the decisions and arrangements of the CPC Central Committee and the State Council, persistently promoted the system for energy production, supply, storage, and marketing, and steadily improved the capacity of energy supply. China's energy supply will be guaranteed this winter and next spring, and we have the resources, conditions, and ability to ensure the people live through winter in warmth.

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Question 2: The northeast is the top priority of the winter energy supply. Concerns in society are high. What targeted measures will be taken to ensure supply?

Answer: In the northeast, the weather is cold, the heating season is long, residents have a high demand for heating, and concerns from society are high. Doing a good job in energy supply in winter for the northeast is a major responsibility and extremely critical. The National Development and Reform Commission will work with relevant departments to increase coordination efforts to the northeast and prioritize resources for the northeast, to ensure the smooth operation of energy supply in the northeast.

First, increase the effective output of power generation in the northeast. We will organize (have organized?) central-level power generation enterprises to make reasonable arrangements in the maintenance of power generators, taking into consideration the heating needs in heating periods.

On the premise of ensuring safety, we will improve the operating capacity rates of coal-fired power generators to effectively enhance the power supply capacity. Optimize the operation of electricity, strengthen the coordination and mutual help between the northeastern provinces, and reasonably adjust the outgoing electricity from the northeast.

[Note: Northeastern China, namely Heilongjiang, Jilin, and Liaoning provinces - and sometimes including some eastern parts of Inner Mongolia autonomous region, is a net exporter of electricity to other parts of China.]

Second, ensure a full supply of coal for power generation in the northeast. On the basis of the annual medium- and long-term contracts for coal supply that have been signed, we have additionally organized a number of companies in production, transportation, and end-user enterprises to sign medium- and long-term contracts. By that, we have achieved full coverage of the medium- and long-term contracts for coal for power generation and heating in the three northeastern provinces, which means that coal resources for power generation and heating in the heating season have been ensured.

At the same time, a number of coal mines with good conditions were selected in the Shanxi-Shaanxi-Inner Mongolia regions as the key emergency coal mines for supply in winter, where the production capacity will be released in phases during the peak period in coal consumption, focusing on the northeast region.

We have guided power generation and heating enterprises to increase the procurement of imported coal, locking resources and prices in advance so that the coal that should be imported shall be imported as early and as sufficient as possible.

Three, promote electricity rationing management in the northeast. We have guided the northeast region to further improve their electricity rationing plans, to ensure that electricity for residents, agriculture, and other areas concerning livelihood is not affected.

We have established (we will establish?) a joint working mechanism between government departments and the state power grid enterprises at all levels, to make sure that users must be informed in advance in case of electricity rationing/power outages, encourage and guide users to take the initiative to avoid electricity consumption at peak hours/times.

We will resolutely achieve 限电不拉闸 "when we have to ration electricity, we don’t switch off electricity" and 限电不限民用 "when we have to ration electricity, we don’t cut residential use".

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Question 3: In this year's work of ensuring energy supply through peak use in winter, how to ensure the energy needs for people's livelihood are met and the people are safe and warm through the winter?

Answer: General Secretary Xi Jinping always cares about the people's livelihood, and has made many oral and written instructions on ensuring the people's energy needs and on ensuring that the people are safe and warm through the winter. Premier Li Keqiang and other leading comrades have made important instructions and work plans for the protection of people's livelihood with energy.

The National Development and Reform Commission, together with all the regions, relevant departments, and enterprises, adhere to the people-centered development thinking, always ensures that the livelihood of the people is the top priority in the work of ensuring energy supply.

First, energy use for the livelihood of the people will be under full protection. Energy use for people's livelihood, as a percentage of our overall energy supply, is not high. Residential electricity accounts for less than 20% of all electricity use, gas for people's livelihood accounts for less than 50% of all gas use. We have the ability and conditions to give them full protection.

To ensure that, a very important measure is put the supply for them under energy contracts. To this end, coal companies have been organized to sign medium- and long-term contracts with electricity power generation enterprises, to achieve full coverage of coal for power generation and heating.

At the same time, we have organized gas supply enterprises to sign contracts with all the regions to achieve full coverage for gas for people’s livelihood. All regions are required to include gas for buses and cabs/taxes in the scope of gas for people’s livelihood to ensure protection.

Second, the prices of energy for people’s livelihood are regulated to be stable in strict accordance with the country’s pricing policy.

China has a clear pricing policy for electricity and gas for people's livelihood. Electricity for residential use is priced by the government. For gas for residential use, we implement a benchmark station pricing management system, which allows a reasonable floating margin based on benchmark station price.

In the current situation of international energy prices, all relevant parties have implemented these policy requirements well. The price of electricity and gas for people's livelihood will be fundamentally stable in strict accordance with the pricing policy.

Third, improve the responsibility mechanism and technical conditions to effectively improve the security of energy for people’s livelihood.

In recent years, with the people's living standards continue to improve, the energy demand for electricity, gas, and heating in peak times during winter has been rising. That increases the difficulty in peak shaving and ensuring supply.

In some hours/times, we must insist on putting people's livelihood first, coordinating to balance the relationship in energy use between people’s livelihood and industrial & commercial use. To this end, we have organized all regions and coal, electricity, natural gas supply enterprises to establish a list of interruptible users in peak shaving, and have developed a plan to reduce energy use at such times. When necessary, we will implement “protecting the energy use for people’s livelihood and suppressing other energy use” in a scientific and orderly fashion, in which case we will safeguard the baseline for energy use for people’s livelihood, and at the same time minimize the impact on economic and social development.

Protecting energy for people's livelihood is the common responsibility of people's governments at all levels and related enterprises.

The local government must fulfill the main responsibility of safeguarding energy for people’s livelihood, and the energy supply enterprises must shoulder the responsibility of supplying that energy. As long as the relevant parties effectively fulfill their responsibilities and implement the prepared measures for ensuring supply, we are fully able to meet the energy needs for people’s livelihood, and ensure that the people are safe and warm through the winter.

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Questions 4: What will be the power supply and demand situation in the peak period during the upcoming winter? What measures will be taken in the next step to ensure the power supply during this time?

Answer: This winter, affected by factors such as stable economic growth and rapid increase in electricity consumption for heating, it is expected that the highest electricity consumption in China will gradually rise, possibly exceeding the peak in this summer and last winter. 

The National Development and Reform Commission, together with relevant parties, will make every effort to step up the power capacity to ensure supply, strengthen operation coordination and dispatching, and ensure reliable power supply. 

This winter, the total installed capacity in China will reach about 2.4 billion kilowatts, an increase of about 200 million kilowatts year on year; the effective peak load will increase by more than 60 million kilowatts, and the peak power generation capacity can exceed 1.2 billion kilowatts. The maximum power generation capacity in China can meet/guarantee the maximum power load/consumption demand, and we are confident and capable of ensuring power supply in winter.

First, we will do a good job in ensuring the supply of coal and gas for power generation. We shall strengthen the research and judgment of supply and demand situation, make the regions and enterprises perform their responsibilities in earnest to ensure supply, formulate the plan of ensuring the supply of coal and gas for power generation in winter in advance, ensure the supply and transportation of resources, solidifying the reserve/storage of coal and natural gas before winter, and ensure adequate supply of coal and gas for power generation.

Second, we will make overall plans to strengthen the building of capacity and infrastructure to ensure power supply. We shall accelerate the construction of important power grid projects, ensure sufficient output of coal-fired power and gas-fired power generators, promote the output of power generation from clean energy to as much as possible and even its maximum, so as to improve the power generating capacity through multiple channels.

Third, we shall rationally distribute the power generation cost based on relevant pricing policy. We shall guide all regions to effectively organize electricity market transactions, strictly implement the market-based price mechanism for coal-fired power generation in which electricity prices may fluctuate above or below the benchmark, enable more electricity to enter the market for transactions, and do not improperly interfere with the normal floating of market prices within a reasonable range so that prices can reasonably reflect changes in electricity supply and demand and costs.

Fourth, we will scientifically formulate and implement electricity rationing plans in an orderly fashion. There are “three musts”.

We must insist on 压非保民 “when necessary, protecting the energy use for people’s livelihood and suppressing other energy use”, strictly protect electricity for people’s livelihood and important users.

We must ensure that 用户知情、合同约定 “electricity-consuming companies are fully informed, terms are agreed upon in the contracts,” so that electricity-consuming companies are fully informed of the interruptible load scale and conditions for implementation (when their electricity use are limited). We must organize electricity providers, user companies, and competent government departments to sign contracts or agreements.

We must adhere to the principle of 限电不拉闸 "when we have to ration electricity, we don’t switch off electricity", scientifically arrange and strictly implement electricity rationing, and prohibit switching off electricity completely for the purpose of rationing electricity.

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Question 5: What is the situation of coal supply and demand in the heating season this winter and next spring, and what measures should be taken in the next step to ensure the stable supply of coal?

Answer: Coal is still the main energy source in China at present, and plays an important and 基础 foundational role in the guarantee of national energy supply. After continuously promoting the sytem of coal production, supply, storage, and marketing in recent years, China's coal production, supply, and emergency support capacity has been greatly improved. 

Since the beginning of this year, affected by the sustained recovery of China's economy and the rising prices of international energy and commodities, China's coal consumption has exceeded expectations, and the supply and demand are tight. Coal consumption will continue to grow in the heating season during this winter and next spring. By further increasing production as well as imports, using reserve resources and existing stocks in the society [meaning outside of state control], coal supply will be guaranteed.

In accordance with the decisions and arrangements of the CPC Central Committee and the State Council, the National Development and Reform Commission has always regarded ensuring coal supply in the heating season as an important work concerning people’s livelihood and worked with relevant parties to take effective measures to ensure the safe and stable supply of coal. 

First, we will make every effort to increase the production and supply of coal on the premise of ensuring safety. We shall guide major coal-producing areas and key enterprises to scientifically formulate production plans and safely and effectively release advanced production capacity. 

Second, we will further approve and put into the production of high-quality production capacity. We shall support qualified coal mines with high-quality production capacity to release advanced production capacity. 

Third, we will 适度 appropriately/moderately increase coal imports. We shall support enterprises to make good use of international resources, maintain an appropriate import scale to effectively supplement domestic supply. 

Fourth, we will focus on improving coal storage. We shall support local governments and enterprises to strengthen the construction of coal storage capacity, prepare emergency reserves of a certain scale, and strive to increase coal storage in power plants. 

Fifth, we will focus on ensuring coal for power generation and heating.  We shall give full play to the role of medium and long-term coal contracts, organize enterprises that produce, transport, and use coal to sign contracts on the basis of annual medium and long-term contracts, promote full coverage of medium and long-term contracts for coal supply for electricity generation and heating, and strengthen supervision of implementation (of the contracts), to ensure stable supply and stable price of coal for people's livelihood in areas such as power generation and heating. 

Sixth, we will regularize the market to make its operation orderly. We shall strengthen market supervision with relevant departments, severely investigate and deal with violations such as price gouging to stabilize the expectations of society.

Generally speaking, by taking a series of effective measures, the demand for coal in the heating season during this winter and next spring can be met, and the coal supply can ensure people live through winter in warmth.

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Question 6: International natural gas prices continue to rise recently. What’s the impact on China's natural gas security for winter? How can we better protect the gas supply for people’s livelihood in the heating season?

Answer: Since this year, international natural gas prices have continued to rise. China is a large importer of natural gas, international gas prices will objectively raise the cost of our imports of natural gas. Thanks to the directions in these years by General Secretary Xi Jinping which we have followed, we have persistently and solidly promoted the building of the system covering natural gas production, supply, storage, and marketing. We have vigorously promoted domestic reserves and production, strengthened the coordination of imports, accelerated the upgrading of gas storage capacity. The impact of international gas prices on us overall is manageable.

In particular, China employs benchmark station pricing management for residential use of gas, so the impact of international gas price increases on the livelihood of residents can be controlled to a minimum. Regarding the international and domestic natural gas market situation this winter and next spring, we will work with relevant departments and enterprises to take early measures to ensure the safe and stable supply of natural gas to ensure that the people are safe and warm through the winter.

First, there is a significant increase in the sources for the supply of gas for winter. We have organized upstream gas supply enterprises to vigorously promote domestic reserve and production, producing 136.1 billion cubic meters of natural gas in the first eight months, an increase of 10.8% year on year, and will continue to maintain safe and high-capacity production during the heating season.

We will instruct (have instructed?) enterprises to make early arrangements to purchase spot LNG resources and maintain stable imports of gas via pipelines. Up to now, 174.4 billion cubic meters of gas resources have been locked in advance for winter supply, so we are confident to do a good job in ensuring natural gas supply this winter.

Second, we have achieved full coverage of medium- and long-term contracts. We have organized upstream gas supply enterprises to comprehensively sign contracts with all the regions for the year and the heating season.

The contracted volume for the vast majority of provinces, autonomous regions, and municipalities is higher than the previous year's actual gas consumption at a certain extent, laying a solid foundation to ensure the gas supply and demand relationship at the peak of the heating season. During the heating season, we will supervise all parties to ensure the supply and use of gas in strict accordance with the contracts and maintain the order of gas supply and use.

Third, the capacity in peak shaving and ensuring supply has been significantly enhanced. This year, the country can have a gas storage capacity of more than 27 billion cubic meters before winter, which is further enhanced than the previous year and can use more than 200 million cubic meters of gas storage per day during the winter peak.

At the same time, a certain scale of emergency gas storage was prepared to ensure the needs from emergency peaking. Adhering to baseline-line thinking, we have guided the regions and enterprises to update and improve the list of 300 million cubic meters/day of interruptible non-residential gas users and has developed a graded reduction plan to be available at all times to ensure the needs of residents, heating and other people's livelihood.

For regions that indeed need rationing gas, we will resolutely achieve “limiting non-residential use and protecting residential use” and "limiting the gas, instead of closing the valve."

Fourth, give priority protection to the gas for the people's livelihood. The gas for people's livelihood will all be (has all been?) covered by contracts, and the responsibility to supply (as contracted) shall be implemented. We will coordinate (have coordinated?) upstream gas supply enterprises to give priority support to the key areas in northern China that use clean heating.

During the winter peak, when the supply is tight in individual areas and some periods, we will strengthen mobilization in a timely manner to ensure the supply of gas for people’s livelihood and other vital needs.

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By Zichen Wang, founder of Pekingnology, and Alexander Wang, a contributor.

It would be appreciated if you include a link to the newsletter - and better still a brief introduction - when you actually quote something from it, in which case you’re welcome to send an email to your Pekingnologist by replying to this email. You’re also welcome to give any feedback.