Environmental Engineering Reference
In-Depth Information
Electricity Market
Impact on CCS Funding
China's power sector as a whole is an oligopo-
listic market although in 2002 the government
attempted to disintegrate the country's generating
and transmission parts. The reform has made little
progress. Foreign and private investors occupy a
marginal market share (IEA, 2007). The electric-
ity sector is dominated by nine large state-owned
power companies. The majority of these giants'
assets are coal power plants. Most coal power
plants use subcritical coal combustion (E3G,
2009). China's Power transmission, distribution
and retail sales are monopolized by State Grid
and China South Grid.
Although China's electricity prices vary in
different provinces, China's electricity price
level is comparatively higher than many OECD
countries if the national average income level
is taken into account. In 2010, China's average
electricity price for households is US$0.079/kwh
(assuming exchange rate 1:6.83) according to the
National Development and Reform Commission
(NDRC, 2007 & 2010). The electricity price for
U.S. households in 2007 is US$0.106/kwh based
on the statistics from the Energy Information
Administration. Farmers usually pay more than
urban people. The service sector pays much higher
than the industrial sector. In some provinces, this
difference is up to 40-50% of electricity price.
The comparative high electricity price is one
of signals for the monopolistic electricity market.
Another indicator is that the power generation sec-
tor has much higher level of corporate profits and
wages than the social average level. In addition,
the huge amount of governmental subsidies go to
state-owned power companies in China. Accord-
ing to World Energy Outlook 2008 (IEAb, 2008),
China's subsidies in coal and electricity sector
was more than US$12 billion in 2007. The elec-
tricity market liberalization reforms will benefit
social well-being as a whole by both cutting the
huge government subsidies and breaking market
monopoly.
When CCS is assumed to be largely adopted by
coal power plants in the future, technology and
funding are among the top considerations of coal
power plants.
The financial resources for CCS may come
from three channels, (1) avoided carbon credits
from international carbon market or Clean CDM;
(2) bilateral or multilateral international collabora-
tive funds such as EU CCS Knowledge Sharing
Program and G8 CCS initiatives for developing
countries; (3) domestic policy incentives, for
example, fiscal loans or tax break. Channel (1)
and (3) are supposed to be the main sources to
finance CCS projects in the long run. Thanks to
the fluctuation of international carbon price, this
article focuses on channel (3).
China government might face three major
options in order to fulfill the Channel (3). First,
increasing subsidies to coal power industry; sec-
ond, improving electricity price; third, controlling
the profits and wage level of state-owned power
giants. The three policies face different difficul-
ties to implement. On the one hand, the first and
second options will sacrifice the national welfare
because the invested interests of state-owned
companies are strengthened.
On the other hand, the third option is the
most difficult one to run. It is well known that
Chinese government regards electricity industry
as strategic industry. The electricity sector is one
of biggest contributor to national tax income. The
usual positions shift between the company lead-
ers and senior regulatory officials naturally gives
the state-owned electricity companies the unique
capacity in influencing policy agenda. The past
experience also indicates that the suggestions of
breaking the sectoral invested interests have not
brought any productive results. From this point of
view, CCS funding faces a serious challenge from
the entrenched electricity market establishment.
