Speech by Wang Yeping, Vice Chairman of the State Electricity Regulatory Commission

Ladies and Gentlemen,

Good morning.

I wish to start by expressing my thanks, on behalf of the State Electricity Regulatory Commission (SERC), to you friends from the press for your interest in and support for the cause of electricity regulation. In April of last year, it was right here that we released the first Annual Report on Electricity Regulation, which was well received by the public. Today, we are releasing the Annual Report on Electricity Regulation (2007). Now I am going to give a briefing regarding how the electricity industry operated and how electricity regulation proceeded in 2007.

In 2007, the industry continued to enjoy the momentum for rapid growth. Electricity supply and demand were broadly in equilibrium. Efforts to conserve energy and reduce pollution achieved considerable successes. Corporate profit margins rose further. Safety in electricity production was by and large in good shape. 2007 witnessed continued rise in the country's capacity for power supply. Nationwide total electricity output hit 3255.9 TWh, up 14.44 percent. As expansion of the power sector continued to boom across the country, the industry saw a total of 549.29 billion yuan in power sector infrastructure investment. Once again, the total installed generating capacity hit a record high. 100.09 GW of new installed capacity became available, bringing the country's total installed capacity to 713.29 GW, up 14.36 percent year-on-year. Construction of power grids grew at a noticeably accelerating pace. The circuit length of newly built transmission lines with voltage of 220 KV and above reached 41,500 kilometers, 18.71 percent higher than that of the previous year. The newly added transformation capacity at 220 KV and above hit 188,480 MVA, up 18.71 percent. In 2007, the power sector's efforts on energy conservation and pollution reduction achieved significant successes. Across the nation, 553 small-size thermal power units were shut down, involving 14.38 GW in installed capacity. The achievement was 43 percent higher than the target that had been set for the whole year. Throughout the year, the consumption of standard coal equivalent for power generation stood at 334 grams per kilowatt-hour, 9 grams fewer than that of the year before. That represented the biggest drop in the last few years. Nationwide, new coal-fired generating units at 100 MW and above with flue gas desulphurization that became operational last year totaled 110 GW.

Despite the dramatic achievements, the underlying problems have continued to stand in the way of sound growth in the electric power industry. Unsound imbalances in the mix of electricity production remain prominent. Thermal power accounts for up to 88.2 percent of the newly added installed capacity. Nationwide, the average single-unit capacity is below 70 MV. Nearly 30 percent of the thermal installed capacity comes from small-size units of 100 MW and below. The mismatch between grid construction and development of power sources continues to exist. Development of transmission and distribution infrastructure continues to lag behind growth in power sources construction. Construction of rural and urban distribution networks still lags behind the development of the main grids. Development of the load centers at the receiving-end grid continues to fall behind that of the sending-end grid. As the transmission projects that feature large capacity, extra-high voltage, mix of alternating and direct currents, and long distance being up and running, the complexity of the electric power system has grown considerably.

In 2007, new progress has been made in various aspects of SERC's electricity regulation agenda.

Firstly, regulation on safety has achieved considerable results. In 2007, as power load kept hitting new heights across the nation, natural hazards and external factors caused extensive damage, SERC launched well-targeted campaigns that were designed to detect and eliminate safety hazards affecting electricity production. SERC rolled out crackdowns on unsound practices in such key areas as safety in the construction of power projects. SERC kept improving electricity-related emergency management and placed in place tougher regulatory measures on security. Throughout the year, the electricity industry experienced no major or more serious accidents of casualties in electricity production, no major or more serious accidents involving the grids, no particularly grave accidents involving equipment. SERC has largely met the goal it set for itself on the front of safety regulation.

Secondly, regulation over the electricity markets has been furthered continuously. In 2007, SERC stepped up efforts to regulate the electricity markets by continuing to improve the supervisory laws, regulations and market rules. SERC worked to improve regulation over market entry and continued to standardize the relations between power generators and grids. SERC toughened its supervision on monopolistic behavior and focused on upholding consumers' legitimate rights and interests. SERC vigorously responded to complaints, mediated disputes and held accountable offenders of laws and regulations. SERC strengthened supervision over transmission and distribution costs as well as electricity tariffs. SERC urged market players to act in a more transparent and rule-based manner by calling for more filing and disclosure, releasing regulatory reports and pronouncements of various sorts in a timely fashion.

Thirdly, power-sector reform has proceeded steadily. In 2007, under the integrated leadership of the State Council Working Group for Electricity Restructuring, SERC stepped up efforts to implement power-sector reform measures. By drafting key directives governing electricity restructuring, SERC made significant headway in moving forward various aspects of the power-sector reform agenda. SERC led the effort to liquidate the generation assets under the ?920 Program? and the ?647 Program? on schedule. Steady progress was achieved in running the pilots aimed at fostering regional markets in electricity and arranging direct transactions for large customers. SERC vigorously moved forward with electricity standardization as opportunities arose.

Fourthly, SERC took robust measures to promote power-sector energy conservation and pollution reduction. In 2007, SERC earnestly followed the state's policy on energy conservation and pollution cut by tapping its expertise as professional regulators. SERC worked harder to ensure that power grid enterprises would purchase all the electricity output produced with renewable energy. SERC improved its supervision over electricity tariffs. SERC vigorously assisted the efforts to ?adopting bigger units to squeeze out smaller ones? by such means as entry and pricing. SERC exercised effective regulation over desulphurization and reduction in sulfur emissions by such regulatory means as appointing environment monitors and licensing. Besides, to assist this effort, SERC adopted technical measures like online monitoring. To facilitate the implementation of the energy-saving dispatching scheme and the differential electricity pricing policy, SERC placed the industry's compliance under greater scrutiny. By addressing and seeking solutions, in a timely manner, to the challenges and problems power firms encountered in their efforts to conserve energy and cut pollution, SERC gave a robust boost to the power sector's initiative for energy efficiency and pollution reduction.

The Annual Report on Electricity Regulation (2007), which is available to you at the current briefing, paints a detailed picture on how the electric power industry operated and how the electricity regulatory institutions performed their duties last year. Hopefully, the document will be helpful in terms of giving you a better understanding of the power industry and electricity regulation.

With that, I have come to the end of my briefing. We are now ready to take your questions concerning electricity regulation.