China Faces Power Oversupply in Some Regions

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China's power shortage eased considerably in 2005, and the situation will continue to improve in 2006, according to a recent report by the Development Research Center of the State Council, China's parliament. The number of provinces that experienced blackouts dropped to 12 in 2005, from 26 in 2004. A slow-down in power demand, rapid growth in electricity generating capacity, and enhancements in the transmission network all contributed to the easing.

While overall power consumption in China has surged over the past five years, the rate of demand is slowing, according to the State Council report. China is projected to use 2.7 trillion kilowatt-hours (kWh) of electricity in 2006—an 11.3 percent increase over 2005, but a slowing of the growth rates seen over the past two years (13.6 percent in 2005 and 14.8 percent in 2004). On the supply side, China generated 2.3 trillion kWh of electricity in 2005, up 12.4 percent over 2004.

New power generation facilities with a combined capacity of 72 million kilowatts will begin operation this year, bringing China's total output to 2.7 trillion kWh by the end of 2006. According to Boqiang Lin, an energy economist at the Asian Development Bank, the country's installed power capacity is expected to reach 720 million kilowatts by the end of 2007, double the capacity of 2002. If domestic electricity demand grows at an average annual rate of 13 percent, the installed capacity surplus could reach 10 percent, Lin predicts.

At the same time, China faces an oversupply of coal, the energy source used to feed the bulk of its power plants, China Economic Weekly reported. Domestic coal production is officially projected to reach 2.2 billion tons by the end of this year, essentially satisfying national demand. However, unofficial supply estimates that account for production from unregistered mines and soaring investments in the domestic coal industry are much higher.

Despite projected power surpluses, experts remain concerned about transmission bottlenecks, which could slow supply at major power plants and cause shortages in regions where electricity demand outpaces supply. The new Three Gorges project, set for completion by 2009, is expected to generate a total of 360 billion kWh of electricity over the next five years, with total production exceeding original projections by 45.8 billion kWh. But given the concerns about uneven regional demand and distribution, the China Three Gorges Company has begun talks with the State Grid Corporation of China (SGCC) to discuss the best dispersal and use of power generated by the dam.

Many foreign energy experts, meanwhile, are baffled by the Chinese government's report of surplus power generation capacity. Most analysts project that growth in energy demand in China will continue to be strong, and that the country will continue to face energy shortages for the rest of the decade as the economy keeps expanding.