On June 6, according to a report from the Shanghai Securities News, it has been confirmed through multiple sources that the Department of Human Rights Reform under the National Development and Reform Commission recently held a symposium with power generation companies and leading experts. The meeting aimed to gather insights on the upcoming power system reform—commonly referred to as the "electricity reform." This development signals that the long-anticipated electricity reform is likely to move forward in the near future.
According to insiders and industry experts who have access to the details, the current draft proposals for public comment are largely consistent with previous disclosures. However, the pace of implementation will depend heavily on whether market mechanisms can effectively play their intended role in the sector.
Sources familiar with the matter revealed that the electricity reform essentially involves two major approaches: vertical and horizontal restructuring. The vertical model focuses on dividing the power grid, opening up transmission and distribution networks, and separating the transmission function from the distribution. The horizontal model, on the other hand, involves breaking up existing regional grids into smaller, more independent units. Each approach is supported by different theoretical frameworks, practical experiences, and interest groups.
Currently, the vertical restructuring helps clarify transmission and distribution costs and reduces the dominance of the power grid. However, it also brings challenges such as increased transaction costs and potential risks to grid stability. In contrast, the horizontal approach faces less resistance but may not address the fundamental issues within China's power system.
To navigate these challenges, a gradual approach is expected. This would involve maintaining the State Grid and the Southern Grid while introducing measures to rationalize the electricity pricing system. Key steps may include allowing direct power purchases by large consumers, introducing competition in areas like power generation and retail, and improving service quality and operational efficiency. These reforms aim to create a more transparent, efficient, and sustainable power market in the long run.
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